Citi Closes $72 Million Carbon Removal-Linked Note for Applied Carbon Biochar Project

Citi has closed a $72 million carbon removal-linked note to support the expansion of Applied Carbon's biochar project in Texas, introducing a financing structure that links investor payments to the delivery of verified carbon removal credits. Announced on 20 October 2026, the 3.5-year principal-protected instrument is designed to provide upfront capital for carbon removal infrastructure while offering investors exposure to the environmental outcomes generated by the project.

The transaction brings together Citi, carbon removal developer Applied Carbon, institutional investor Nuveen and Microsoft, which has an existing agreement to purchase carbon credits from the project. Citi describes the financing as its first outcome bond tied specifically to verified carbon removals. Unlike conventional bonds that provide regular interest payments, the new instrument connects investor returns to the issuance and delivery of carbon credits, offering a different approach to financing climate technologies that require capital before environmental benefits can be realised.

 

How the $72 Million Carbon Removal-Linked Note Works

 

Under the financing arrangement, investors forgo traditional coupon payments, while an upfront amount is directed towards financing Applied Carbon's biochar operations. Investor payments are subsequently linked to the carbon removal credits generated and delivered by the project. The note includes principal protection, distinguishing it from a conventional investment directly exposed to the full performance risk of an individual carbon removal facility.

The structure is intended to address a financing challenge in voluntary carbon markets, where project developers must invest in equipment and operations before they can generate verified credits and receive revenue. Sonia Battikh, Global Head of Carbon Offsets Trading at Citi, said, "The voluntary carbon market requires new financial structures to bridge the gap between investor capital and the long-term funding needs of carbon removal projects." The announcement does not disclose the amount of the note's proceeds allocated directly to Applied Carbon, the formula determining investor payments or the detailed terms of the principal protection.

 

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Applied Carbon Expands Mobile Biochar Production in Texas

 

Applied Carbon has developed a mobile pyrolysis platform that converts agricultural crop residues into biochar, a stable, carbon-rich material produced by heating organic matter under oxygen-limited conditions. When produced and applied appropriately, biochar can retain carbon for extended periods while providing agricultural benefits associated with soil quality and management.

Unlike conventional biochar facilities that require agricultural residues to be transported to centralised processing plants, Applied Carbon's equipment can operate directly within fields or at field edges. Its platform combines biomass conversion and biochar application in a single operation, potentially reducing feedstock transportation requirements and simplifying deployment across farming regions. Jason Aramburu, Founder and CEO of Applied Carbon, said, "This financing shows that biochar and engineered carbon removal projects can be structured and financed like any other asset." The funding will help the company expand its mobile systems and support commercial deployments in Texas.

 

Microsoft Offtake Agreement Provides Long-Term Carbon Credit Demand

 

A central component of the transaction is Microsoft's existing carbon removal offtake agreement with Applied Carbon, signed in 2022. Under that agreement, Microsoft committed to purchasing a portion of the carbon credits generated by the project, providing a source of anticipated demand for verified removals. Such arrangements can help developers demonstrate future revenue potential when seeking capital to expand carbon removal infrastructure.

For investors, the presence of an established corporate buyer can provide greater visibility into the commercial prospects of the underlying project. However, the credit purchasing agreement does not eliminate delivery risk. The project must still produce biochar, quantify eligible carbon removals and meet applicable verification requirements before credits can be issued and delivered. The announcement does not specify the contracted carbon removal volume, credit prices or expected delivery schedule under Microsoft's agreement.

 

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Institutional Investors Link Returns to Verified Climate Outcomes

 

Nuveen participated in the transaction, demonstrating institutional investor interest in financial instruments whose payments depend on environmental performance. Stephen M. Liberatore, Head of ESG/Impact for Global Fixed Income at Nuveen, highlighted the project's potential to combine measurable carbon sequestration with revenue generated through carbon credits. He said the financing was "an excellent fit for our portfolios," citing the project's underlying technology and commitment to impact reporting.

The arrangement also creates a direct relationship between investment performance and the operational success of a carbon removal project. For this model to work, developers must demonstrate credible carbon accounting, reliable monitoring and sufficient credit issuance to support the payment structure. The quantity and permanence of carbon stored in biochar, alongside emissions associated with feedstock collection, processing and application, will influence the project's verified removal outcomes. These factors will remain important as carbon removal financing moves towards greater institutional participation.

The transaction illustrates how capital markets can provide financing to carbon removal developers through structures linked to verified environmental outcomes rather than conventional interest payments alone. Its broader significance will depend on whether Applied Carbon can expand its production capacity, deliver contracted credits and demonstrate that the financing model is commercially viable. If successful, similar structures could provide another source of private capital for carbon removal technologies that require substantial upfront investment.

 

Source: Citigroup Inc.