Compensate

β€œThe core idea of ​​the Foundation is to make it easy for anyone to fully compensate for the carbon emissions of a product or service when paying for it”

Marketplace Sustainability Carbon Offset

Timeline

Founded

06/18

Memo

clement

07/19

Seed

Series A

Series B

Series C

clement

Jul 15, 2019

Carbon Offset Marketplace

The trend

As you know, carbon emissions are at the heart of climate change. There are lots of different actions that can be taken in order to cut our carbon emissions, but in this edition of the newsletter I wanted to focus specifically on “carbon offset” startups a.k.a the “reduction in emissions of greenhouse gases made in order to compensate for or to offset an emission made elsewhere.''

The idea of offsetting your own emissions is not new, but I see an increasing number of startups with interesting new twists:

Carbon Offset marketplaces. Such marketplaces exist for some years now, but it seems that a new generation is emerging with much better/sexier products. The concept is simple: as a consumer you generate a carbon footprint through transportation, what you buy and consume (etc), and on these marketplaces you can “offset” this footprint by investing in projects whose purpose is to reduce CO2, like planting forests (see the potential of planting trees at scale) or renewable energy. 

Carbon Offset for businesses. If several of the marketplaces covered above are aimed at consumers, there are also startups on the B2B side. Some simply help businesses measure their carbon footprint while others have more original approaches such as Cloverly whose API enables developers to integrate carbon offset mechanisms in their product (more details in the startup section below). 

Direct Carbon Capture. The last category of startups is definitely more on the “heavy tech” side as they are developing technologies that capture carbon directly from the atmosphere. Once again, this approach is not new, but for years the technology was too costly to really make sense economically. However, it seems that we’re slowing reaching the magic figure of 100$ per ton of carbon extracted. Equally interesting are the business model innovations happening around carbon farms as the CO2 extracted can be turned into fuel and other products used by the… oil industry.

To illustrate this trend I've selected Compensate.

Need

πŸ€” One of the biggest concerns when it comes to consumer carbon offset marketplaces, is how realistic is it to expect people to proactively pay for their carbon footprint? As the yellow vest movement showed in France, the “brute force” approach (the French government wanted to impose “a kind of” carbon tax on petrol) has its limit. So will people be ready to pay themselves to compensate for their carbon emissions? My personal belief is "yes". My conviction is built on two factors:

  • First, I think we’re reaching a tipping point in terms of education around global warming and carbon emissions. If you give people the choice, I believe an increasing number of them will pay for it (versus imposing a tax on everyone).

  • Second, the crowdfunding model (Kickstarter or GoFundMe) has already proven that people can change their behavior at scale when it comes to financing projects & helping others. Why couldn’t it happen for climate change?

Product

πŸ‘My second concern was around product, and more specifically how to make people pay for their footprint. In that perspective, I really like the approach of Compensate which partners with businesses to give their customers the option to pay more for a product to compensate for the carbon emission generated. “Ylva offers the "compensate as you pay" service to their customers at UniCafe restaurants on the campuses of the University of Helsinki where you can now easily compensate for the carbon footprint of your lunch, paying for both at the same time.”

The idea is to provide the infrastructure for all types of businesses (from gas stations to airlines or supermarkets) to integrate such carbon offset mechanism during payment. It’s the customer who decides whether to pay or not. I really like this flexibility and I can definitely envision people offsetting their plane travel or tank of petrol this way when they can afford it.
 

πŸ‘ I read the different blog posts of the company and I find their product vision super interesting“Banks already know the amount of emissions generated per euro spent on average, depending on the companies and service providers in the receiving end of payments. Therefore, the Compensate Foundation is looking to launch Compensate credit cards, in cooperation with banks” Even more relevant when you see that Stripe recently launched “ An API for creating cards and new business models”.

Business model

πŸ€”I ‘ve always been curious about the “unit economics” around this model, and luckily Compensate shares interesting numbers about the activity on their platform (see branding aspect below). “During the first 4 weeks of Compensate, 2749 people have joined the monthly compensation payment program. We’ve bought carbon credits worth 46 500 euros. The amount of absorbed carbon tons is 11 625 tons of CO2.”  source

  • On average a user generates 17€ of carbon offset (per month).

  • If Compensate reaches 100k users generating 17€ on average, they will offset around 440k tons of carbon per month which represents 0.1% of total EU emissions during a month or 10% of Finland emissions (where they are based).

  • If they reach 1M users they will offset 4.4M tons of carbon per month, 1% of total EU emissions and they totally cover Finland’s emissions.

Obviously, it’s hard to project numbers given that they are just starting and their model leverages “partners” (not direct users, but customers of other businesses). However, it gives us a sense of the scale the company needs to reach to really impact climate change as well as the different leverages available (increase contribution per user or lower the of a ton of carbon captured).

Branding 

πŸ‘ IMO trust is a crucial aspect of this kind of marketplace. And I really like the approach of Compensate based on transparency and efficiency:

  • Transparency: the company shares publicly its bank statements, certificates of the emission reduction units and their invoices.

  • Efficiency: the foundation aims at funding the most efficient projects (at the moment afforestation) to capture carbon, for instance you don’t choose where your money is going. They buy their carbon offset units on SouthPole.

Conclusion

To be honest, when I started this mini deep dive I was skeptical about the marketplace approach, but I have to admit that I changed my opinion after researching and reading about it. I believe it can fly.