Citi structures $72 million note tied to Applied Carbon biochar credits

Citi structured a $72 million Carbon Removal-Linked Note to finance an Applied Carbon biochar project, with investor payouts tied to the carbon credits the project issues and delivers, ESG Today reported on October 22. According to the report, Citi said the instrument creates a new model for private capital to fund large-scale carbon removal projects.

The note replaces a traditional coupon with the credit-linked payment stream, and an upfront portion of capital goes to financing the project. Sonia Battikh, Citi's global head of carbon offsets trading, said the voluntary carbon market needs new financial structures to close the gap between investor capital and the long-term funding needs of removal projects.

Applied Carbon, founded in 2020, runs a mobile pyrolysis platform that turns crop residue into biochar in the field, heating biomass without oxygen and quenching it with water and nutrients. The company signed an offtake agreement with Microsoft in 2022 covering a portion of the credits generated by the project, according to the report. Chief executive Jason Aramburu said the financing shows biochar projects 'can be structured and financed like any other asset.'

The $72 million is small against Citi's wider transition book: the bank counted $647.2 billion in sustainable finance toward a $1 trillion target, as this publication reported in August. Because payment depends on credits being issued and delivered, the holder is underwriting project execution and credit verification rather than collecting a fixed coupon.

A credit-linked payout needs a buyer for the underlying credits, and the 2022 Microsoft offtake gives the project a portion of that demand before the first batch is verified. The report does not say whether the offtake volume is large enough to make the payment stream predictable.