What can we do to combat climate change and promote sustainability on a global scale? In this episode of The Understory Podcast, we deep dive into the satellite-based software enabling farmers, project developers, NGOs, and large corporations to drive carbon sequestration practices. As soils are the largest portion of available carbon on earth, carbon sequestration is a key component in the fight against climate change.
We are joined by Stefan Gönner, CEO and Co-founder of Seqana, which enables communities around the world to identify, manage, report, and even monetize carbon sequestration practices. Stefan explains the voluntary carbon markets – who are the players, what are the challenges, and what the future can look like. Stefan talks about how Seqana can unlock regenerative farming practices for farmers by streamlining the process of soil organic carbon sequestration and monitoring.
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Episode Transcript:
JJ (Host of The Understory Podcast): Hello everybody. Welcome to another episode of The Understory Podcast. Understory is a global community of entrepreneurs and innovators who are working to make our world more sustainable. Today, we're excited to bring Stefan Gönner to our podcast. Stefan is the CEO and Co-founder of Seqana which is based in Berlin, Germany. Stefan, welcome to The Understory Podcast.
Stefan Gönner: Thank you so much. Happy to be here.
JJ: Thank you. We're glad to have you here as well. Tell us more about your background first and then we can talk more about Seqana and why you started the company.
Stefan: Sure, the best way to start is that we, me and my two co-founders met about a decade ago, 10 years ago, while studying environmental resource management, a study course with a strong sustainability aspect. We lived together while working on smaller projects and then we moved in different directions. Some of us got more technical and others more into the GS (geo-informational) sector. I stopped by the Berlin startup ecosystem and after a while, my two co-founders, Jakob and Julian, joined me again at a company that was using earth observations of satellite imagery to detect where trees might encroach power lines or infrastructure networks. We found that there's so much potential in this big new data platform, which is earth observation using satellite imagery and different sensors. We just added one and one thing together - our sustainability idealism and this newfound domain expertise of satellite imagery and created something new. That’s where Seqana was born and where we are today.
JJ: I love that founding story when people come back together to build something meaningful. Let's talk about Seqana. You talk about satellite imagery and one of the things that you talk about is carbon sequestration. Tell our audience more about what is carbon sequestration? How does that relate to carbon emission? Because all these terms are floating around and not everybody is familiar with that.
Stefan: Carbon sequestration means that you take carbon out of the atmosphere and store it in some sort of a carbon pool. There are different carbon pools; you can have organic carbon storage, a chemical compound in those holes, and most relevant, at least in our context, is the storage in these organic compounds, which is mostly biomass. That means taking carbon sequestration and using nature, photosynthesis, to bind and to sink carbon into a new form to not warm our globe anymore.
JJ: Okay. For our audience, let’s take that one step at a time. For Seqana, how does the satellite imagery connect to what you're doing in carbon sequestration, and as you also say, the storing of the biomass? Connect those dots for us.
Stefan: What we do at Seqana is we quantify the amount of soil organic carbon in the soil. We look from space and use different images to extract and approximate the amount of carbon sequestered or stored in the soils. For example, you have two different spots in the world, one has a lot of carbon and the other one has very little carbon. You could imagine that plants, trees, or grass would react differently to these levels of carbon. Where there is higher carbon content, plants will grow quicker and with less carbon, they might even have a brown spot on the leaf. From space, you can see these differences. A strong growth in the spring might indicate an explanation on how much carbon is in the soil. If towards the summer the vegetation turns a bit brown, it might say that there is not enough water for sure, but it can also indicate the soil organic carbon contents. It's these subtle differences and obviously, I just named one. There are 100 more, even the color of the bare soil can be an indicator. Those are all explanatory variable predictors, called machine learning, that can give us an indication of what these allocating carbon content levels are in that particular spot.
JJ: That's interesting. With machine learning derived insights, what questions can your customers or clients answer? Or a lot of the partners who are using Seqana’s solution? What kinds of questions do they answer?
Stefan: What they need to know is - day zero. What is the amount of carbon today and a year later? What's the amount of carbon then and what's the delta? What's the difference? Because if accepted, this difference in carbon can then be issued in form of a so-called carbon credit to a market and existing marketplace, a voluntary carbon market, and can then be sold for profit. They need to have a cost-efficient way of quantifying, of monitoring the change of soil organic carbon throughout a certain time period. That's the tool that we wanted to provide to them, so cost-effectively they can say this is the amount of carbon that was sequestered that was bound and sunk into our soils.
JJ: Let's keep going on that because it’s so interesting. You now talked about how you’re measuring, monitoring, reporting, and verifying. Are you doing the monitoring, reporting, verification of the carbon credits for these customers and partners, or are you providing insights and the data for them to go and get verified?
Stefan: Yeah, that's a very relevant question, because what we envision is to do exactly that - to provide an ever more visual from the comfort of your desk, to be able to quantify this organic carbon change. At the moment, this is not yet perfectly possible because there are standards and obligatory frameworks that help the market be scientifically rigorous. That is important, and we're happy they exist. We still need to be convinced that an earth observation-based monitoring, reporting, and verification approach is feasible and scientifically rigorous. We are still in the process of explaining these new protocols and methodologies for new types of monitoring, reporting, and verification approaches. As well as explaining them to the larger markets, so they can then be accepted and be readily available for the market.
Right now, that just isn't the case. We have taken a step back and are now providing just “insights”, because a project developer, or somebody that wants to create carbon credits might already be happy to have more information about which site might have the highest potential to store carbon. Where is the highest return of investment for the project, or just even the most basic question, what's an area that is easily accessible where there's electricity, where there's water close by because they need to irrigate? There are so many questions that you ask and can be beautifully answered. These are low-hanging fruits that we can already help with. The final goal, and this typical startup 10x order of magnitude improvement, this would be the digital-based monitoring, reporting, and verification.
JJ: Yeah, that's a difficult problem and one of the many important steps is to help people establish that baseline, and that's what you're doing.
Moving on to the carbon market, because it is a huge topic in Europe compared to the US. In terms of the carbon credit trading, the voluntary carbon market, how does it work? What's the supply? What's the demand? Again, specifically, how does your data feed into the players who are in this market and where do you see it going? I recognize this is a multi-part question, but let's start from there.
Stefan: The first part of your question, the difference between Europe and America. We have a much stronger, more advanced market in Europe and people are just discussing more about the compliance-based market. Our governments are putting on regulatory frameworks for every company, so that every industry has to be somewhat carbon-neutral or decrease their carbon emissions, but we're talking about the voluntary carbon market. That is also the main focus that we have at the moment, and actually, that growth in and the demand mainly comes from the corporate world.
The American industries are actually spearheading the demand and that's where we're also quite active in the states at the moment and how our technology takes us there. It's not just project developers that want or need the information that we can provide. It's also ESG, so environmental, social, governance, and carbon departments within larger companies. It's Microsoft, Shopify, and Stripe that are looking towards this voluntary carbon market and also soil carbon credits to satisfy their carbon neutrality needs, claims or wishes. It’s exactly those customers that we would provide just an easy to use toolset to be developing new credits.
The most important, and the most interesting part, we can enable with that technology is obviously to help the whole globe to prevent global warming. The most untapped potential that we are not yet able to use is smallholder farmers. With half a billion smallholder farmers all over the world and with the current merging methods cost-effectiveness is not possible. If we can provide this monitoring from anywhere in this world, from space, this tool could really decrease transaction costs and make these smallholder farmer projects feasible. That's when the voluntary carbon market in the context of soil organic carbon can take off and companies all over this world can use carbon credits.
JJ: What you're saying there, with the smallholder farmers is that there are carbon sequestration activities happening with these smallholder farmers, but there isn't a lot of data to understand what the amount is with the level of carbon sequestration at these smallholder farmers. If we're able to deploy the technology to derive those insights, then those smallholder farmers and their assets are suppliers of carbon credits to this voluntary carbon market. Is that the right understanding?
Stefan: There were many right things, but the crux, here is that, now the monitoring is just too expensive. You can't fly a team of soil scientists to take probes and invasive soil samples to Nigeria and in the worst case, fly those samples back to a lab somewhere in Switzerland to be tested and then create carbon credit. Right? That's just not the transaction cost. It's just not feasible. It's too high, and because monitoring report verification right now is 30% of the total project cost, if you can decrease this, and we intend to do that by a factor of 10 to about 2%, these farmers in the developing countries could really take advantage of this carbon financing aspect and be paid from Microsoft, for example. To come to do a bit more regenerative agriculture, that's really what we're aiming for.
JJ: Yeah, that's so interesting. In contrast to what you're saying that some of the largest companies in the world, as we've seen in the news, are investing or buying up forests or land and they are able to afford doing that and getting data to trade. Or, do you transact on the voluntary carbon market and also offset their carbon emissions, whereas there are these areas or projects all over the world where there is a lot of opportunities, but it's not affordable and economics don't work.
Stefan: That's really where the biggest bang for buck lines. If we can help finance regenerative agriculture in developing countries, that's not just going to be an improvement in terms of global warming, but it's going to impact so many other sustainable development goals because there will be more food security and life on land will be better. There are 13 SDGs that we can directly impact with soil organic carbon projects. That's really the reason why we get up and work on this every morning to look at this.
JJ: I love that. What do you think is needed to reduce the cost to get to some of these emerging markets for smallholder farmers? To create this positive cycle leveraging the value from the voluntary carbon market? Is it on the technology side? Is it regulatory? Is it something else to drive down the cost?
Stefan: There’s probably not just one reason, but the biggest reason is just the cost-prohibitive nature of the measurement, whether or not these projects have been successful. It's absolutely, simply pivotal to have a trustworthy way of measuring the change of soil organic carbon and it can't just be taken out of the whole equation. It's not cost efficient at the moment to do with invasive soil sampling. What you need is a cost-efficient, probably remote way of monitoring changes. Ours is just that one approach. We will do direct sensing to measure them. You can also measure the measures themselves, say for example, cover cropping or sustainable irrigation, and then derive the amount of carbon that's requested. By doing that, you can model the changes. Nevertheless, you will need one tool to really decrease or even take out a large chunk of the project costs, which is right now the monitoring, reporting, and verification.
JJ: Thank you for pointing that out. For a lot of folks, they don't necessarily understand that and as for me, I'm also learning this as well.
Last question on the voluntary carbon markets because you’re an expert in this area as well. What does the economics look like? What is the economic model of a voluntary carbon market? Is there profit and who's making that profit? You obviously talked about using some of that profit for regenerative agriculture and other good uses, but as it stands today, who are the main players and what does the economics look like?
Stefan: Since the market is 30-40 years old, you could still say it's quite young. It's just developing. Yet, there are many intermediaries that earn in this valuation. There are brokers, marketplaces, and marketing agencies that all just add some sort of benefit to each credit, but it doesn't reach the endpoint, where it's intended to be. It doesn't reach, let's say in our case, the farmer, so what we're trying to do is just simplify the whole value chain to have as much money as possible, and as much of the funds reach the actual farmer to help him implement the regenerative agricultural practices, for example. Again, this is where 30% of the cost right now lies and its 30% of the money is made right now by laboratories, by soil sampling teams, which I'm not saying is wrong. It's necessary at the moment, but it's also prohibiting this new generation of credits coming on the market. That’s really what will happen with the emerging market, it will consolidate. There will be more cost-efficient providers and it will be a focus on providing as much value to the people, to the actual project implementers, to the farmers of this world, to be conducting a bit more regenerative agriculture.
JJ: I love that and you also answered my next question on where is the market going. It's really interesting to get your perspective on who are the players and where their inefficiencies are, similar to other kinds of markets. It's the evolution to streamline the process and the value chain.
Tell us more about the fact that you're based in Berlin, Germany. Does that benefit your company, Seqana? Because you're in a country where they think and talk about this a lot, as a leader in the EU. How do you characterize the climate tech ecosystem in Germany and Europe to date?
Stefan: Interestingly, just as climate change is a global problem, satellite imagery is a global solution. We are absolutely active globally. We're partnering with people in Australia and there's super interesting projects in Burkina Faso and Indonesia. We're quite active in the states and in Argentina and Germany as. I couldn't even differentiate whether there is a geographical focus for us. At the moment, we're very much agnostic in terms of this.
You're right, in Europe, the policy space is stressing this topic more, so there's probably going to be much more potential in, let's say, 5 to 10 years with regards to the compliance-based market. The regulatory market, Article 6, the classical climate conference was just dealing with this topic again. As I mentioned it earlier, this game right now is played in the voluntary carbon market, and the US seems to be spearheading the demand. That's really from a client perspective and on a buyer perspective, that's a bit of a focus that we have at the moment. I have to say it's a global thing, and I'm seeing companies starting to understand that we all need to fight climate change and take our share of responsibility and it's just awesome to see all the ones in this world.
JJ: Last question. If people want to find out more about Seqana or more about carbon sequestration, and all the things that we've talked about here, where can they reach out to find you or find Seqana?
Stefan: Definitely visit our website at Seqana.com. We're most actively on LinkedIn, so you can follow us there. On there, you'll also see, me, Jakob, Julian, and can message us directly. We're super open and love to chat and love to communicate the vision that we have, so they should reach out and talk to us.
JJ: Well, thank you so much, Stefan Gönner, CEO and Co-founder of Seqana. We're so happy you're here, Stefan, and thank you for all the work that you're doing.
Stefan: Absolutely, thanks for having me.
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