Calculate, reduce, offset: Is the next big startup opportunity in carbon management?
Let’s refresh some childhood memories. Remember the last page of Classmate and Sundaram notebooks that came along with some quirky facts, interesting trivia and a footnote saying—“You saved a tree by using recycled paper”.
For some, the note brought out a sense of gratification, stirring the conscious consumer inside us. It made us feel like we made an impact.
Now, technology has brought new ways for consumers and companies to mitigate the environmental impact in their day-to-day activities.
New-age startups have popped up across the globe, including in India, to help individuals (B2C) calculate, track, and reduce their carbon footprint or emissions (carbon dioxide, CO2) generated during activities, and offsetting the same by financing a green project.
These activities could be as simple as taking a flight or buying something online or drinking a cup of coffee. Every activity generates some level of carbon emission.
The idea has been prevalent across global markets enterprises and businesses for over a decade. Major businesses have tied up with advisories to go carbon neutral by either adopting green practices or purchasing carbon credits.
At the same time, the option of going carbon neutral has also reached consumers as online platforms including the likes of Shopify, Stripe, TrueLayer, Shipbob, have tied up with tech providers/developers to offer the service at the checkout.
A carbon credit is a kind of permit that represents one tonne of CO2 removed from the atmosphere. These are mostly generated via green projects.
The global carbon footprint management market size is projected to reach $12.2 billion by 2025, at a Compound Annual Growth Rate (CAGR) of 6.2% during the forecast period. The market was valued at $9 billion in 2020, according to the estimates of MarketsandMarkets Research.
In India, the idea of carbon neutrality is at a nascent stage, with startups taking the lead. Players such as, Lowsoot, and WOCE have launched new offerings while one of the few existing major players, EKI Energy, looks at scaling up B2B (business-to-business) operations while also targeting B2C.
Getting the ball rolling with B2B
Several companies, including the likes of Reliance, JSW, Tech Mahindra, have either pledged to go carbon-free or are mandated to do so by the government or international clients.
These businesses either use in-house teams to calculate and offset their carbon emission or partner with “project developers or advisories” like EKI Energy.
The BSE-listed EKI helps companies, typically in developed economies, calculate their carbon footprint, advises them on green practices, and then supplies them carbon credits for “non-avoidable carbon emissions”.
It supplies over 100 million carbon credits per annum to companies across developed nations and has over 1,000 climate projects running across 16 nations (to source carbon credits).
“India has been a major supplier of carbon credits and not the buyer as things are not mandatory here. However, the concept is making inroads and in the next 2-3 years we will see more companies and brands adopting the idea,” says Manish Dabkara, CEO at EKI Energy Services Ltd.
Airports Authority of India, World Bank, SoftBank Group, NTPC, Indian Railways, Indian Oil Corporation, ReNew Power and Gold Standard are some of its Indian clients.
It is important to note here that offsets are only a stop-gap or a short-term measure. Some observers object to carbon offsets on grounds that they artificially absolve emitters of their “climate sins”, allowing companies to throw money at the problem while avoiding the hard work of adjusting their own activities to reduce emissions.
“Reduction requires long-term planning. In such a case, carbon offsets/credits act as a short-term solution. Also, buying credits is much cheaper than investing in green practices and unfortunately, everyone would choose the former,” says Manish.
Mumbai-based Lowsoot has recently entered the B2B space. While the business model remains the same (calculate, reduce and offset), Lowsoot’s core area of focus is the reduction of footprint rather than just offering credits. This is done by putting renewable and energy efficiency practices in place.
The offsets are yet to happen and do not hold a priority in the startup’s business model.
“Offset is the last option that we provide. The idea is to help companies reduce emissions first, and have offset/credits as the last resort,” says Sachin Sengar, Founder of Lowsoot.
Founded in 2021, Lowsoot has automated the footprint calculation process by developing a SaaS (Software-as-a-Service) tool for businesses. The dashboard provides data and analytics around emissions, reduction and targets for businesses to make smart decisions.
It makes money from the SaaS subscription, consultancy on emission reduction, sale of credits and set up costs.
The startup has partnered with mobility firmto help it bring down its emissions per product, employee, and unit of revenue. Lowsoot is conducting pilots with other enterprises and brands in the manufacturing, metals, energy, electronics, and FMCG segment.
Another startup, WOCE, which launched services in June 2022, has developed an app—CarbonBook—to help both organisations and individuals measure, monitor and manage their carbon footprint.
The app is targeted toward employees of an organisation. By downloading the app, every employee can keep a check on their emissions via travel, food, energy consumption, waste disposals, and so on. The SaaS tool allows the companies to take account of all its employees, monitor, measure, reduce and neutralise emissions and even report the same (if mandated).
“This will differentiate the organisations that are serious about making a change versus some that are still talking and have no concrete plans in place,” says Anup Garg, Founder at WOCE.
The company is in talks with organisations at present and would soon launch cloud-based SaaS solutions for large enterprises and MSMEs in India.
Taking it to consumers via brands
The option of going carbon neutral at checkouts is the latest trend to emerge in the Indian consumer space. International names like Cloverly, Patch, Cooler, Pachama and Lune have gained prominence across global market as they act as “engines” between the online brands/platforms and consumers, automating the entire process.
Taking the lead in the Indian market is Sequoia-backed startup, Climes.
Launched in January 2022, the Bengaluru-based startup has tied up with brands like, , , TEDx, and fashion brands like to offer the service at the checkout.
Let’s deep dive into the mathematics behind this. First comes the calculations of emissions. There are different methodologies created by various institutions (standardised), that can be chosen. The startups look at the database of businesses, research models, and scientific standards to derive calculations across products and services and make them available to the companies in an automated manner (SaaS) and to consumers at the checkouts via API integrations.
Now say, a user generates 180kg of carbon footprint for a 3-hour flight. They are informed about the same at the checkout and are given an option to “neutralise” the same by purchasing carbon offsets/credits of the same amount (i.e reduce emissions elsewhere in the world by the same amount– thus making their flight “carbon neutral”).
These credits, in this case, called “climes”, are then offered at a variable price/margin (depending on the projects, use case, footprints etc). This is where such platforms make revenue. Each clime/credit corresponds to one kilogram of CO2 reduced, avoided, or removed.
The progress of the projects and the impact created can be tracked on the startup, in this case, on Climes’, platform. Typically, the project or the organisation/NGO associated with the project gets the money typically by the 15th of each month.
The revenue model of these startups (who make money on the retail side of climes/carbon credits) is in slight contrast with that of international players who usually charge on the API services provided.
Also, the option of providing carbon trading to individuals (where they can sell their credits at the exchanges) is also not in the offering as of now.
“The market hasn’t evolved that much in terms of guidelines. Therefore, the only value proposition we give our consumers right now is to measure and offset. That’s (trading) not the business we are in today and don’t see ourselves in for the next few years. Our model is unit positive since we make revenue on each client,” says Siddhanth Jayaram, Co-founder at Climes.
The startup recently raised $1.2 million from Sequoia Capital and Kalaari Capital, Rainmatter, and Avaana Capital.
Warming up consumer brands
Given the voluntary nature and almost zero revenue for brands to provide carbon-neutral options, a climate-conscious call or maybe a branding push could nudge them to rethink their carbon management practices.
“Providing the first layer free makes it easier, attractive, and faster for brands to join in as well. We have tied up with four brands with 18 more in the pipeline. It means they are clearly aware of the need. Right costings are hence important for brands to come onboard,” says Anirudh Gupta, Co-founder at Climes.
Providing users with the option to go carbon neutral could also improve a brand’s recall value, industry insiders say.
“Any new unique feature gives a marketing or a PR jump to a brand for atleast the first 12-24 months. This will definitely give an X-factor to a brand but would not be the primary reason for a user to choose the brand,” says Prashant Kumar, co-founder at intercity mobility startup zingbus, which has tied up with Climes.
“To our surprise, more than 50% of zingbus users opted for the option at the checkout,” he adds.
After travel, Climes is looking at integrating its platform with D2C brands in toys, jewellery, fashion, food delivery, beverages and meats segment, as new categories open up. On the other hand, Lowsoot will soon offer its services to consumers and go beyond enterprises.
“Sustainability is now becoming a sort of licence to be in the marketplace, consumers are demanding it and future looking-brands are aware of it. Hence, the B2C startups in the space hold immense potential as they provide easy solutions to go live quickly,” says an expert in the green solution space.
Data sharing remains an issue in carbon management, particularly in the case of logistics and manufacturing companies that emit high volumes of CO2.
The founders mention how brands are often unwilling to share even the simplest data around volumes, supply chains, operations etc, which makes it difficult to calculate the footprint (especially when it is not mandatory).
Startups, in such a case, will have to cross that friction point, get the non-disclosure and make the transition smooth, says Irfan Khan, founder and CEO at eBikeGo.
New startup opportunities
The scalability potential of carbon management startups is huge in India, as more and more brands are starting to chase sustainability, not just out of mandate or PR activity, but because of consumer demand.
Swapna Gupta, Partner at Avanna Capital weighs in.
“These startups are a good starting point in the space. The business models will gradually evolve as the markets evolve. No one knows what the best way to make money is. Maybe, along with reduction and offsetting, consumers may be rewarded for all their ‘good behaviour’, recorded by themselves on independent platforms, which can be turned into redeemable points. There are all sorts of possibilities, and we want to be a part of this rising conscious behaviour.”
On the B2B side, the idea of carbon management got an impetus on August 3 as the Union cabinet approved India’s updated Nationally Determined Contributions (NDCs), according to which India now stands committed to reducing the emissions intensity of its GDP by 45% by 2030, from 2005 level, and achieve the target of net zero emissions by 2070.
Additionally, the Energy Conservation Bill in the Parliament, which proposes norms for establishing carbon markets, is the first formal step of the country towards carbon emission and neutrality. Hence, the rising demand for services.
Influential climate financier and policymaker Mark Carney has stated that carbon offsets could be a $100 billion market by 2030. Some experts believe the market is on the brink of explosive growth, with companies around the world preparing to go on an offsets-buying spree.
“We will see a spurt in startups offering different services in carbon neutral space in India in the next 2-3 years. It could be a trader/broker of carbon credits, developers offering API services to online platforms (B2C), project developers or advisories offering end-to-end services to enterprises (B2B), marketplaces and exchanges for carbon credits, energy auditors, tech supplies, energy efficiency solution providers and so on,” says Manish of EKI Energy.
(This story was updated to reflect the correct headquarters for startup Lowsoot.)