Last year M13 led the Series A in Nori, an asset-light marketplace focused on carbon removal that leverages the Ethereum blockchain in a novel and important way.
Nori connects buyers (i.e. SMBs, startups, individuals) with sellers (i.e. farmers) who are sequestering carbon in their soil in a transparent, verifiable, credible way. To date, Nori has paid out $1.4M to farmers by selling Nori Carbon Removal Tonnes (NRT), equivalent to 1 tonne of carbon sequestered and stored for a minimum of 10 years. Due to increased demand over the past two years, the price of 1 NRT recently rose from $15 to $20 per NRT.
Nori’s marketplace has attracted considerable buyers ranging from companies including STEPN (a M13 portfolio company) The Sandbox, Rarible, Shopify, Avalanche, and CoinFund to artists like Imogen Heap, Julian Lennon, and BLOND:ISH who purchase NRTs to address their carbon footprints.
Nori is using the Ethereum blockchain to create, manage, sell, and publicly record carbon credits tied directly to the farms that supply them. Any purchaser of carbon removal can view the history of their purchase linked directly to project pages that are updated on a yearly basis. See this example of STEPN’s first purchase of carbon removal.
Recently I had the unique privilege of visiting two different Nori farmers in Nebraska alongside the Nori team (Co-founder and CEO Paul Gambill, Head of Supply Radhika Moolgavkar, Agriculture Supply Lead Rebekah Carlson, Account Manager Giovanni Sornatale) and the new CFTC (Commodity Futures Trading Commission) commissioner Caroline Pham.
This paper outlines key learnings from that trip and summarizes Nori’s future – including its token launch and goal to expand to other forms of carbon removal – in the context of our investment thesis.
Learnings from Nori customers
The main takeaway from my trip is that farmers are sequestering carbon in their soil as a byproduct of employing regenerative farming practices because these practices drive long-term soil health and improved crop yields (ie. their primary motivation).
There is alignment of environmental and commercial goals: conventional farming not only emits roughly one-third of global emissions but it leads to long-term topsoil erosion. Healthier soils also mean higher yields per acre over the long term.
Adopting new regenerative practices does come with an upfront cost and since a typical farm has 5% net margins, farmers are laser-focused on protecting that margin and expanding it when given the chance to do so. Collaborating with Nori to sell carbon removal credits in the Nori marketplace can offset some of these initial costs.
I also learned that these farmers are incredibly sophisticated and deal with commodity pricing, weather issues, and so many factors on a day-to-day, season-to-season, and year-to-year basis. The upcoming Nori token (more below) will hopefully represent another key commodity to manage.
Our investment thesis is predicated on the following
1. Focus on carbon removal market instead of carbon avoidanceCarbon markets have been around since the 1980s but have been primarily centered around future carbon offsets. Yet the more pressing problem remains unaddressed: we need to remove 1.5 trillion tonnes of existing carbon from the atmosphere to get the global average atmospheric carbon level back to 300ppm (parts per million).
At the present moment, the Earth’s atmosphere is at 412ppm and rising, and the baseline for safety is a carbon level of around 350ppm. BeZero Carbon’s report data shows that the market today is roughly 93% carbon avoidance and only 7% carbon removal. Thus we need to aggressively balance this ratio out if we are going to make a difference.
Amongst the recent boom of carbon offset startups including some that employ crypto, Nori is the first to create a market for removing existing carbon, working directly with suppliers and buyers to coordinate the creation, management, and sale of NRTs in the Nori marketplace. Unlike others, Nori requires immediate retirement of NRTs and does not allow for re-trade of credits. Trading and exchanging carbon credits only leads to speculation on the price of carbon. However, with immediate retirement and no exchanges, Nori’s model ensures that every new dollar spent removes additional carbon from the atmosphere.
2. Market expansion opportunity: growing demand for carbon removalDemand for NRTs is significant and currently pent up (given supply constraints today you can pre-order here). We expect Nori will 10x its GMV over the next 12 months based on unlocking major sources of supply.
We believe Nori can expand and ultimately win this market as it continues to build its brand as the trusted destination to remove carbon. The beauty of Nori is that anyone who wants to contribute to carbon removal can purchase a NRT directly on Nori’s website. Every time a buyer purchases one NRT, a tonne of carbon is verified to be removed from the atmosphere for at least the next ten years. Because the NRT is retired as soon as it is purchased it avoids the double-counting issue that has plagued the industry. The long-term goal for Nori is to have 60%-80% of all carbon removal transactions running through the platform.
3. Token launch for price discovery of carbon removalIn order to reach a scale of removing 50 billion tonnes of CO2 that humans emit every year, we have to incentivize the work of removing carbon. For example, only ~15% of all US acreage is able to sequester carbon so we must expand the total market of eligible (i.e. regenerative) farms in the US. We must also incentivize other forms of carbon removal including direct air capture. By building a global commodities market for removing carbon, Nori’s model will help us meet this goal.
Later this year, Nori plans to launch its new digital token $NORI on Polygon, thereby allowing price discovery and market pricing for carbon removal per tonne. While the company has been selling NRTs at a static price of $20 to date, we all believe it will be better for the market to dictate this price. Soon, Nori farmers will only be paid in $NORI and, based on my conversations in Nebraska, farmers are looking forward to receiving the token. If we do this right, the $NORI token will become part of their ongoing commodity management.
The $NORI token will be unique in that it has a real world carbon application and is akin to gold stocks and flows. For example, if a customer wants to pay cash, Nori will charge them the current price of $NORI plus a transaction fee, then take a token out of the treasury and deliver it to the supplier. In this way, one new token has entered circulation. If Nori accounts for 10M tonnes removed over the next five years, and 50% of the buyers paid with cash, 5 million $NORI (1% of total supply) would have entered circulation over that time.
Nori’s long-term future
Soil is just the first act. To truly have impact, Nori will expand into other forms of carbon removal, including direct air capture (DAC) and seaweed farming. This is critical because agriculture overall is only 7% of the carbon removal market.
It’s important to note that not all methods of carbon removal are the same: specifically the permanence of storing carbon varies. However, Nori has added a time frame aspect to the measurement of carbon sequestration to account for this, since an NRT represents one tonne of carbon removed and stored for a minimum of 10 years.
With the launch of the new NORI token, carbon removal could be commoditized regardless of the sequestration methodology. For instance, if direct air capture allows one tonne of carbon to be sequestered for 50 years, that project developer could sell 5 NRTs for 5 $NORI tokens. On the other hand, one tonne of soil-sequestered carbon over a 10-year-period would only sell for one $NORI token. The digital $NORI token then becomes a direct measurement of the amount of carbon removed.
Significant token inflation will only occur with significant impact!
M13’s decision to invest in Nori is powered by both the commitment to contribute to the public good and to bring great returns to our investors. Nori enables us to take part in expanding the carbon removal market.
To learn more or get involved, please reach out to me at email@example.com.