Citi launches $72M bond tied to carbon removal in Texas

BAKU, Azerbaijan, October 22. Citi has completed a $72 million bond transaction linked to verified carbon removal at an agricultural biochar project in Texas, introducing a financing model that ties investor returns to the delivery of carbon credits rather than conventional interest payments.

According to the bank's press service, the 3.5-year Carbon Removal-Linked Note is designed to fund Applied Carbon's project while protecting investors' principal. Under the structure, investors forgo traditional coupon payments, and an upfront allocation of funds supports the project's development. Payments to investors are linked to the issuance and delivery of carbon credits produced by the project.

The transaction brings together capital markets financing, carbon removal technology and demand for emissions reductions. It also marks Citi's first outcome bond linked to verified carbon removals, according to the bank.

"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," said Sonia Battikh, Citi's Global Head of Carbon Offsets Trading.

She said the transaction builds on the bank's efforts to link bond performance to environmental outcomes and create additional channels for financing projects with measurable climate benefits.

The project is based on technology developed by Applied Carbon, which converts agricultural crop residue into biochar through mobile pyrolysis equipment. Biochar is a stable, carbon-rich material that stores carbon and can improve soil health.

Unlike systems that require crop residue to be transported elsewhere for processing, Applied Carbon's mobile units can operate directly in agricultural fields, combining the conversion process with biochar application. The equipment can also be deployed at field edges, giving the company flexibility in handling feedstock during different stages of the agricultural cycle.

For Applied Carbon, the financing provides support for expanding deployment of its technology and demonstrates how engineered carbon removal projects can attract capital through structured financial products.

"This financing shows that biochar and engineered carbon removal projects can be structured and financed like any other asset," said Jason Aramburu, the company's founder and CEO.

He said the partnership with Citi and Nuveen would help expand deployments in Texas, benefiting both climate efforts and farmers.

The project also has an established source of demand for its environmental output. Microsoft signed an offtake agreement with Applied Carbon in 2022 covering a portion of the carbon credits generated by the project. Such agreements can provide buyers for future credits and support the long-term commercial case for carbon removal investments.

Nuveen participated in the bond, citing the project's potential environmental impact and financial characteristics. Stephen Liberatore, CFA, Head of ESG/Impact for Global Fixed Income at Nuveen, said the transaction combined an attractive relative valuation with a distinctive underlying project and a commitment to impact reporting.

He also highlighted the use of agricultural waste as feedstock and the potential for carbon credits to generate revenue, noting that the project aligned with Nuveen's investment approach.