“Microsoft’s Groundbreaking Carbon Offtake Agreement in Panama’s Azuero Peninsula: A Game-Changer for Climate Action”
Microsoft has recently signed a significant nature-based carbon offtake agreement with the Azuero Reforestación Colectiva (ARC) in Panama. This project aims to restore over 24,700 acres of degraded tropical forest on Panama’s Azuero Peninsula, resulting in the removal of more than 3 million tons of CO2 from the atmosphere.
This agreement is part of a series of large nature-based carbon offtake agreements that Microsoft has entered into, each with reforestation projects that will generate over 1 million carbon credits. Microsoft will purchase approximately half of the carbon credits from the Azuero project over the first 30 years through upfront financing and a long-term offtake agreement.
The project is expected to cost between $6,000 and $7,000 per hectare and will bring around $70 million in direct and indirect benefits to local communities. The deal required multiple site visits and 50 iterations of the project’s financial model to finalize.
Microsoft’s involvement in the project was crucial in attracting other investors. By providing an offtake commitment and upfront investment, Microsoft reduced the price and cash-flow risk for other investors, encouraging their participation. Rubicon Carbon and Carbon Streaming are also contributing to the project’s financing.
The ARC project will focus on replanting 75 native plant species in the area, expanding habitat for endangered species like the Azuero spider monkey. The project is one of only six globally using Verra’s newest reforestation methodology and the only one selected to pilot Verra’s SD VISta Nature Credit framework.
Over 100 local landowners will participate in the project and receive compensation through a hybrid payment system. This system combines regular land-lease payments with a percentage of future carbon-credit sales, providing financial security for landowners while aligning incentives for the project’s success.
Microsoft’s long-term outlook and commitment to the project through 2040 helped overcome financing barriers related to the slow rate of carbon sequestration in restoration projects. The investors’ willingness to engage in a 30-year investment timeline was crucial for the project’s success.
Overall, the Azuero project represents a significant step towards global nature restoration and carbon removal, showcasing the potential for collaboration between private companies, local communities, and environmental organizations to address climate change challenges.