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Unraveling the Complexities of Carbon Markets with Sarang Murthy · Responsibly Different™

• 0:03
  Speaker 1: We are all in it to sort of solve the world's biggest challenges, and when there are these many people trying to do that kind of work, I don't doubt that we will get there.
• 0:19
  Speaker 2: Welcome to Impact Chats, a responsibly different podcast sharing conversations with industry leaders, leveraging business as a force for good.
• 0:27
  Speaker 2: Welcome back to Responsibly Different.
• 0:43
  Speaker 2: I'm Ben Marine, your host, and in this episode we're unraveling the intricate web of carbon markets with a leading voice in corporate sustainability, serong Murthy of Native.
• 0:54
  Speaker 2: Serong blends his rich academic background in economics with robust experience in strategy and climate change mitigation to help businesses navigate the complexities of sustainable growth and corporate climate commitments.
• 1:09
  Speaker 2: Our guest today is part of Native, a company at the forefront of developing authentic solutions to sustainability challenges since 2000.
• 1:17
  Speaker 2: Native's approach to sustainability is about creating measurable change and investing every penny towards projects that not only reduce emissions but also build resilient supply chains and inspire communities.
• 1:30
  Speaker 2: Join us as we dive into the world of carbon offsets, exploring how strategic investments can lead to long-term value for businesses and stakeholders alike.
• 1:40
  Speaker 2: Together, we'll learn how companies like Native are using their expertise as certified B Corpse to drive environmental performance and social impact.
• 1:49
  Speaker 2: And with that, let's dive on in.
• 1:52
  Speaker 2: So I'm so excited to have you here on the show.
• 2:02
  Speaker 2: We have a lot of really exciting things to jump into.
• 2:04
  Speaker 2: But to get us started, can you provide our listeners with a brief overview of your role at Native and the work that the company does.
• 2:13
  Speaker 1: Yeah, sure thing, ben, and thank you, I'm very happy to be here.
• 2:17
  Speaker 1: Yes, so I am Sorat Murthy and I work on client engagement and market strategy at Native.
• 2:25
  Speaker 1: Native is a public benefit corporation and certified B Corp in the state of Vermont.
• 2:32
  Speaker 1: We've been around for over 20 years and our projects typically focus on community engagement and community-led carbon and climate action programs, and so what that looks like in practice is that we are either reducing or removing carbon from the atmosphere on a kind of programmatic level, and what the end result of these activities is essentially carbon credits.
• 3:02
  Speaker 2: That's awesome and so for folks listening.
• 3:05
  Speaker 2: We've had Native on the show before, so I want to encourage folks to check out that episode.
• 3:11
  Speaker 2: We're going to be going pretty deep this episode into some of the carbon markets.
• 3:15
  Speaker 2: I'm really excited to jump in with you, sorang.
• 3:18
  Speaker 2: So I'm curious.
• 3:19
  Speaker 2: You wrote an article Imperfect Economics Carbon Markets, and you mentioned that the dynamics of the global carbon market are complex and inconsistent.
• 3:29
  Speaker 2: Could you elaborate on some of the key challenges or complexities that you see?
• 3:34
  Speaker 1: Yeah, good question, ben.
• 3:36
  Speaker 1: I see a couple of main challenges that I think play the voluntary carbon market today.
• 3:43
  Speaker 2: Number one is trust and transparency.
• 3:45
  Speaker 1: And number two is a changing regulatory landscape Trust and transparency.
• 3:52
  Speaker 1: So let's kind of zoom in there.
• 3:54
  Speaker 1: The issue with the voluntary carbon market, as the name suggests, is that you're not mandated to take any sort of action.
• 4:03
  Speaker 1: The way that corporates engage with their emissions and with folks like us is to find and support high impact and high integrity carbon projects.
• 4:16
  Speaker 1: The problem in the past has been that there have been a number of interventions and a number of projects that may not be doing what they had initially set out to be doing, and this, I think, is a result of a couple of things.
• 4:36
  Speaker 1: One, of course, is kind of changing science and the way that folks have come to understand carbon, and number two is that the initial safeguards in this market were loose and people were sort of able to gain the system.
• 4:53
  Speaker 1: The changing trust landscape today looks like this.
• 4:58
  Speaker 1: So on the supplier side, or the side where Native sits, the ICBCM or the Integrity Council for the Voluntary Carbon Market has come together and this is essentially an industry body of a number of different experts in the field to bring some semblance of rules and other sorts of quality metrics to guide what project folks like Native should be thinking about maybe when actually building projects.
• 5:31
  Speaker 1: On the buyer side, so the side where corporates and others sit, the VCMI, which sounds extremely similar but is an entirely different entity, which stands for the Voluntary Carbon Market Initiative, is a buyer side sort of organization that is setting rules against what buyers were engaging in the carbon market can claim, so things such as carbon neutrality or carbon net zero and things like that.
• 6:07
  Speaker 1: So there are certainly initiatives that have kind of come to be in the last 12 to 18 months that really are trying to get at that trust and transparency problem.
• 6:18
  Speaker 1: The other problem is that there is this changing regulatory landscape both in the US and Europe and, of course, largely driven by sort of EU policy around.
• 6:31
  Speaker 1: What are maybe the different intervention types that should count or what corporate action should?
• 6:41
  Speaker 1: look like in the sort of voluntary space.
• 6:45
  Speaker 1: I think both of these things have certainly created some amount of friction in this last year, but we remain very optimistic for 2024 and onwards because to us, this sort of corporate climate action is really what we need to scale a lot of the solutions out there.
• 7:09
  Speaker 2: I'm so curious can you expand a little bit on those initiatives that have come up in the last 12 months and how are they?
• 7:17
  Speaker 2: Because I guess I'm wondering from the business perspective how do they know if folks are playing by those rules or not, or if it's just somebody popped up a website and is like I'm selling carbon credits.
• 7:30
  Speaker 1: but yeah, it's a very, very topical question, ben.
• 7:34
  Speaker 1: Okay, so there are a couple of things here, right.
• 7:37
  Speaker 1: Number one is that a science-based target, which has been sort of crafted by an organization called the Science-Based Gargants Initiative, focuses on making sure that entities have set scope three reduction plans and we can certainly talk about what scope one, two and three are and that those emissions that folks are not able to actually abate within their own supply chain or supply shed, that they are to use high-quality, credible carbon offsets to essentially compensate for the emissions that they were not able to basically produce.
• 8:16
  Speaker 1: So that's kind of step one.
• 8:23
  Speaker 1: The step two and three, or maybe other parts of this, is that the ICBCM and the VCMI have kind of come out of a lot of ask, you could say, from all participants in the voluntary carbon market that realize that there is this kind of supply glut and I know that we had kind of talked about this earlier too which is that there is such a surplus of credits in the market today that if, in fact, all corporates were engaged in voluntary climate action today, were to just use all of those outstanding credits, you'd have enough.
• 9:07
  Speaker 1: But the problem is, is that a lot of these credits out there may or may not be actually credible, may or may not be doing what they're supposed to be doing.
• 9:16
  Speaker 1: The ICBCM, specifically, is trying to kind of cut through this moment and saying going forward, these are the types of credits that follow certain methodologies that will then account for what actually is in that pool of maybe credible offset depths.
• 9:38
  Speaker 2: Just for folks that might be struggling to keep up with the acronyms too.
• 9:40
  Speaker 2: I know you said them already earlier.
• 9:42
  Speaker 2: But the ICBCM, that's the supplier side.
• 9:46
  Speaker 1: Exactly.
• 9:46
  Speaker 2: Am I getting that straight Okay?
• 9:47
  Speaker 1: Yeah.
• 9:49
  Speaker 2: Yeah, okay, cool, awesome.
• 9:51
  Speaker 2: So I'm curious when, kind of thinking about going a little deeper into that article, you mentioned that not all credited tons are created equal.
• 10:05
  Speaker 2: Could you help our audience understand what factors contribute to the disparities in the creation of carbon credits?
• 10:12
  Speaker 1: Yeah, yeah, the reason that I said that is because, unlike other sorts of environmental commodities out there, carbon is one that, at the sort of environmental level, one metric ton of carbon is one metric ton of carbon.
• 10:33
  Speaker 1: But how you get there, from a kind of intervention perspective, can look vastly different.
• 10:39
  Speaker 1: You could have a very expensive and industrial process such as DAC, which is essentially these large tubes of suction you could think of that draw carbon dioxide from the air and convert this into a gas or oil and then pump those back into sort of geological formations.
• 11:06
  Speaker 1: The others could be sort of avoided credits, so you're basically avoiding the deforestation of lands or forests, rather, that you can prove you can prove are in a region of high risk.
• 11:26
  Speaker 1: And so, as you can imagine, even though at the end of the day those two things, today at least, are being counted or treated as a carbon credit, how you actually get to that credit can look very different depending on what sort of intervention it is that you were going for.
• 11:44
  Speaker 2: That makes sense.
• 11:45
  Speaker 2: That makes sense.
• 11:46
  Speaker 2: So I'm curious digging more into kind of the economics of that From an economics perspective.
• 11:54
  Speaker 2: You discussed the challenge of addressing kind of some of the low hanging fruit in combating climate change.
• 11:58
  Speaker 2: Can you explain the implications of focusing on some of those cheaper offsets and how it impacts the overall market?
• 12:06
  Speaker 1: The economics of low hanging fruit and supporting projects that may still be having impact.
• 12:13
  Speaker 1: It's a very good question.
• 12:16
  Speaker 1: So I think for folks listening here that are maybe trying to build a carbon portfolio or sort of carbon offsetting strategy, something to kind of think about is that there are a number of beyond carbon benefits that are often called social or community goal benefits that are associated with carbon programs.
• 12:38
  Speaker 1: Now, typically an engineered or a highly industrial solution, such as DAC that I kind of talked about earlier, are expensive and are hyper focused on that kind of carbon angle or carbon piece.
• 12:54
  Speaker 1: There can be other programs, there can be nature based solutions that necessarily require you to work within communities that you are actually implementing these programs in to ensure success and typically nature based programs, today at least, tend to be significantly cheaper than these much more expensive sort of carbon interventions.
• 13:22
  Speaker 1: I think what it really comes down to is a couple of factors.
• 13:26
  Speaker 2: Number one.
• 13:28
  Speaker 1: what is the purpose of your kind of climate strategy?
• 13:31
  Speaker 1: Are you trying to build a portfolio of highly permanent carbon removal or storage, or are you trying to build one where you are trying to compensate for a certain number of tons of your sort of carbon impact?
• 13:50
  Speaker 1: And if so, do you have the ability or kind of internal stakeholder agreement to support projects that have beyond carbon benefits, and usually nature based ones, as I said, can be those that are maybe not as expensive?
• 14:11
  Speaker 1: That's one piece, and this, like next bit, you can think about if it fits in or not.
• 14:19
  Speaker 1: But the other piece of this I think to think about, then, is that on that kind of lower end of the spectrum right, there exists such a sort of daily use, you could say, of projects that either at one point existed through interventions that now would be considered iffy at best, whereas others, even in the sort of nature based space which these days would be considered highly robust and kind of following scientific rigor, etc.
• 14:59
  Speaker 1: It really does come down, unfortunately, to the buyer and sort of making sure that you understand who it is that you are working with, what this company's track record is, what their sort of history and focus has been in the past, so on and so forth.
• 15:17
  Speaker 1: So, unfortunately, where maybe a compliance market would cut through some of these things for the buyer, though voluntary carbon market isn't there just yet, but I think we are slowly seeing that upcoming.
• 15:33
  Speaker 2: So when you say seeing that upcoming, are we talking like regulations or public policy?
• 15:40
  Speaker 2: I'd be curious to hear about that.
• 15:42
  Speaker 1: Yeah, sure, so this I think dovetails well in the sort of article 6 and COP26 and COP27 and the buyer's agreement and all of these other mechanisms and things that people have been sort of talking about for the last couple of years.
• 16:00
  Speaker 1: So essentially, what kind of ended up happening was that after UN COP26 and 27, there was an agreement that was reached, that article 6 of the buyer's agreement, whereby the rules of international trade of carbon were established.
• 16:22
  Speaker 1: That was sort of the purpose of what article 6 and COP26 and 27 essentially were.
• 16:30
  Speaker 2: And COP, just for folks that might not be familiar is the conference of the parties to the United Nations Framework Convention on Climate Change.
• 16:42
  Speaker 2: That's exactly right.
• 16:43
  Speaker 2: Yes, right, am I getting that right?
• 16:45
  Speaker 1: UNFCC?
• 16:46
  Speaker 1: Yes, exactly, yeah, and so, specifically, article 6 forms a bridge between where the voluntary carbon market is today and a necessary compliance regime.
• 17:03
  Speaker 1: That essentially makes it such that all carbon emitters so you can think corporates, countries, everybody has to have some sort of credible plan for either reducing said emissions or compensating these with high integrity and high quality carbon projects.
• 17:26
  Speaker 1: That, in a nutshell, is what COP26 and 27 and all of these other sort of agreements that kind of came out of it go into actually doing.
• 17:37
  Speaker 1: This is going to form the regulatory underpinning to what is lacking in the sort of voluntary carbon market, which is that you need a set of rules and regulations where everybody understands and realizes the sort of sphere with which they're playing on.
• 17:57
  Speaker 1: The biggest hurdle, in my opinion, the liquidity in this market is that there's a lack of trust and there's a lack of understanding of what essentially counts as a high integrity and high carbon.
• 18:13
  Speaker 1: So, going forth, I think these will be absolutely key.
• 18:18
  Speaker 2: That makes a ton of sense.
• 18:20
  Speaker 2: I'm curious too, just pulling a little bit more on that thread, of the voluntary spaceness of this.
• 18:27
  Speaker 2: You highlighted dichotomy in the voluntary space, where companies transitioning to climate impact mitigation strategies are less inclined to choose the cheapest offsetting options, which I think is a good thing.
• 18:43
  Speaker 2: I'm curious what do you think is driving that shift in preferences?
• 18:48
  Speaker 1: Yeah, very, very good question.
• 18:50
  Speaker 1: This is, I think, something that we see in our work all the time is that a more engaged carbon buyer and a more engaged corporate or entity that wants to do good with their money is necessarily looking for higher impact and high integrity carbon projects and those that I can mention earlier, which is, with a lot of nature-based solutions.
• 19:19
  Speaker 1: You have that kind of community or social impact embedded really within a lot of these projects, and so these don't come cheap.
• 19:28
  Speaker 1: They aren't the sort of off the shelf cheapest done you could possibly find that that isn't the purpose.
• 19:37
  Speaker 1: I think of a lot of storytelling based credits which can really, I think, amplify a lot of the social good that a brand or entities trying to achieve.
• 19:49
  Speaker 1: On the kind of marketing side, right.
• 19:53
  Speaker 1: But on the sort of impact side, really asking yourself, why are we spending money?
• 19:59
  Speaker 1: Because if you're spending, say, $1.50, and essentially purchasing bullsh** credits up there from, say, a very large scale hydro project in China or something which arguably has done more harm than good in terms of sort of you know, displacing ecosystems, people etc.
• 20:27
  Speaker 1: Versus, okay, let's spend a little bit more money and make sure that where we are actually investing, there are kind of tracked metrics of the impact on the ground for communities that really need the kind of carbon financing to scale a lot of the interventions.
• 20:50
  Speaker 1: Something like this in practice would look like a project that native has, in fact in Mexico, whereby we reduce the cost of the installation of bio digesters on smallholder farms.
• 21:05
  Speaker 1: What this essentially does is that it reduces the amount of methane that the on-farm waste would have created by essentially putting all of this waste into these large bags that then pipe this gas into the very same households that are actually creating the waste in the first place.
• 21:27
  Speaker 1: It's such a beautiful and elegant and simple solution, but one that wouldn't exist if there wasn't voluntary carbon financing to actually get these things up and you know, sort of at scale, right.
• 21:41
  Speaker 1: So, yeah, I think that's kind of where someone who's trying to be an engaged and impactful carbon and climate action buyer really needs to look into what the impact of a lot of these programs are on the ground.
• 21:58
  Speaker 2: That's awesome and it sounds like I imagine, being native, being a certified B Corp that you attract a lot of other B Corps.
• 22:08
  Speaker 2: I'm curious Do you find that people are asking a lot of thoughtful questions about how it all works and how projects are selected?
• 22:19
  Speaker 1: Yeah, I mean those, I think tip to me, honestly, are some of the most interesting and fun sort of conversations that I have.
• 22:28
  Speaker 1: That really get me excited about every single Monday, honestly, is being able to translate the impact in a way where you're looking across the screen and you're seeing that people are really moved by the kind of work that they can help literally support, because a lot of natives work is.
• 22:53
  Speaker 1: We are the conduit to being able to essentially put in catalytic financing.
• 23:01
  Speaker 1: So we are essentially taking money upfront with the promise that we will be giving you a stream, you could say, of verified third-party sorry, third-party verified emissions reductions.
• 23:17
  Speaker 1: That's the kind of idea here.
• 23:20
  Speaker 1: But to see that a lot of folks are interested in that kind of upfront, catalytic investment piece, that they're being able to see that their money is literally going into building these projects on smallholder farms or you know, say, Astro-Airlists in Kenya or folks that say have small plantations in, say, northern Brazil, you're just seeing that there's just interest, there's just folks that are over the moon about this stuff, and I think that's what gets me super excited about this space.
• 24:01
  Speaker 2: That's really cool, I mean, and I think I'm curious a little bit about the flip side of that coin, right, so it sounds like people are paying for the higher quality investments, as really it sounds like potentially motivated by that storytelling, perspective or prospect and perhaps what that could have on sales or right, like a monetary bottom line there.
• 24:29
  Speaker 2: And so, with companies being eager to ensure their climate commitment is authentic, how are they navigating?
• 24:39
  Speaker 2: Avoiding greenwashing, and how do you see this kind of demand for authenticity influencing the pricing and the selection of the carbon offsetting projects?
• 24:48
  Speaker 1: Very good question, Ben.
• 24:50
  Speaker 1: I think greenwashing has certainly been front and center, especially, I think it comes to voluntary climate action and sort of carbon credits right.
• 25:02
  Speaker 1: There was a report recently by our friends over at Forest Trends that looked at corporate commitments and how those that were participating in the voluntary carbon market how that engagement in the market was being translated with their own internal reductions in their sort of supply chain and supply chains.
• 25:30
  Speaker 1: I actually have some numbers here.
• 25:32
  Speaker 1: So, off the 7400 plus companies that this particular report looked at, 59% of those companies that participated in the voluntary carbon market reported lower year on year emissions when compared to just 33% of those companies that did not participate.
• 25:55
  Speaker 1: So you're seeing there that there is a direct sort of correlation between being someone who participates in the sort of VCM and then also reducing your sort of emissions.
• 26:15
  Speaker 1: From a kind of economics of it perspective because that's my kind of background, this kind of makes sense because if you think about what a sort of carbon abatement curve looks like, if you are paying to basically pollute right, there will come a sort of inflection point where it becomes cheaper for you to actually cut down your own carbon emissions within your supply chain than it does to invest in other sorts of projects or processes outside of your immediate control, such as, say, carbon credits or carbon offsetting that essentially make it cheaper for you to actually look within your sort of supply chain and kind of cut down emissions there.
• 27:04
  Speaker 2: That's amazing.
• 27:04
  Speaker 2: So it sounds like what could potentially feel like is nefarious, because actually that these organizations that are participating in the volunteer carbon market right VCM, voluntary carbon, keep me up Voluntary, thank you.
• 27:20
  Speaker 2: I knew I was so close Voluntary carbon market, vcm that they are actually also reducing their own footprint in addition to those offsets and I think much of that too, ben, is the fact that three point.
• 27:38
  Speaker 1: so companies that are engaged in the voluntary carbon market are also 3.4 times more likely to have a science based target goal.
• 27:49
  Speaker 1: And by having that goal you are essentially committing to reducing your gross emissions by a certain percentage by 2030, 2040 and 2050.
• 28:03
  Speaker 1: And so you know there's I think one can kind of paint a picture here Like if you are a more engaged corporate entity in one area of this sort of you know effort to essentially do good, you're likely going to be doing good across the board.
• 28:23
  Speaker 1: From our perspective at native right, like, say, with some jest, one day there will come a time when we don't need to have a job because you us, as native wouldn't need to be building high impact carbon programs that have third party verified you know kind of carbon assets coming out of these projects, because we will reach a time when we are literally at carbon net zero.
• 28:53
  Speaker 1: But I think up until that time there will always be a need for high integrity programs.
• 29:00
  Speaker 1: And again, just, I've been certainly very fortunate to have been a part of a you know company now for, I guess, three years, where we really are seeing community benefits happening every day and support from all sorts of you know corporate entities and even the smallest sorts of shops out there that just want to sort of do a little bit of good, you know.
• 29:26
  Speaker 2: So that's really cool.
• 29:27
  Speaker 2: That's really really cool.
• 29:29
  Speaker 2: And something that you had referenced in your article and then shared, shared with me ahead of our chat was and actually you mentioned them too earlier forest trends.
• 29:39
  Speaker 2: I want to jump into one of their reports, but before we do that, can you speak a little bit about forest trends, kind of who they are and what they do?
• 29:45
  Speaker 1: Yeah, forest trends is essentially a nonprofit organization that does a lot of market based research and intelligence.
• 29:54
  Speaker 1: They don't sell, sell credits or anything that they're just engaged with both buyers and also project, you know, I guess, well, both with buyers and suppliers, to paint a sort of accurate picture in what I believe to be a pretty non biased way to further what understanding we have of this space.
• 30:26
  Speaker 2: Okay.
• 30:27
  Speaker 2: So here's a question.
• 30:28
  Speaker 2: So talking about like the surplus of credits because you mentioned that earlier that there's more than enough credits for all the businesses to do all the offsetting.
• 30:37
  Speaker 2: So, with issuances outpacing the retirements or use of, there's a surplus of credits in the market and so I'm curious how does that surplus impact the overall dynamics of carbon offsetting and are there any kind of concerns associated with that?
• 30:57
  Speaker 1: Yeah, it's a good question.
• 31:00
  Speaker 1: I think in any market where you have a supply, what ends up happening is that, essentially, prices go down, and this is true really of any kind of commodity market or equity market, etc.
• 31:15
  Speaker 1: Why it's not true, I believe, of the VCM, at least not true anymore of our industry is that there again, like there, the fungibility so this is to say that not all carbon credits are created equal, right the fact that that drives what engaged buyers are looking for.
• 31:42
  Speaker 1: So, say you have someone who really wants to get in deep into what their sort of carbon project is doing and what they're supporting.
• 31:53
  Speaker 1: They're unlikely to be buying very cheap credits to just make a sort of claim about it.
• 32:00
  Speaker 1: And so, in my view, there actually exists within this sort of supply gap, there exists yet another market, almost one for very cheap credits and one for those that have impact and that have a story behind them, that are doing more than just kind of carbon and things like that, mostly on the kind of very low end of the spectrum.
• 32:26
  Speaker 1: You see what's called CDM based.
• 32:30
  Speaker 1: So CDM is, it stands for the Clean Development Mechanism.
• 32:38
  Speaker 1: This was the very first iteration of the voluntary carbon market, back way, way back right in the early 2000s and a lot of projects that were accredited to this now largely defunct, if not defunct, at least maybe a sort of mechanism that doesn't have a lot of rigor behind it.
• 33:02
  Speaker 1: I suppose A lot of those credits still exist because how carbon credits are issued right, they're issued after a certain activity has taken place.
• 33:15
  Speaker 1: So the fact that the activity had already happened, be it to a completely different standard than what maybe is acceptable today, is still part of this ecosystem of credits up there.
• 33:28
  Speaker 1: One is still able to kind of buy them, but one is not likely to buy those very cheap credits today anymore.
• 33:36
  Speaker 1: I think the story was different four or five years ago, when there was less scrutiny and, frankly, less capital in this market.
• 33:47
  Speaker 1: In 2022, this space sort of surpassed $2 billion in transacted value, which can sound like a lot.
• 33:58
  Speaker 1: But if you think about any very large company I'm thinking I don't know say Facebook, is magnitude larger than I think transactions happening here.
• 34:10
  Speaker 1: Or if you even look at sort of carbon compliance marketplaces such as California ETS, which is the marketplace in Europe, I believe the combined value of the sort of compliance space is nearly a trillion dollars.
• 34:31
  Speaker 1: So it is this magnitude bigger.
• 34:35
  Speaker 1: So, yeah, there exists certain credits out there that are cheap, that I think a lot of people that are engaged in the VCM today realize that they're cheap for a reason and don't want to touch these anymore because, frankly, if you do and shit hits the fence, the sort of climate action that you thought you could sort of swing by just buying these like credits that don't do much will probably come back to bite you in the ass.
• 35:10
  Speaker 2: So there's a word of caution out there for folks.
• 35:14
  Speaker 2: What is the difference between a removal or reduction credit and like a carbon offset, or is it the same thing?
• 35:24
  Speaker 1: Yeah, very good question.
• 35:26
  Speaker 1: I was actually at a conference recently that was focused solely on CDR or carbon dioxide removal.
• 35:35
  Speaker 1: There was this underlying tone there Should we be considering CDR credits to be linked with avoidance or reduction credits at all?
• 35:46
  Speaker 1: And I don't believe there was a consensus reached because I think it's a pretty hot bed topic.
• 35:53
  Speaker 1: But the idea here is that an avoidance or reduction credit is essentially an instrument that has been created by an activity that did not happen, whereas a removal credit is one where a credit is created by the active removal or sequestration of CO2 or equivalent stored in some fashion.
• 36:24
  Speaker 1: So let's maybe double click on the reduction and avoidance piece there for a second.
• 36:32
  Speaker 1: So if you think about maybe the Amazon rainforest and we all know at this point that there's kind of illegal logging happening here at an alarming rate right, if your carbon project is able to prove that, say, you have conserved a piece of forest land in the part of the Amazon that is under high threat, you have successfully avoided the sort of carbon dioxide from being pushed out into the atmosphere.
• 37:12
  Speaker 1: There are a couple of problems here.
• 37:15
  Speaker 1: Number one proving that sort of counterfactual becomes nearly impossible because you're dealing with future hypotheticals.
• 37:24
  Speaker 1: How do you prove that?
• 37:26
  Speaker 1: How do you for sure prove that that parcel of land would have been felt right?
• 37:30
  Speaker 1: So that's what becomes hard, and I think a lot of the criticism of the voluntary carbon market today is really focused on this one particular piece of the puzzle, because 50% of issued credits out there today are in fact from forestry based projects.
• 37:49
  Speaker 1: And I'm not saying that all of these are suspect and they don't do anything, but certainly a large proportion of them do.
• 37:59
  Speaker 1: Reduction is a little bit different.
• 38:01
  Speaker 1: So the project that I kind of talked about earlier to folks, which was the biodigester projects that we're implementing in Uganda and in Mexico.
• 38:14
  Speaker 1: These reduce the amount of methane that would have escaped into the atmosphere had it not been for us essentially being able to get to move all the on-farm waste from just being left out and being exposed essentially to an anaerobic process within these particular biodigesters.
• 38:41
  Speaker 1: So they're similar yet different in that reduction project is a little bit more focused.
• 38:49
  Speaker 1: You know you really do have the kind of counterfactual in front of you.
• 38:55
  Speaker 1: Now for carbon dioxide removal or CDR, these can include processes such as DAK.
• 39:06
  Speaker 1: You know DAK, which again is a sort of engineered solution, that's on the expensive, or sort of engineered or industrial side.
• 39:17
  Speaker 1: Carbon dioxide removals can also take place in sort of nature based in intervention, so at native, for example we have a number of different soil carbon-based projects.
• 39:30
  Speaker 1: So these are essentially where we work with, say, regen Ag or Regen grazing programs to sequester and store soils or store carbon dioxide in soils, and we have a number of programs like these.
• 39:49
  Speaker 1: These can be in Montana, argentina, canada, etc.
• 39:55
  Speaker 1: So there are different.
• 39:56
  Speaker 1: Again, there are different sort of conduits to how you can remove carbon and, depending on how you do it, you're likely going to be paying anywhere from 100 to $1,000 a ton or somewhere in the sort of sub $30 a ton range, which is most nature based interventions today.
• 40:16
  Speaker 1: Just a quick, quick, I guess note on this.
• 40:19
  Speaker 1: An aforestation or reforestation project is actually considered a carbon dioxide removal project because you're actually actively planting trees.
• 40:29
  Speaker 1: There are things to consider in a sort of aforestation project too, which is that where are you planting these trees and for how long are you guaranteeing that these trees will last?
• 40:43
  Speaker 1: Because if say, you're just like planting a tree and you're like cutting it down after like 10 years, have you actually not done anything, so that's again.
• 40:53
  Speaker 1: these are things that buyers who are interested in really getting deep into what sorts of carbon programs they're investing in really need to consider All right, so here's a question for you, then Are removals quantifiably better than avoidance or reduction credits?
• 41:20
  Speaker 1: Yeah, you know?
• 41:21
  Speaker 1: Yeah, I think this is a sort of philosophical question.
• 41:26
  Speaker 1: Honestly, is that it is true that I think to get to a global net zero reality, this cannot exist without removing and storing carbon dioxide for an extended period of time.
• 41:44
  Speaker 1: It's simply the like math doesn't math you know, but there I believe there exists a number of projects out there that are doing again beyond carbon work, you know, and these projects are typically community centric, smaller nature based interventions that maybe avoiding or reducing carbon, they're doing so by interventions that are necessarily important or what's considered additional.
• 42:29
  Speaker 1: So this idea of additionality can be threefold and really is the sort of baseline for what creates any sort of carbon credit.
• 42:39
  Speaker 1: So you can have financial additionality, ecological additionality and policy based and policy based additionality.
• 42:51
  Speaker 1: And the idea of additionality is that would a certain activity have happened had it not been for your intervention?
• 43:01
  Speaker 1: Plain and simple, and if you can prove beyond a shadow of a doubt that it would not have happened, then you have a carbon project on your hands.
• 43:12
  Speaker 1: But which is which is right, which is now right, which is what makes forestry based projects iffy, because how can you prove that a certain, a certain part of forest would have absolutely have been cut down, and that's why we should now pay you to conserve a kind of parcel of forest.
• 43:34
  Speaker 1: It's very hard to really prove this.
• 43:38
  Speaker 1: And if you did prove it, there's this other idea of essentially carbon leakage, which is this idea that if, say, you have preserved 500 hectares of forest land in one area, has the logging simply moved to another area next to it?
• 43:57
  Speaker 1: And if so, have you really net net done anything at all?
• 44:01
  Speaker 1: And there was this expose you know recently that I read in the New Yorker that really dove literally into this topic.
• 44:13
  Speaker 1: They they talked about a very large scale project in Zimbabwe that it was very hard to show that, that these project activities were like contained within within the sort of boundary of this project, and that there wasn't leakage happening next door.
• 44:33
  Speaker 1: And if it is, has your project really really done anything?
• 44:37
  Speaker 1: It's unlike so.
• 44:41
  Speaker 2: I wonder to I'm curious your thoughts on this, speaking of the reforestation or or preservation type projects, what happens with like wildfires, right, like so, if you buy carbon offsets this year and then next year, the whole thing burns down.
• 45:01
  Speaker 1: Yeah, very, very good question, very poignant question, very topical question.
• 45:06
  Speaker 1: So this, this gets into the into the sort of mechanics of the assets behind carbon and how registries, which are essentially bodies that host the actual issued credits on their platform.
• 45:25
  Speaker 1: So folks may have heard of entities such as Vera or gold standard, and these are basically accreditation bodies that have certain methodologies in place that project developers like native can use to basically build a carbon project.
• 45:48
  Speaker 1: Now, if you are going to be building a carbon project using one of these approved methodologies, as part of the requirement of their role standard or others, they essentially create a buffer and what this buffer pool is is that a certain percentage of each project feeds into a larger Vera insurance or Vera buffer pool and what this pool enables is that, say, some unforeseen, you know, calamity were to happen in a certain project, that essentially renders any kind of carbon asset that essentially cancels out any, any kind of carbon credit.
• 46:37
  Speaker 1: There is a larger pool that a buyer can be made whole from.
• 46:42
  Speaker 1: So in your, in your kind of example there been about if there's a, if there's a fire on a forested land.
• 46:52
  Speaker 1: Typically what would happen is that one would be made whole from that pool of other other credits that are mandated essentially.
• 47:04
  Speaker 2: Oh, interesting.
• 47:04
  Speaker 2: So it's almost like a diversification portfolio like you would think of, unlike the stock market, kind of like that, that that they're that is clustered with other assets, should something happen, or am I understanding that right?
• 47:20
  Speaker 1: Yes, yes, I think that's certainly a fair way to kind of think about it.
• 47:26
  Speaker 1: I guess the only difference would be that you it might not always be a like for like credit in likely will be, but it might not always be right, Like I don't know.
• 47:38
  Speaker 1: Say, say, for instance, you, you were, you were to make the mistake of supporting and avoided the forestation project in, say, California right, and that entire forest essentially burns down.
• 47:59
  Speaker 1: Next year you may not get another credit from like California, it may be a credit from somewhere else, but it is still an approved dot right.
• 48:09
  Speaker 2: So it's so interesting, oh my gosh.
• 48:12
  Speaker 2: Yeah, oh my gosh.
• 48:16
  Speaker 2: The time is flying, holy bananas.
• 48:18
  Speaker 2: So I thinking about some global warming mitigation goals Looking forward to 2030, in the article that I mentioned at the top, you had mentioned the need for prices to reach $75 per ton to limit global warming.
• 48:37
  Speaker 2: I'm curious how optimistic are you about achieving that target and what role do you see the market playing in reaching those climate goals?
• 48:47
  Speaker 1: Yeah, a couple of thoughts here, ben.
• 48:51
  Speaker 1: The reason for that price that I have stated there is because there are a number of reports run from the Oxford initiative that essentially price carbon, which means that at what price is it that activities can scale and what is the kind of social cost of carbon dioxide emissions?
• 49:25
  Speaker 1: And there's essentially a curve that goes upward, that says that the societal cost of carbon goes higher and higher and higher in, say, the years from 2020 to 2050 and so on.
• 49:46
  Speaker 1: From an economics of it perspective, if the kind of carbon prices at $75 and how we get there could be either purely sort of voluntary action, where buyers realize that they just simply need to be paying more money, or you see a more robust compliance or regulatory scheme that requires large carbon polluters to basically compensate, the reason for this price would be that then you can attract more and more and more people to actually build projects at scale, because if folks aren't willing to pay for more expensive projects, then no one's going to build them.
• 50:39
  Speaker 1: If that makes sense, if there isn't sort of indications from the market that yes we have the appetite to support much more expensive projects than folks that may have the ability to build such a thing, such as actually this is a pretty good example these days bio-chucker, which is essentially a process of using a very high amount of heat on biomass to be able to store this form of carbon for a very long period of time.
• 51:15
  Speaker 1: This is being talked about a lot and it's in this range of like $75 to $150 because it costs a pretty decent amount of money to actually get this thing going.
• 51:27
  Speaker 1: Right now, that particular market is in its sort of infancy, but we are seeing that there's much more interest here because this is a sort of cheaper carbon removal solution that basically guarantees that you're having sort of permanent carbon storage right, which is, I think, what a lot of the market is looking for.
• 51:52
  Speaker 1: If I am to say whether I'm optimistic by 2030 that we get there, I would say that I am.
• 52:00
  Speaker 1: I think we are really right now staying down the barrel of upcoming regulation and supply side tightening, which will ensure that quality is really at the forefront of a lot of the market going forward.
• 52:18
  Speaker 1: From the kind of buyer perspective, I think a lot of folks will realize that you can't simply claim carbon neutral.
• 52:26
  Speaker 1: You just show why and have sort of robust science-based targets behind you.
• 52:33
  Speaker 1: So I think I am optimistic, but I'm not optimistic just because I think human beings are just optimistic in general.
• 52:43
  Speaker 1: I think I'm optimistic because I'm seeing things around me that make me think that there is a world where a lot of these solutions can scale.
• 52:54
  Speaker 1: I love that.
• 52:55
  Speaker 2: I'm curious, just for a starting reference point.
• 52:59
  Speaker 2: So if the goal is $75 a ton, like ballpark on average, where are we sitting right now?
• 53:07
  Speaker 1: Well, if you were to basically aggregate the entire market, which is also a lot of the older kind of credits that I talked about earlier and a lot of these cheaper forestry based credits, I would suppose the market is around $5 to $10 a ton.
• 53:26
  Speaker 2: Right now, so we got some work to do.
• 53:33
  Speaker 1: And this is why I think it's very important to really highlight the fact that not all carbon tons are created equal.
• 53:43
  Speaker 1: Just because it's $5 and bucks are done is not reflective of what sorts of projects will come online and say $25 a ton, $35 a ton, $45, etc.
• 53:57
  Speaker 1: Until we reach this number right of $75 a ton.
• 54:01
  Speaker 1: So I think again in this upcoming year I think there's going to be a sort of dialogue about is there even any use for these credits that are so cheap?
• 54:15
  Speaker 1: Should we just basically cancel them all?
• 54:18
  Speaker 1: Should we say that this older mechanism that existed existed for a different time, when we had a different science, when we weren't as aware of sort of interventions and maybe folks that were in it for the wrong reasons?
• 54:37
  Speaker 1: I think it becomes hard because when you kind of change the rules as you're going, there's going to be a lot of people that are upset about that and a lot of, I think, those that will feel stepped on.
• 54:54
  Speaker 1: But I think it is important to kind of tighten this market and go and head towards a reality where we're seeing trust, transparency, quality.
• 55:06
  Speaker 2: Absolutely, absolutely.
• 55:07
  Speaker 2: Oh my gosh, I feel like just keep going.
• 55:10
  Speaker 2: I do have like just two more questions for if you have the time.
• 55:13
  Speaker 2: Yes, one you mentioned being optimistic.
• 55:18
  Speaker 2: I'd love to hear more about that.
• 55:19
  Speaker 2: What has you really rooted in optimism right now?
• 55:22
  Speaker 2: Because I think well, I guess I'll speak for myself.
• 55:25
  Speaker 2: I feel like I could always use a good, healthy dose of optimism.
• 55:28
  Speaker 1: Yeah, yeah.
• 55:30
  Speaker 1: I think my sort of optimistic outlook is that there are folks at the table today that are engaged with the voluntary carbon market that were not at the table five years ago.
• 55:43
  Speaker 1: We're seeing that entities that are actually kind of being able to build and scale projects are a lot more interested and eager to work with communities that they're actually implementing these projects in.
• 56:02
  Speaker 1: They aren't doing carbon for kind of carbon sake.
• 56:08
  Speaker 1: They are realizing that for the long-term success of any carbon project you have to absolutely have community scale buy-in.
• 56:19
  Speaker 1: If you don't, you're not going to have a carbon project.
• 56:22
  Speaker 1: Native has certainly been fortunate that it really has been embedded within our ethos to do projects exactly like that right from when we've found it.
• 56:33
  Speaker 1: Maybe my optimism is a little blindsided by where I sit, where I would hope and imagine that others are also doing projects like us.
• 56:45
  Speaker 1: I can tell you that that's not always the case.
• 56:48
  Speaker 1: You are still seeing iffy projects.
• 56:51
  Speaker 1: You are still seeing additionality that might be weak.
• 56:55
  Speaker 1: You are seeing that maybe community involvement isn't all the way there.
• 57:00
  Speaker 1: I guess my optimism is more from the kind of guardrail and regulatory side of the market than some sort of seismic shift in the fact that all folks now care more.
• 57:15
  Speaker 1: I don't think that's the case.
• 57:17
  Speaker 1: I think it's more the case that from both the kind of buyer and the supplier end of the market, there just are initiatives out there that are really trying to hone in on what makes it trustworthy ecosystem for everybody to participate in Going forth.
• 57:43
  Speaker 1: I think that it's certainly going to be key for how this entire market shapes up.
• 57:48
  Speaker 2: That's amazing.
• 57:49
  Speaker 2: Any final thoughts, words of wisdom or key takeaways you want to leave folks with?
• 57:55
  Speaker 2: Yeah, Ben.
• 57:57
  Speaker 1: This has been very enlightening and a fun conversation.
• 58:02
  Speaker 1: Again, thank you for having me on.
• 58:05
  Speaker 1: I think what I'll leave you and your folks with here is that the kind of changing landscape and understanding and engagement from all sides of the voluntary carbon market has really given me a lot of hope in this space.
• 58:21
  Speaker 1: I, for one, kind of got into it from a perspective of disenchantment of the way that neoclassical economics was being taught in sort of graduate school.
• 58:35
  Speaker 1: That led me to finding a market-based mechanism to solve one of the most existential problems or existential threats to the sort of human experience that I've ever seen, I think, being alive in this kind of period of time where we really have, in my view, the last shot.
• 58:59
  Speaker 1: This, to me, is it which sounds bleak but also, I think, is filled with sort of optimism, because now you have more and more and more people who want impact with the work that they do.
• 59:11
  Speaker 1: You spend 40 plus hours a week doing work and if the work that you're doing isn't impacting people in some positive way be it carbon or be it sort of engaging with communities or doing something that sort of helps people, I think that sort of age of enlightened work you could say, where folks care about the things they do.
• 59:40
  Speaker 1: I think a lot of people are headed into that realm and that is what really gives me a lot of hope that we are all in it to sort of solve the world's biggest challenges, and when there are these many people trying to do that kind of work, I don't doubt that we will get there.
• 1:00:01
  Speaker 1: Maybe there will be certain hiccups along the way, which we have already seen here in the last 10 to 15 years in the industry that I'm in, but yeah, I don't doubt that we will one day get there.
• 1:00:26
  Speaker 2: Thank you so much for tuning in to today's episode.
• 1:00:28
  Speaker 2: As we close out this episode, I want to extend a heartfelt thank you to all of our listeners for tuning in.
• 1:00:34
  Speaker 2: If today's conversation about carbon markets with Serang Murthy piqued your interest, you'll definitely want to check out our previous discussion with Claire LaFave and Emily Gainer, also from Native.
• 1:00:44
  Speaker 2: We delve into the details of measuring scopes 1, 2, and 3 emissions and the intricacies of calculating those carbon offsets for sustainability.
• 1:00:51
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• 1:00:59
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• 1:01:04
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• 1:01:06
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• 1:01:09
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