Read more in the December 19 edition of Invert Insights.
New from Carbon Capital Lab, the Nature-Based Carbon Project Finance Benchmark Report 2025 offers one of the clearest pictures to date of how nature-based (NBS) carbon project developers are navigating an increasingly challenging, and increasingly opportunity-rich, financing landscape. Based on responses from 74 developers operating across six continents, the report reveals a sector defined by high capital needs, long development timelines, and a persistent shortage of appropriately structured finance. But the report also underscores growing signs of demand acceleration driven by policy developments, compliance market expansion, and tightening corporate climate requirements. Together, these dynamics are shaping the incentives, risks, and opportunities for both supply-side project developers and demand-side credit buyers.
Developers face early-stage financing pressures that limit project throughput.
Across all respondents, the majority of projects rely on either organization-level financing (including founder capital and company equity) or project-level equity as their primary funding source. This mix is inherently expensive; equity capital demands higher returns, and internal funds are often finite. Early-stage developers – particularly those without a validated Project Design Description (PDD) – are disproportionately reliant on company balance sheets, leaving many projects racing to hit validation milestones before capital runs out.
Developers repeatedly emphasized that the cost of becoming investment-ready, including feasibility work, validation, risk assessments, and withstanding months-long due diligence cycles, remains their top obstacle to securing finance. As a result, many viable projects stall not because of technical shortcomings or weak market demand, but because the financial foundations required to reach large-scale investment simply aren’t available early enough.
Offtake agreements remain the strongest catalyst for unlocking lower-cost capital.
Perhaps the most consequential finding is that projects with signed offtake agreements were 6.7 times more likely to access project-level debt, one of the only forms of relatively low-cost capital available in this sector. Debt still accounts for just 13% of primary funding sources, but among projects that secured it, 85% had an offtake in place or were close to finalizing one.
This dynamic mirrors other capital-intensive sectors. Bankability often hinges on predictable future revenues. Yet unlike energy or infrastructure markets, NBS offtakes remain highly bespoke. Prices, timelines, delivery windows, and indexation mechanisms vary widely, with most structured around fixed prices per ton rather than reference indices or tiered pricing models. Developers report that negotiating these agreements can take months and require substantial upfront investment, precisely the barrier early-stage projects struggle to overcome.
For credit buyers, this presents a strategic opportunity: by offering earlier and more standardized offtakes, buyers can not only secure high-quality supply ahead of expected market tightening but also play a direct role in de-risking the development pipeline.
Philanthropic and concessional capital remains scarce, limiting early innovation.
Despite frequent discussion about the need for “catalytic” or “first-loss” capital in NBS, philanthropic funding accounts for only 9% of primary funding sources and nearly all of it flows to very early-stage projects and first-time developers. The absence of concessional capital means many promising projects fail long before they can prove their potential and attract commercial investment. The report notes that this is similar to early phases of other major infrastructure transformations, where concessional finance was essential to proving models, standardizing processes, and mobilizing private capital at scale.
Growing demand signals suggest future supply shortages. If finance gaps persist.
Even without additional policy drivers, current investment in NBS carbon removal is sufficient to meet only about half of anticipated 2030 demand. Yet demand is poised to grow materially due to:
This creates a scenario in which early movers – both developers that can survive the capital gap and buyers willing to secure future supply – will be best positioned in a tightening market.
For NBS project developers, this means they must navigate a landscape where early-stage capital is scarce, due diligence cycles are long, and the cost of capital is the single largest driver of overall project uncertainty. Building earlier relationships with buyers, investors, and partners who can provide flexible or pre-commercial capital is becoming a critical differentiator. Equally important is improving investor education: respondents frequently cited low investor understanding of carbon market dynamics as a persistent barrier.
For buyers of NBS credits, they must increasingly act not just as customers but as enablers of project finance. Structured, long-term offtake agreements can unlock debt, lower project risks, and enable projects to reach scale years earlier. Given the expected demand–supply gap for high-integrity removals, buyers who move early may secure better pricing, stronger project relationships, and priority access to premium credit classes.
💡 Offtakes are becoming the central lever for unlocking finance, and buyers now shape project feasibility. In a market where investors demand revenue certainty, offtake agreements are emerging as the single most powerful catalyst for accessing affordable capital. Developers that can secure offtakes early will have a disproportionate advantage; buyers who offer earlier commitments can materially shape the supply landscape.
💡 The cost of capital, not MRV or project execution, is the largest determinant of overall project viability. Developers overwhelmingly identify capital costs as their greatest source of uncertainty. Reducing the cost of capital through concessional structures, patient equity, or standardized due diligence could unlock significant volumes of high-quality supply.
💡 Demand signals are strengthening faster than supply can respond, and early movers will set the terms of the next decade. Current investment levels support only half of expected 2030 demand. With Article 6 integration, expanding compliance markets, and evolving corporate net-zero requirements, buyers and investors who step into early-stage financing gaps today stand to secure preferred access and influence the long-term pricing and availability of NBS credits.
