WEBVTT - When Enough's Not Enough, Try Carbon Offsets 0:00:00.120 --> 0:00:03.680 Today on Switched On, we're going to talk about carbon offsets. 0:00:04.280 --> 0:00:06.200 About a year and a half ago, I took a 0:00:06.240 --> 0:00:09.879 look at my household carbon footprint. Since then, I've gone 0:00:09.880 --> 0:00:13.040 on a personal journey that has resulted in several changes 0:00:13.080 --> 0:00:16.280 in my home. We installed double paned windows with solar 0:00:16.320 --> 0:00:21.000 reflective film, switched to a renewable electricity, and swore off 0:00:21.000 --> 0:00:25.440 paper towels. I researched things like living roofs, solar panels, 0:00:25.440 --> 0:00:28.159 and heat pumps. Bit by bit, I drove down my 0:00:28.240 --> 0:00:31.720 carbon footprint, but never quite made it to net zero. 0:00:32.000 --> 0:00:33.840 So what's the girl to do to bridge the gap? 0:00:33.920 --> 0:00:36.559 Until I can figure out how to reduce emissions from 0:00:36.600 --> 0:00:39.280 the harder to abate parts of my life. I started 0:00:39.280 --> 0:00:42.360 buying carbon offsets. Many of you may be familiar with 0:00:42.400 --> 0:00:44.839 carbon offsets as the box that you can check on 0:00:44.880 --> 0:00:48.360 the online booking form for flights one selecting offsets. I 0:00:48.400 --> 0:00:51.040 wanted to make sure I was buying offsets that were 0:00:51.120 --> 0:00:54.560 actually going to have a net positive benefit. I started 0:00:54.640 --> 0:00:58.560 using gold Standard who certified projects. Taking a look at 0:00:58.560 --> 0:01:02.280 their inventory just now, I spotted things like Ethiopian forest 0:01:02.320 --> 0:01:06.560 regeneration and clean cook stoves in Rwanda. I also decided 0:01:06.600 --> 0:01:09.520 to look at directly working with charities like Solar Aid, 0:01:09.800 --> 0:01:13.319 which provides solar lamps as replacements for kerosene lamps, and 0:01:13.360 --> 0:01:16.480 by donating with them. While it isn't strictly considered a 0:01:16.520 --> 0:01:19.360 carbon offset, it's served the same purpose in my life 0:01:19.560 --> 0:01:23.280 on a microscopic scale, my journey to drive down emissions, 0:01:23.360 --> 0:01:25.720 only to find out just how hard it is to 0:01:25.760 --> 0:01:29.520 reach net zero and ultimately using carbon offsets to get 0:01:29.560 --> 0:01:31.759 me the rest of the way. There is what plenty 0:01:31.800 --> 0:01:34.960 of companies are doing on a massive scale, especially if 0:01:35.000 --> 0:01:37.440 they're in one of the hard to abate sectors where 0:01:37.440 --> 0:01:41.320 the technological solutions are simply not there yet. With us 0:01:41.360 --> 0:01:45.080 today is Kyle Harrison, who writes about corporate sustainability for 0:01:45.200 --> 0:01:47.440 US at b NF, and he's going to speak with 0:01:47.520 --> 0:01:50.800 us about a piece of research he wrote titled Voluntary 0:01:50.840 --> 0:01:55.000 Carbon Offsets a Shortcut for heavy Emitters. This report has 0:01:55.000 --> 0:01:57.240 a great deal of detail on the different ways of 0:01:57.240 --> 0:02:00.560 offsetting and companies operating in this space, and if you're 0:02:00.600 --> 0:02:03.320 a client, you can access it at BNF dot com 0:02:03.400 --> 0:02:05.960 or b NF go on the Bloomberg terminal. Just a 0:02:06.040 --> 0:02:08.840 quick reminder that B and F does not provide investment 0:02:08.919 --> 0:02:11.680 or strategy advice. And we've got a more complete disclaimer 0:02:11.720 --> 0:02:13.520 that you can listen to at the end of the show. 0:02:14.120 --> 0:02:17.520 I am here today with Mark Taylor, joined by Kyle Harrison. 0:02:17.720 --> 0:02:20.880 This is Dana Perkins. You're listening to Switched on the 0:02:21.000 --> 0:02:37.160 bn F podcast. Kyle, thank you for joining us today. 0:02:37.240 --> 0:02:40.440 Thanks for having me. So let's start quickly with a definition. 0:02:40.520 --> 0:02:43.959 We're here to talk about the voluntary carbon offset market 0:02:44.080 --> 0:02:47.960 for companies and what is a carbon offset Effectively, it's 0:02:48.000 --> 0:02:50.480 a way that a company can invest in a project 0:02:50.639 --> 0:02:53.800 that will indirectly go ahead and reduce emissions. So if 0:02:53.800 --> 0:02:55.919 you think about a company that derives a lot of 0:02:55.919 --> 0:02:58.400 emissions from air travel and that's a core part of 0:02:58.400 --> 0:03:01.440 their business and they can't necessarily remove those emissions, they 0:03:01.480 --> 0:03:04.840 can theoretically invest money in another project somewhere else in 0:03:04.840 --> 0:03:07.160 the world that will go ahead and reduce emissions in 0:03:07.200 --> 0:03:10.880 another way. But you actually, in the research note that 0:03:10.919 --> 0:03:14.280 we're discussing today describe carbon offsets as the black sheep 0:03:14.560 --> 0:03:18.120 of missions reduction strategies. So why do they have a 0:03:18.160 --> 0:03:21.160 bad reputation because this seems pretty simple as a solution, 0:03:21.200 --> 0:03:23.320 is it not? It is? I mean other there is 0:03:23.360 --> 0:03:26.240 a sunk cost aspect to this. There's no opportunity for 0:03:26.320 --> 0:03:29.520 savings when you invest in a voluntary carbon offset project. 0:03:29.600 --> 0:03:31.600 But the reason it kind of has this reputation as 0:03:31.639 --> 0:03:34.440 a fringe marketer, as you said, the black sheep of 0:03:34.480 --> 0:03:37.760 emission production strategies is for a lot of companies, when 0:03:37.760 --> 0:03:40.160 they go ahead and reduce their emissions, they'll actually go 0:03:40.200 --> 0:03:43.600 ahead and invest in some form of decarbonization that directly 0:03:43.640 --> 0:03:45.480 offsets what they're doing. So if you think of a 0:03:45.560 --> 0:03:48.960 large technology company that derives a lot of electricity from 0:03:49.000 --> 0:03:52.040 its data centers, they'll go ahead and purchase clean electricity 0:03:52.120 --> 0:03:54.960 because that effectively reduces the emissions that they're getting from 0:03:55.000 --> 0:03:57.920 the grid. But at the same time, with a carbon offset, 0:03:58.040 --> 0:04:01.080 you can theoretically invest in any project anywhere in the 0:04:01.080 --> 0:04:03.480 world and it doesn't necessarily have to correlate with your 0:04:03.520 --> 0:04:06.600 business and where your emissions are coming from and your operations. 0:04:06.960 --> 0:04:09.000 So as a results, you know, with our report, we 0:04:09.000 --> 0:04:10.960 actually called it a shortcut for a lot of companies, 0:04:10.960 --> 0:04:13.559 and as a result, some companies are a bit embarrassed 0:04:13.560 --> 0:04:15.800 to admit that they're using a shortcut to achieve their 0:04:15.840 --> 0:04:19.040 sustainability targets. Before we get into the companies that are 0:04:19.040 --> 0:04:21.240 actually doing this. Can you describe a bit about what 0:04:21.320 --> 0:04:23.880 kind of makes a good project versus a bad project? Yeah, 0:04:23.880 --> 0:04:26.760 And this actually is another reason data that you and 0:04:26.800 --> 0:04:28.400 I were talking about the fact that this is the 0:04:28.400 --> 0:04:32.040 black sheep of emission reduction strategies. The pricing that goes 0:04:32.080 --> 0:04:35.760 into a voluntary carbon offset is very opaque, and it's 0:04:35.800 --> 0:04:38.839 really dictated by a bunch of arbitrary factors. And the 0:04:38.880 --> 0:04:42.479 biggest driver of quality in the voluntary carbon offset market 0:04:42.800 --> 0:04:45.320 is this phrase that we call additionality. And you've heard 0:04:45.400 --> 0:04:48.159 me previously discussed this when it comes to clean energy buying. 0:04:48.440 --> 0:04:51.640 But additionality and the voluntary carbon offset market means that 0:04:51.800 --> 0:04:54.080 the money that you're giving to one of these projects, 0:04:54.160 --> 0:04:56.120 or the revenue that that project is earning from you, 0:04:56.400 --> 0:04:59.760 is driving brand new decarbonization that wouldn't have otherwise have 0:04:59.839 --> 0:05:02.120 had been. When you think of certain sectors and the 0:05:02.240 --> 0:05:04.640 carbon off set space, some of them can make that 0:05:04.680 --> 0:05:08.480 additionality claim better than others. Something with low additionality would 0:05:08.480 --> 0:05:11.560 be clean energy projects, which actually by sector or the 0:05:11.680 --> 0:05:14.920 biggest sector, but they're the lowest quality because those clean 0:05:15.000 --> 0:05:17.600 energy projects already have financial support, so if you think 0:05:17.600 --> 0:05:19.920 of a solar wind project in the United States, they 0:05:19.960 --> 0:05:23.640 already generate renewable energy certificates as an additional revenue stream, 0:05:23.680 --> 0:05:26.720 and at the same time they already have subsidy support, 0:05:26.800 --> 0:05:28.839 so they have the investment tax credit of the production 0:05:28.880 --> 0:05:32.039 tax credit. So is my investment into that clean energy 0:05:32.080 --> 0:05:35.320 project really going to drive additional decarbonization or would it 0:05:35.320 --> 0:05:37.760 have already been built without that additional carbon off set 0:05:37.800 --> 0:05:40.680 revenue either way, So it's hopping in on the cotails 0:05:40.680 --> 0:05:43.159 of something that already would have happened, exactly for a 0:05:43.240 --> 0:05:46.680 low quality project on the other end of the special project, 0:05:46.800 --> 0:05:49.279 and we call those red plus and that actually stands 0:05:49.320 --> 0:05:53.600 for reducing emissions from deforestation and forest degradation, but we'll 0:05:53.600 --> 0:05:56.160 go ahead and use the the abbreviation moving forward. When 0:05:56.200 --> 0:05:59.080 you think of a project like that, you're investing into 0:05:59.120 --> 0:06:01.720 a company that's going to either a plant more trees 0:06:02.000 --> 0:06:05.240 or invest more resources into the conservation of a forest. 0:06:05.400 --> 0:06:08.120 So you can much more directly claim that additionality those 0:06:08.160 --> 0:06:10.360 trees would not have been planted without that carbon off 0:06:10.360 --> 0:06:14.080 set revenue. Are most of these organizations doing these reforestation 0:06:14.240 --> 0:06:17.279 or forest project of the companies or the nonprofits typically 0:06:17.680 --> 0:06:20.440 it's a good combination for red plus. You do have 0:06:20.480 --> 0:06:23.120 a lot of NGOs that are functioning in this space, 0:06:23.279 --> 0:06:25.240 but in some of the other sectors you actually have 0:06:26.000 --> 0:06:30.040 private companies that specialize in carbon offset project development. Kind 0:06:30.040 --> 0:06:32.600 of a whole spectrum of different types of companies, but yes, 0:06:32.760 --> 0:06:35.400 very much so in these large red plus projects, you're 0:06:35.400 --> 0:06:38.360 looking at NGOs mostly. So when we look at the 0:06:38.400 --> 0:06:41.560 benefit of planting trees, let's say forty years, over the 0:06:41.560 --> 0:06:44.600 course of a tree's life, they're able to absorb x 0:06:44.640 --> 0:06:47.040 amount of c O two from the atmosphere. I would 0:06:47.080 --> 0:06:49.760 imagine that actually guaranteeing that a project is going to 0:06:49.800 --> 0:06:52.800 be there for forty year time horizon is reasonably difficult 0:06:52.839 --> 0:06:55.440 to do. Given that these projects are taking place all 0:06:55.480 --> 0:06:59.040 over the world and a variety of different political environments. 0:06:59.680 --> 0:07:03.240 How do companies go about actually verifying that the project 0:07:03.279 --> 0:07:05.960 that they want to have done as their offset will 0:07:05.960 --> 0:07:09.400 actually continue to exist. Yeah, that's a great question. Data 0:07:09.440 --> 0:07:11.920 and that actually that is a huge impact on pricing 0:07:12.080 --> 0:07:14.720 as well. Mark and it's actually one of the less 0:07:14.880 --> 0:07:18.560 arbitrary factors that goes into that pricing. So the actual 0:07:18.640 --> 0:07:22.280 measurability of an offset, so over time, if you have, 0:07:22.400 --> 0:07:24.800 say again a red plus project. I mean you plant 0:07:24.840 --> 0:07:27.360 that tree, you need to go ahead each year and 0:07:27.440 --> 0:07:30.120 verify the fact that not only is that tree still standing, 0:07:30.320 --> 0:07:33.920 but it's going ahead and producing carbon offsets. Different projects 0:07:34.000 --> 0:07:36.200 are a lot harder to actually go ahead and verify. 0:07:36.440 --> 0:07:39.760 If you think of say a methane capture project, which 0:07:39.800 --> 0:07:43.000 is a very common voluntary carbon offset project, it simply 0:07:43.040 --> 0:07:46.720 involves installing a sensor at say a coal mining operation, 0:07:46.920 --> 0:07:49.600 and then actually it's measuring the methane that's captured and destroyed. 0:07:49.680 --> 0:07:52.000 But with something like a forestry project, you actually need 0:07:52.040 --> 0:07:55.120 to use satellite imagery or physically fly over that site 0:07:55.200 --> 0:07:57.680 to make sure that that tree that you're specifically referring 0:07:57.720 --> 0:08:00.440 to is still standing every single year. And that's not 0:08:00.480 --> 0:08:03.200 only difficult to verify, but it's expensive to do as well. 0:08:03.240 --> 0:08:05.280 So that has a huge impact. I'm driving up that 0:08:05.360 --> 0:08:07.960 price and it's a huge factor in the market as well. 0:08:08.160 --> 0:08:09.680 So it seems to set up a whole value chain 0:08:09.800 --> 0:08:12.360 for the offsets market. Right, you have the people that 0:08:12.520 --> 0:08:15.280 do the forestry, the reforestation, I guess, and those who 0:08:15.360 --> 0:08:17.240 will go out and verify the three still standing? Is 0:08:17.280 --> 0:08:20.960 that right? Yep? And unfortunately some of these project developers 0:08:21.000 --> 0:08:24.680 actually happened to double as verification agencies as well. So 0:08:24.880 --> 0:08:27.240 there is a little bit of objectivity that's thrown out 0:08:27.280 --> 0:08:29.160 the window when it comes to the market. And I 0:08:29.160 --> 0:08:32.080 think that's another reason that this market's reputation has taken 0:08:32.080 --> 0:08:34.720 a hit over the years, is you don't necessarily know 0:08:34.800 --> 0:08:37.000 if you have a developer that's offering you a price. 0:08:37.200 --> 0:08:39.679 It's very possible that you could find a similar project 0:08:39.760 --> 0:08:42.160 in the same market and get an entirely different price. 0:08:42.400 --> 0:08:44.440 UM So a lot of that is up to the 0:08:44.520 --> 0:08:46.960 jurisdiction of the developer, right, So can you lay this 0:08:47.000 --> 0:08:49.360 to rest I in my notes when I was reading 0:08:49.360 --> 0:08:52.120 your note, I just said, is it a racket? Is 0:08:52.120 --> 0:08:54.640 this a racket? There's even brokers here too, right, they'll 0:08:54.679 --> 0:08:57.080 help you find a project. You know, they might be 0:08:57.200 --> 0:08:59.880 selling this project to multiple buyers. I don't know. I 0:09:00.040 --> 0:09:02.760 don't know. Maybe it's fully legitimate, maybe it's not. Can 0:09:02.800 --> 0:09:05.000 you comment on that. I'm not going to go as 0:09:05.000 --> 0:09:06.920 far as saying that it's a racket, but I think 0:09:06.920 --> 0:09:09.840 that the market needs to see serious improvement for it 0:09:09.880 --> 0:09:13.480 to be a viable strategy for companies to achieve their sustainability. Goals. 0:09:13.640 --> 0:09:16.840 So you're right, there is this angle of measurability, but 0:09:17.000 --> 0:09:19.840 all the factors that go into this, the opaqueness of 0:09:19.960 --> 0:09:23.240 pricing in the voluntary carbon officet market, all really mean 0:09:23.320 --> 0:09:25.800 that the reputation takes a hit. And moving forward, I 0:09:25.800 --> 0:09:28.400 think as you have more demand from harder to abate 0:09:28.440 --> 0:09:30.640 companies that are going to start looking at the voluntary 0:09:30.679 --> 0:09:33.319 carbon offset market as a lifeline for them, I think 0:09:33.320 --> 0:09:34.960 you're gonna need to start to see a little bit 0:09:35.000 --> 0:09:38.640 more legitimacy when it comes to a delineation of companies. So, 0:09:38.840 --> 0:09:43.080 as we said before, specific companies serving as developers, nonpartisan, 0:09:43.120 --> 0:09:47.240 impartial companies serving as verification agencies, and everything in between. 0:09:47.280 --> 0:09:49.480 So you need that clear delineation, but then you also 0:09:49.520 --> 0:09:52.040 need a much more clear methodology into what goes into 0:09:52.040 --> 0:09:54.960 pricing and how you measure those offsets. How would I 0:09:54.960 --> 0:09:57.800 start doing my research to find a project that's worthwhile. 0:09:58.320 --> 0:10:01.920 There's four major volunteer a carbon offset registries that verify 0:10:01.960 --> 0:10:04.360 the legitimacy of a project, and when a project goes 0:10:04.440 --> 0:10:07.360 up on that registry, they list in annual capacity, so 0:10:07.520 --> 0:10:10.160 how much they actually can reduce emissions by on an 0:10:10.200 --> 0:10:12.360 annual basis. And one of the key things that I 0:10:12.360 --> 0:10:14.320 would do is a buyer is first go ahead and 0:10:14.320 --> 0:10:17.560 look at what projects are issuing the most offsets relative 0:10:17.600 --> 0:10:19.600 to their capacity, because if you actually, you know, kind 0:10:19.600 --> 0:10:21.640 of peel back the skin a little bit, you'll see 0:10:21.679 --> 0:10:24.840 that maybe three quarters of the projects that are verified 0:10:24.880 --> 0:10:27.680 and registered in this market are not actually issuing any 0:10:27.679 --> 0:10:30.560 carbon offsets. They're they're lower quality projects, so they don't 0:10:30.559 --> 0:10:32.560 have a buyer. So you want to find those projects 0:10:32.559 --> 0:10:36.079 that are issuing a lot of offsets relative to their capacity. 0:10:36.280 --> 0:10:37.880 The second thing I would do again is kind of 0:10:38.000 --> 0:10:40.160 key in on the sector. So we talked about certain 0:10:40.200 --> 0:10:43.880 sectors of higher additionality and are considered higher quality offsets, 0:10:43.960 --> 0:10:45.439 So you want to go ahead and look at those 0:10:45.440 --> 0:10:48.800 sectors like forestry or red plus, but then also something 0:10:48.840 --> 0:10:51.440 like energy demand projects, So what I mean by that 0:10:51.600 --> 0:10:55.320 is either energy efficiency or something like clean cookstone distribution. 0:10:55.679 --> 0:10:58.280 So the sector is also key, but then the developer 0:10:58.320 --> 0:11:00.760 as well. So you're gonna have a lot to developers 0:11:00.760 --> 0:11:03.600 that are fairly prominent in this space, but it becomes 0:11:03.679 --> 0:11:07.400 quite evident very quickly that they're using voluntary carbon offics 0:11:07.600 --> 0:11:10.080 as an additional revenue stream to what they're already doing 0:11:10.080 --> 0:11:12.120 with that project. What you want to do is go 0:11:12.160 --> 0:11:15.600 ahead and find those developers that specialize in voluntary carbon 0:11:15.600 --> 0:11:18.520 offset projects because they are building those projects and they're 0:11:18.559 --> 0:11:21.120 focusing on that additionality factor. So those are kind of 0:11:21.120 --> 0:11:23.320 the main things. So there clearly is a lot that 0:11:23.360 --> 0:11:27.240 goes into ensuring the additionality. But then once you as 0:11:27.280 --> 0:11:29.960 a business have found the offset that you're going to use, 0:11:30.000 --> 0:11:31.720 and let's say you've gone through all the checks that 0:11:31.720 --> 0:11:34.960 you're happy with, then the question is are those that 0:11:35.000 --> 0:11:38.560 are purchased by companies is that looked upon favorably or 0:11:38.880 --> 0:11:42.760 negatively by the finance communities? For example, I'm thinking of 0:11:43.000 --> 0:11:45.880 E s G focused asset managers who might be invested 0:11:45.920 --> 0:11:48.080 in these businesses. So I think the way a lot 0:11:48.080 --> 0:11:50.480 of companies would look at this is after they've tried 0:11:50.520 --> 0:11:53.480 to decarbonize in every other possible way that doesn't involve 0:11:53.520 --> 0:11:56.080 a holistic shift in their business model, then you kind 0:11:56.080 --> 0:11:58.960 of have this final lifeline of a voluntary carbon off set. 0:11:59.160 --> 0:12:00.920 So I think if empties are going to use it, 0:12:00.960 --> 0:12:03.280 they're not the ones holding their hands up the highest 0:12:03.320 --> 0:12:05.040 in the audience, right, and they might keep it a 0:12:05.040 --> 0:12:07.240 little bit closer to their chest, and actually, you know, 0:12:07.360 --> 0:12:09.560 you can look at some of these registries and actually 0:12:09.559 --> 0:12:12.920 see what companies are purchasing and retiring offsets, and I 0:12:12.920 --> 0:12:14.960 think some of those companies are pretty tight lipped about it. 0:12:15.120 --> 0:12:16.560 So in a lot of ways, it's kind of viewed 0:12:16.600 --> 0:12:18.880 as an end of the line strategy. But I think 0:12:18.960 --> 0:12:22.120 as you see more of these harder to abate sectors, 0:12:22.120 --> 0:12:24.800 so I'm thinking of aviation, thinking of oil and gas 0:12:24.920 --> 0:12:28.640 chemical companies, it's really challenging for those companies to decarbonize 0:12:28.679 --> 0:12:31.600 any other way. And as they're getting pressure from investors, 0:12:31.600 --> 0:12:33.920 I think the investment community will become a little bit 0:12:33.960 --> 0:12:36.400 more accepting of this market. And the last thing I 0:12:36.440 --> 0:12:38.839 would add is, you know, you have this whole world 0:12:38.920 --> 0:12:41.120 of what we call science based targets. So these are 0:12:41.120 --> 0:12:44.040 emission reductions goals that are effectively in line with the 0:12:44.520 --> 0:12:47.320 well below two degree scenario and the Parish agreement. And 0:12:47.480 --> 0:12:50.080 for companies that have set a science based target, they're 0:12:50.120 --> 0:12:53.440 not legally allowed to use carbon offsets to meet those goals. 0:12:53.600 --> 0:12:55.040 And one of the things that we highlight in the 0:12:55.080 --> 0:12:58.880 report is for this market to really gain more legitimacy 0:12:58.920 --> 0:13:01.800 and truly thrive, it needs to get acceptance from those 0:13:01.840 --> 0:13:05.560 third party sustainability commitments, otherwise it's going to continue to 0:13:05.640 --> 0:13:08.320 have that reputation as the black sheep. Let's talk a 0:13:08.320 --> 0:13:11.439 little bit more about the companies that actually do use 0:13:11.520 --> 0:13:14.400 these offsets and the hard to abate sectors. So one 0:13:14.440 --> 0:13:18.160 thing I'm wondering is what percentage of total greenhouse gases 0:13:18.200 --> 0:13:21.080 do these hard to abate sectors really represent. If you 0:13:21.080 --> 0:13:23.240 look at data from the i p c C, some 0:13:23.320 --> 0:13:26.319 of the most heavy emitting sectors are ones like industrials 0:13:26.320 --> 0:13:28.800 and agriculture. You have oil and gas, but then you 0:13:28.840 --> 0:13:31.160 also have transport as well, and if you actually if 0:13:31.200 --> 0:13:33.720 you add all those sectors up, you're looking at probably 0:13:34.040 --> 0:13:37.400 four fifths of the emissions pie is coming from those 0:13:37.600 --> 0:13:40.760 harder to abate sectors and companies and all those sectors 0:13:40.760 --> 0:13:43.960 are leaning on this voluntary carbon offsets market as a 0:13:43.960 --> 0:13:47.880 way to decarbonize. What countries is this popular in? Because 0:13:47.920 --> 0:13:50.760 it is more popular in certain locations and others if 0:13:50.760 --> 0:13:53.360 you look at the markets with the most projects, and 0:13:53.400 --> 0:13:56.000 I should clarify that doesn't necessarily mean it's the most 0:13:56.040 --> 0:13:58.760 popular from a demand standpoint, But on the supply side, 0:13:58.960 --> 0:14:03.040 the three biggest markets by quite a large margin are China, India, 0:14:03.040 --> 0:14:05.680 and the United States. So in China, you have a 0:14:05.679 --> 0:14:08.440 lot of projects that were actually built potentially over a 0:14:08.440 --> 0:14:11.280 decade ago, and they are actually built for compliance markets. 0:14:11.520 --> 0:14:14.360 So China in the past years had initiated a cap 0:14:14.400 --> 0:14:16.800 and trade program, so a lot of these projects were 0:14:16.920 --> 0:14:19.840 basically built for the compliance markets, and they've earmarked a 0:14:19.880 --> 0:14:23.400 certain segment of those carbon offsets for the voluntary markets, 0:14:23.520 --> 0:14:26.000 and generally those are considered much lower quality. So you 0:14:26.080 --> 0:14:28.280 have those projects that were built ten years ago and 0:14:28.280 --> 0:14:30.760 they don't necessarily need that additional revenue. It's not going 0:14:30.800 --> 0:14:33.760 to drive additional decarbonization. If you look at a market 0:14:33.800 --> 0:14:36.360 like India or the United States, you see a much 0:14:36.400 --> 0:14:39.280 heavier focus again on those red plus projects, but also 0:14:39.360 --> 0:14:42.160 a mission abatement projects as well, so thinking of things 0:14:42.160 --> 0:14:45.720 that capture landfill gas and destroy it, but also projects 0:14:45.720 --> 0:14:48.720 that are related to potentially like capturing livestock and mission 0:14:48.760 --> 0:14:51.000 and destroying those. So those are kind of the three 0:14:51.040 --> 0:14:54.400 biggest markets, and I would say from the demand side, 0:14:54.520 --> 0:14:58.200 it's very heavily focused on those European and US companies 0:14:58.360 --> 0:15:01.400 that are more forward thinking it comes to sustainability. So 0:15:01.440 --> 0:15:03.760 if you went ahead and pull data on pretty much 0:15:03.800 --> 0:15:06.960 any major sustainability commitment, and you looked at the geographic breakdown, 0:15:07.000 --> 0:15:09.920 it's going to be heavily focused on uk, US and 0:15:10.000 --> 0:15:12.880 some other European countries. Those are the companies that are 0:15:12.880 --> 0:15:14.880 domiciled in those markets. Those are the ones who are 0:15:14.960 --> 0:15:17.400 leading on buying these offsets around the world. Are there 0:15:17.440 --> 0:15:20.480 any glaring omissions in project locations? I mean, as a 0:15:20.520 --> 0:15:22.600 concerned citizen, I would think I would want to see 0:15:22.600 --> 0:15:25.680 red bus projects in Brazil. Mark. I'll throw a question 0:15:25.720 --> 0:15:27.920 back at you, if you were a corporation and all 0:15:27.920 --> 0:15:30.200 of your emissions were coming from the United States, would 0:15:30.240 --> 0:15:33.440 you feel a little bit weird about purchasing offsets from Brazil? 0:15:34.560 --> 0:15:36.560 And I'm not saying your question was wrong. There actually 0:15:36.600 --> 0:15:39.160 is quite a big portfolio of projects in Brazil, so 0:15:39.320 --> 0:15:41.040 it was a good question. But I think that is 0:15:41.080 --> 0:15:42.840 one of the reasons why some of these markets that 0:15:42.880 --> 0:15:45.760 make logical sense from a oh you could use the 0:15:45.800 --> 0:15:48.960 conservation there, we could use the emission reductions don't necessarily 0:15:49.240 --> 0:15:51.920 add up as the best voluntary markets because maybe the 0:15:51.920 --> 0:15:54.600 demand isn't there, maybe the policy isn't in place, but 0:15:54.840 --> 0:15:57.160 you do have a heavy reliance on I would say 0:15:57.160 --> 0:16:00.600 emerging markets. Those energy demand projects I mentioned earlier, so 0:16:00.880 --> 0:16:04.400 clean cook stove distribution that's heavily focused on Latin America, 0:16:04.560 --> 0:16:07.960 Southeast Asia, and Africa. Same for these forestry projects. You 0:16:08.000 --> 0:16:10.760 do actually have some big forestry projects in California. I'm 0:16:10.760 --> 0:16:13.440 sure that excites you, Dana, being a California native. But 0:16:13.640 --> 0:16:16.360 the spread overall back to your original question is I 0:16:16.360 --> 0:16:18.840 mean there's over a hundred markets that these projects exist 0:16:18.880 --> 0:16:21.640 in that have been implemented already, and at a certain point, again, 0:16:21.680 --> 0:16:24.680 as demand goes up, I would suspect that portfolio of 0:16:25.160 --> 0:16:27.120 markets and countries that you can buy these from is 0:16:27.120 --> 0:16:31.440 going to continue to grow. So as an individual, I've 0:16:31.480 --> 0:16:33.880 looked for carbon offsets in the past, and what immediately 0:16:33.880 --> 0:16:36.480 comes to mind is your online You're buying a flight 0:16:36.640 --> 0:16:38.520 and it asked you whether or not you want to 0:16:38.560 --> 0:16:41.320 participate in the scheme that the airline is presented to you. 0:16:41.800 --> 0:16:45.280 So my question is in this voluntary offset space, is 0:16:45.320 --> 0:16:49.360 this largely a game for large corporations or is there 0:16:49.400 --> 0:16:53.440 a critical massive individuals that are out there offsetting their emissions. 0:16:53.480 --> 0:16:55.880 I would say it's for both. So I think from 0:16:55.880 --> 0:16:59.640 the airline standpoint, airlines are among the most vocal sectors 0:16:59.680 --> 0:17:03.800 about purchasing carbon offsets, and again, they fit squarely into 0:17:03.840 --> 0:17:07.440 that harder to abate sector, right because all their emissions 0:17:07.480 --> 0:17:10.080 come from flight, and how do you go ahead and 0:17:10.160 --> 0:17:13.120 reduce those emissions if your core business is flying. It's 0:17:13.160 --> 0:17:15.440 nearly impossible, right. There's a few ways that you can 0:17:15.480 --> 0:17:18.360 reduce it, but overall, offsets are huge for the airline industry, 0:17:18.600 --> 0:17:21.560 and it's actually a great way for airline companies to 0:17:21.960 --> 0:17:24.639 go ahead and pass on those costs to customers and 0:17:24.680 --> 0:17:27.000 make it. Obviously we're talking about a voluntary market as 0:17:27.040 --> 0:17:31.080 it is, but actually add another level of voluntary into that, right, 0:17:31.119 --> 0:17:33.560 because customers can actually go ahead and pay that additional 0:17:33.600 --> 0:17:36.400 premium for those offsets. I mean, airlines are a particularly 0:17:36.440 --> 0:17:39.240 interesting one right now because we're talking about this, but 0:17:39.400 --> 0:17:44.120 social distancing has caused their industry to change massively overnight. 0:17:44.400 --> 0:17:47.679 Extrapolating out from that, what do you think the COVID 0:17:47.760 --> 0:17:51.280 nightteen social distancing is going to do to the voluntary 0:17:51.280 --> 0:17:53.840 carbon offset market. It's a great question. One of the 0:17:53.920 --> 0:17:56.879 long term impacts of the pandemic potentially is that you 0:17:56.920 --> 0:17:59.800 have shifting consumer behaviors, so you might have customers that 0:17:59.800 --> 0:18:02.520 are less keen on flying moving forward or less keen 0:18:02.560 --> 0:18:05.359 on using transport moving forward, and both of those factors 0:18:05.400 --> 0:18:08.080 are going to have an impact on aviation demand and 0:18:08.119 --> 0:18:11.880 transport demand. So those companies, longer term, their emissions profiles 0:18:11.880 --> 0:18:14.239 could look very different. So I think the one thing 0:18:14.280 --> 0:18:17.080 we can guarantee is in the immediate term that COVID 0:18:17.119 --> 0:18:20.160 will have an impact on demand for voluntary carbon offsets. 0:18:20.240 --> 0:18:22.240 In the long term, we still think that it's going 0:18:22.280 --> 0:18:24.600 to be a prominent way for companies to de carbonize, 0:18:24.640 --> 0:18:26.680 but you could see that shift in some way, shape 0:18:26.720 --> 0:18:29.800 or form as we're in a recovery period. So our 0:18:29.880 --> 0:18:32.919 last question for today, what is the most interesting project 0:18:33.000 --> 0:18:35.560 that you've heard of? That's a tough one. I would 0:18:35.560 --> 0:18:38.919 say that there's some really cool redwood conservation projects in 0:18:38.960 --> 0:18:41.720 northern California. But one of the big things that I 0:18:41.720 --> 0:18:44.199 think is interesting about those projects is that they tout 0:18:44.359 --> 0:18:47.840 the secondary environmental benefits. So if you keep those trees 0:18:47.880 --> 0:18:51.400 in the ground, you're also looking at healthier ecosystems for wildlife, 0:18:51.440 --> 0:18:54.440 but also things like improved water filtration. So I think 0:18:54.480 --> 0:18:57.399 the ability for a project to really tell that full 0:18:57.520 --> 0:19:00.520 environmental story. I would say that impacts my perception of 0:19:00.560 --> 0:19:02.439 the project, and I would say it also impacts the 0:19:02.440 --> 0:19:05.119 way corporate buyer would as well. When those redwood forests, 0:19:05.119 --> 0:19:08.320 beyond being super cool and really grand and having the 0:19:08.320 --> 0:19:10.960 ability to reduce emissions a lot, they tell that story 0:19:11.040 --> 0:19:13.679 really well, so I would say I'm a fan of those. Well, Kyle, 0:19:13.720 --> 0:19:15.640 thank you very much for joining us today to talk 0:19:15.640 --> 0:19:19.040 to us about the voluntary carbon offset market. Yeah, thanks 0:19:19.080 --> 0:19:21.280 for having me. And I'll just one final plug. Take 0:19:21.320 --> 0:19:23.680 a look at the Voluntary Carbon Offsets Data Viewer when 0:19:23.680 --> 0:19:25.920 you get a chance. That's a great way to identify 0:19:26.040 --> 0:19:33.359 keep projects for buyers to look at. Thanks Kyle. Bloombergin 0:19:33.400 --> 0:19:35.800 EAP is a service provided by Bloomberg Finance LP and 0:19:35.840 --> 0:19:38.760 its affiliates. This recording does not constitute, nor should it 0:19:38.800 --> 0:19:42.760 be construed as investment advice, investment recommendations, or a recommendation 0:19:42.840 --> 0:19:45.840 as to an investment or other strategy. Bloombergin EAP should 0:19:45.840 --> 0:19:48.480