Standard Chartered will provide debt financing for a carbon-removals project UNDO in an effort to scale up the industry and bring down the cost of such projects long term, reported the WSJ.
The British investment bank is providing a loan to UNDO, a developer specialising in enhanced rock-weathering projects. The purpose of this loan is for British Airways, the U.K. airline, to acquire carbon credits generated from the project. Under the arrangement, British Airways will purchase 4,000 tons of carbon credits. The transaction was facilitated by CUR8, a market maker in carbon removals, which played a key role in connecting the parties, and offering due diligence and structuring advice. Insurers CFC and WTW will provide coverage for the deal.
“This is quite rare,” said Eli Mitchell-Larson, chief science and advocacy officer of Carbon Gap, a nonprofit aimed at scaling up carbon removals in the European Union, told the WSJ. Mitchell-Larson explained that deals like this helped to scale and bring down the costs of solar and wind in previous decades; however, he told WSJ those cases the risk for providing finance was much lower as most were backed by public utilities that had high credit ratings.
Standard Chartered said that one of the reasons why it is providing this kind of financing is tomake similar deals for newer technologies more common in the future. “These projects are high cost,” said Chris Leeds, head of carbon markets development at Standard Chartered told WSJ. “They’re high upfront cost and high operating cost and low volume so they need to be scaled, but to do that we have to finance that.”
“By turning effectively a low creditworthy company, so CUR8 and UNDO being startups, this allows through the BA relationship and with insurers to create a structure that can be wrapped and lent against,” Leeds told WSJ.
