Enabling Deep Transparency in Carbon Markets - Investing in Renoster

Enabling Deep Transparency in Carbon Markets - Investing in Renoster

Jul 19, 2023 6:00 AM
Posted by

Jahed Momand

Renoster Systems is building deep transparency for carbon markets with open science.

Carbon markets are plagued by lack of transparency, quality, supply, and efficiency. There is both a supply bottleneck (difficult to get good projects evaluated and in market quickly), and a demand crunch (reluctant buyers due to fraud and greenwashing). Unlocking the bottleneck in supply can bring at least 5 gigatons and up to as much as 10 gigatons of CO2e per year to market by 2050. Transparency ultimately helps directs investment where it can do the most good for farmers, foresters and entrepreneurs, and to where it can have the most impact on climate change and healthy ecosystems.

Renoster was built as an answer to this challenge. Their flagship product, Mercury, addresses the transparency and quality question by reviewing nature-based carbon projects with an open scientific rubric, open-sourcing the reviews, and bringing deep transparency to REDD+ and other project types. Mercury uses remote-sensing via tree cover, open data sets and access from the European Space Agency / NASA, and proprietary tech to score the actual carbon sequestered relative to the amount a project claims to. Sometimes it’s vastly more, often, as they’ve found, it is vastly less than claimed. Renoster then open-sources these reviews to add credibility and trust to the voluntary carbon market.

If you’ve seen his carbon reviews on YouTube, co-founder Dr. Elias Ayrey (chief scientist) also does not pull any punches. Before co-founding Renoster, he pioneered the use of AI to quantify LiDAR-based point clouds in the forest to make accurate carbon predictions.

Renoster has already found a market with corporates that have net zero commitments, with strong footholds in sovereign carbon markets, project finance, carbon futures and trading, and carbon insurance industries. We estimate the market for their first product, where they provide ratings for offset buyers and carbon traders, to be in the low double-digit billions. The market for digital MRV is young, but as of our calculations could be as big as $10 billion today. More important than the scale of the economic opportunity is the global reach of the economic impact. Cerulean's conviction to invest in Renoster was redoubled by the company's desire to enable smallholder access.

What is Renoster?

Companies buying carbon in the VCM currently have three main problems:

  1. They don’t know what to buy
  2. They don’t trust what they’re being told to buy
  3. They are cautious of the reputational risk of what they buy afterwards

This has led to mass distrust in the major leading players in carbon asset ratings, as well as the registries who make up the bulk of the VCM. In addition, up to 73% of Verra carbon credits may not be genuine offsets—and the current players have failed in many cases to identify these assets and help corporates direct their funding to better projects.

On the other side of this, we need to massively scale nature-based solutions (NbS) in this decade if we’re to meet 1.5 degree C warming targets by 2050—however, the VCM, where most NbS solutions are funded, faces artificial bottlenecks on supply, impeded by tech adoption. This artificial bottleneck coupled with the failure of the major carbon rating agencies to catch fraud and greenwashing has created the perfect market opportunity for Renoster Systems to algorithmically assess projects and deploy their open science models to monitor projects in an ongoing way.

Enter Renoster.

Renoster has developed proprietary annual treecover models for the globe to assess deforestation rates and historical trends inside and outside of project bounds (e.g. polygons on earth observation maps). In addition, co-founder Elias Ayrey brings his expertise in developing LiDAR models to measure carbon stocks, in addition to standard models that other companies in this space use to rate fire, flood, and other risks.

Why did we invest?

We believe that the market for environmental commodities and natural assets must radically expand if we are to have a chance at regenerating nature, and having the climate impact we need by 2030. We see algorithmic approaches to rating and monitoring as absolutely essential to this mission. We also see them as massive growth opportunities, given the overall size of the ecosystem services input to the economy on an annual basis (on the order of $30 trillion per annum).

Secondly, this team really surprised us with their ingenuity when it came to go-to-market. The team publishes their ratings open source from time to time, carbon projects, carbon traders, and net-zero committed corporates find the data and reach out organically. It has been a very efficient customer acquisition flywheel thus far, and we really liked the hustle this relatively small team has shown to quickly gain a foothold in the market.

Last but not least, quite simply, this is the team meant to be building this technology. Founder and CEO Saif Bhatti is a former data scientist and researcher in the environmental commodities markets, working with Lloyd’s on city risk models and climate risk data globally. Co-Founder and Chief Scientist Dr. Elias Ayrey is a world-leader in remote sensing with two of the most highly cited publications in the field, was formerly the Head Scientist at Pachama, and holds a PhD in Forest Resources (Remote Sensing) from the University of Maine.

We’re eager to see the heights they can achieve in bringing trust and transparency to a critical market. Onward!

Nothing contained herein constitutes investment, legal, tax or other advice nor is to be relied upon in making an investment or other decision. This article contains the opinions of the author, and such opinions are subject to change without notice. Furthermore, it may also include data and opinions derived from third party sources. Cerulean Ventures does not accept liability for the accuracy or completeness of any such information or opinions which can be subject to change without notice.