WEBVTT - Do or Die: Carbon Offset Markets Face Critical Year 0:00:00.200 --> 0:00:03.000 This is Dana Perkins and you're listening to Switched on 0:00:03.320 --> 0:00:07.560 the BNAF podcast. Twenty twenty three was a tumultuous year 0:00:07.680 --> 0:00:10.600 for the voluntary carbon market, with highs and lows. There 0:00:10.640 --> 0:00:14.400 was constant public scrutiny and high profile scandals that undermined 0:00:14.400 --> 0:00:18.880 investor confidence. Meanwhile, despite the turmoil, the carbon offset market 0:00:18.880 --> 0:00:22.280 actually grew to a record size, surpassing the previous high 0:00:22.360 --> 0:00:26.040 set in twenty twenty one. This same year, companies retired 0:00:26.079 --> 0:00:30.120 a wopping one hundred and sixty three million carbon credits. However, 0:00:30.440 --> 0:00:33.680 global agreement on carbon credits failed to get traction yet 0:00:33.720 --> 0:00:36.599 again at COP twenty eight in Dubai, and fears over 0:00:36.680 --> 0:00:40.839 greenwashing continue, making twenty twenty four a potentially make or 0:00:40.960 --> 0:00:43.360 break gear for the sector. So what is it going 0:00:43.440 --> 0:00:46.680 to take to see stability and growth for carbon offsets? 0:00:46.920 --> 0:00:49.600 Today we're going to talk about bnif's a recent twenty 0:00:49.680 --> 0:00:53.239 twenty four edition of the Long Term Carbon Offsets Market Outlook, 0:00:53.360 --> 0:00:56.040 where we put to the test several scenarios on how 0:00:56.120 --> 0:00:58.680 this market could play out in the longer term. On 0:00:58.720 --> 0:01:01.840 today's show, I'm joined by the head of sustainability research 0:01:01.920 --> 0:01:05.639 for the America's and Emia Kyle Harrison and bnaf's Carbon 0:01:05.640 --> 0:01:09.520 Offsets analyst Leila Kanfar. We review three of the nine 0:01:09.520 --> 0:01:12.000 scenarios that they looked at in this report and discuss 0:01:12.040 --> 0:01:16.039 whether they spell success, steady growth, or a disaster for 0:01:16.120 --> 0:01:19.720 the offsets market. To access our long term Carbon offsets 0:01:19.760 --> 0:01:22.959 outlook for twenty twenty four, BNIF subscribers are going to 0:01:22.959 --> 0:01:25.520 be able to find this at BNAF dot com or 0:01:25.640 --> 0:01:28.559 BNF go on the Bloomberg terminal. Subscribe to this show 0:01:28.640 --> 0:01:31.280 for updates when we publish future episodes, and give us 0:01:31.280 --> 0:01:33.720 a review to share us with others. But right now, 0:01:33.800 --> 0:01:36.560 let's talk to Kyle and Laila about the outlook for 0:01:36.640 --> 0:01:48.800 carbon offsets. Kyle, thank you for coming back to the 0:01:48.840 --> 0:01:49.400 show today. 0:01:49.680 --> 0:01:50.640 Yeah, thanks for having me. 0:01:50.680 --> 0:01:52.720 Danna and Layla, thank you for coming as well. 0:01:52.800 --> 0:01:53.760 Thank you for having me. 0:01:54.000 --> 0:01:57.400 So we're here for an update regarding voluntary carbon markets 0:01:57.560 --> 0:02:00.400 and what is happening in that space. Let's start by 0:02:00.600 --> 0:02:03.400 looking back. We recently did an update and we're thinking 0:02:03.440 --> 0:02:06.440 about twenty twenty three. So the year that just closed, 0:02:06.720 --> 0:02:09.280 there were some notable things, not all of them good, 0:02:09.480 --> 0:02:12.120 that happened in that year. Can you give us a 0:02:12.120 --> 0:02:14.440 bit of a highlight of some of the things that 0:02:14.639 --> 0:02:17.840 happened in the voluntary carbon market space that are helping 0:02:18.000 --> 0:02:20.640 us really think about it and are shaping its future. 0:02:20.960 --> 0:02:23.760 Well. To start, we faced a lot of media scrutiny 0:02:23.840 --> 0:02:27.280 against the market in twenty twenty three. We saw major 0:02:27.360 --> 0:02:31.519 headlines that just put buyers and other market players off 0:02:31.760 --> 0:02:34.520 from the voluntary market, and this really forced people to 0:02:34.600 --> 0:02:37.760 think what else could we do better in that market? 0:02:37.840 --> 0:02:40.960 But following the media scrutiny, it kind of materialized into 0:02:41.000 --> 0:02:44.600 something more. We saw big companies getting sued because they 0:02:44.680 --> 0:02:47.960 use carbon offsets, so it was a continuous cycle of 0:02:48.440 --> 0:02:52.160 media scrutiny, some lawsuits. The prices have dropped as well, 0:02:52.360 --> 0:02:55.280 and that just spread a lot of discussion and concerns 0:02:55.320 --> 0:02:57.519 around whether this market is even viable or if it 0:02:57.520 --> 0:03:00.600 should play a role in the energy transition at all legitimate. 0:03:00.760 --> 0:03:04.000 But again, towards the end of twenty twenty three, we 0:03:04.160 --> 0:03:08.480 saw a bigger push for standardizing that market and addressing 0:03:08.560 --> 0:03:13.200 those concerns, and it mainly came from private and independent organizations. 0:03:13.360 --> 0:03:16.000 There was a lot of hope for a un lad 0:03:16.040 --> 0:03:20.520 body to standardize it, but those discussions have fallen or 0:03:20.560 --> 0:03:22.200 fell apart at cop twenty eight. 0:03:22.560 --> 0:03:25.280 Yeah, and just to add to what Leilah is saying, so, 0:03:25.360 --> 0:03:27.400 I think it was kind of a year of two halves. 0:03:27.480 --> 0:03:29.600 Right in the beginning of the year, as Leila mentioned, 0:03:29.639 --> 0:03:31.840 there was an article from The Guardian about a lot 0:03:31.840 --> 0:03:34.840 of forestry projects. We're creating these carbon credits, right, these 0:03:34.920 --> 0:03:38.560 verified emission reduction certificates that were not actually additional or 0:03:38.600 --> 0:03:40.840 they were never actually being created in the first place. 0:03:41.240 --> 0:03:43.000 But things really did start to pick up in a 0:03:43.000 --> 0:03:45.080 positive way in the second half of the year, and 0:03:45.120 --> 0:03:47.000 I think that all kind of came to fruition at 0:03:47.040 --> 0:03:50.440 COP twenty eight. You had all the carbon offset registries, 0:03:50.560 --> 0:03:52.960 you had some of the verification bodies and the standards 0:03:53.000 --> 0:03:55.280 come together and say the private sector needs to take 0:03:55.320 --> 0:03:58.720 a more active role in legitimizing this market. We can't 0:03:58.760 --> 0:04:01.880 just rely on the UN or government bodies to do so. 0:04:01.880 --> 0:04:04.120 So yeah, a lot of volatility. I think one of 0:04:04.160 --> 0:04:07.560 the key indicators that we really saw that reflected kind 0:04:07.560 --> 0:04:10.160 of some of the negative thoughts and feelings about this 0:04:10.240 --> 0:04:13.400 market were futures prices. So, for example, there's a futures 0:04:13.440 --> 0:04:17.359 product for voluntary carbon offsets called n GEO trades on 0:04:17.400 --> 0:04:19.800 the CBL expanse of exchange, and what it does is 0:04:19.839 --> 0:04:22.960 it bundles together a bunch of forestry carbon credits. And 0:04:22.960 --> 0:04:25.280 at the beginning of twenty twenty three, that product was 0:04:25.320 --> 0:04:27.600 trading at around six dollars a ton. If you fast 0:04:27.640 --> 0:04:29.360 forward to the end of the year, it was trading 0:04:29.360 --> 0:04:31.600 a closer to forty cents a ton. So that reflects 0:04:31.640 --> 0:04:33.520 a lot of buyer sentiment in this market over the 0:04:33.560 --> 0:04:34.359 past twelve months. 0:04:34.480 --> 0:04:36.719 I mean, that's a pretty wild shift. But even then, 0:04:36.920 --> 0:04:38.839 what you guys have just laid out is the fact 0:04:38.839 --> 0:04:42.720 that this is a fundamental questioning of the role of 0:04:42.960 --> 0:04:46.960 voluntary carbon in a net zero future. So let's kind 0:04:46.960 --> 0:04:48.719 of break this down a little bit. So part of 0:04:48.720 --> 0:04:51.279 it is the media scrutiny, which is something that is 0:04:51.400 --> 0:04:55.880 not new. A view on greenwashing and whether or not 0:04:56.080 --> 0:04:58.760 certain projects will be additional are things we've talked about 0:04:58.760 --> 0:05:01.160 on this podcast, I think with both of you, maybe 0:05:01.200 --> 0:05:02.719 not at the same time. This is in our first 0:05:02.760 --> 0:05:06.000 podcast about voluntary carbon, but it's clear that this really 0:05:06.120 --> 0:05:08.560 kind of came to a head in twenty twenty three. 0:05:08.640 --> 0:05:11.240 So then you have this then second part of the 0:05:11.240 --> 0:05:14.960 conversation that's around standardization. Can you go into a bit 0:05:15.040 --> 0:05:18.200 more detail on well, first of all, what those bodies 0:05:18.360 --> 0:05:21.960 look like and what the progress was on the standardization front. 0:05:22.640 --> 0:05:26.000 So the market as of right now is quite fragmented. 0:05:26.200 --> 0:05:28.600 So even if you do have those bodies that are 0:05:28.640 --> 0:05:31.680 trying to standardize the market, when they first emerged, there 0:05:31.680 --> 0:05:33.920 were a bunch of different ones and it looked like 0:05:33.960 --> 0:05:37.159 they were operating independently of each other. So it kind 0:05:37.160 --> 0:05:39.920 of just added another problem because why would you standardize 0:05:39.920 --> 0:05:41.919 something with having too many cooks in the kitchen, And 0:05:41.960 --> 0:05:44.040 we'll just end up with a more fragmented view of 0:05:44.080 --> 0:05:47.000 the market, even if those fragments are standardized. But what 0:05:47.120 --> 0:05:49.560 happened throughout twenty twenty three, especially towards the end, is 0:05:49.560 --> 0:05:54.400 that those independent bodies started talking to each other and reconciling. 0:05:54.600 --> 0:05:57.840 So one of the major ones is the Integrity Council 0:05:57.920 --> 0:06:00.960 for Voluntary Carbon Markets, and you have another one called 0:06:01.040 --> 0:06:05.960 the Voluntary Carbon Markets Initiative, And these two try to 0:06:06.160 --> 0:06:10.920 target the supply and demand sides of the market. So 0:06:11.000 --> 0:06:15.160 while the ICVCM looks at standardizing projects so from the 0:06:15.240 --> 0:06:18.200 upper supply side and saying they need to be additional, 0:06:18.279 --> 0:06:20.760 they need to be permanent, they need to be measurable 0:06:20.839 --> 0:06:23.599 and just accounting for all the different risk factors that 0:06:23.640 --> 0:06:26.760 would come when buying an offset. The VCMI, on the 0:06:26.839 --> 0:06:31.760 other hand, targets corporations and buyers and tell them telling 0:06:31.920 --> 0:06:35.000 or giving them incentive to buy high quality offsets. So 0:06:35.080 --> 0:06:38.159 if you buy x percent of your offsets from this 0:06:38.279 --> 0:06:41.159 high quality project, you're going to get a gold claim 0:06:41.240 --> 0:06:43.839 for example. And now we see them talking to each 0:06:43.839 --> 0:06:47.160 other and aligning those policies with one another. So those 0:06:47.200 --> 0:06:49.880 are the two most prominent ones in the market right now. 0:06:49.960 --> 0:06:53.839 You've also got a pseudo standardization body which is the 0:06:53.960 --> 0:06:57.760 Science Based Targets Initiative the SPTI. Now the SBTi doesn't 0:06:57.800 --> 0:07:00.840 really isn't really concerned with telling us what a good 0:07:00.839 --> 0:07:04.440 and about offset looks like, but it sets very strict 0:07:04.720 --> 0:07:07.640 science based that zero targets for companies and put some 0:07:07.680 --> 0:07:11.280 guidelines and restrictions on how many offsets they can buy 0:07:11.440 --> 0:07:14.280 and one but also if they should be avoidance or 0:07:14.320 --> 0:07:17.760 removal offsets, which is also another big debate in the market. 0:07:18.000 --> 0:07:20.640 So as of now, there are a bunch of different ones. 0:07:20.840 --> 0:07:23.040 But towards the end of twenty twenty three, and this 0:07:23.640 --> 0:07:25.680 became very clear at cop twenty eight when they all 0:07:25.720 --> 0:07:29.720 announced collaborations to be announced or to issue those new 0:07:29.760 --> 0:07:31.120 standards in twenty twenty four. 0:07:31.440 --> 0:07:33.080 And I would just add, when you look at the 0:07:33.120 --> 0:07:36.520 individual projects that populate this market, there's so much nuance 0:07:36.560 --> 0:07:39.679 that goes into measuring the value of a carbon credit. 0:07:39.720 --> 0:07:42.480 You know, Layla mentioned measurability before. You can have two 0:07:42.560 --> 0:07:45.920 forestry projects right next to each other, and one tree 0:07:46.000 --> 0:07:48.440 might be getting more sunlight than another tree, One tree 0:07:48.520 --> 0:07:51.160 might be slightly older than another tree, and so the 0:07:51.240 --> 0:07:53.680 roots and the soil are stronger. All of these factors 0:07:54.000 --> 0:07:57.520 impact the overall carbon that's being sequestered by a certain 0:07:57.520 --> 0:08:00.240 plot of land. And so as a corporate buyer, when 0:08:00.280 --> 0:08:03.559 you're entering this market, you're essentially flying blind. You don't 0:08:03.600 --> 0:08:06.320 know what a good nature based project looks like. You 0:08:06.320 --> 0:08:08.920 don't know why a clean energy project in one market 0:08:08.960 --> 0:08:11.640 is better than another. And as Leila mentioned, these registries 0:08:11.760 --> 0:08:13.960 and these standards, we're not doing a good enough job 0:08:14.000 --> 0:08:18.000 of clarifying and differentiating between individual projects. And so what 0:08:18.080 --> 0:08:20.800 these groups like ICVCM and VCMI are trying to do 0:08:20.920 --> 0:08:23.080 is set a bar or threshold for what does good 0:08:23.080 --> 0:08:26.480 look like, and theoretically anything above that bar that threshold 0:08:26.680 --> 0:08:28.920 should be buyable and tradable, and you should be able 0:08:28.920 --> 0:08:30.120 to do so without scrutiny. 0:08:30.360 --> 0:08:32.080 So it seems like there was a bit of distrust 0:08:32.080 --> 0:08:33.480 on the part of the public and then a bit 0:08:33.480 --> 0:08:36.040 of distrust on the part of the companies buying the offsets. 0:08:36.120 --> 0:08:39.480 And that then brings me to well direct air capture, 0:08:39.559 --> 0:08:41.920 because I'm thinking about the fact that that has become 0:08:42.000 --> 0:08:44.760 a more popular technology with more money flowing into it 0:08:44.840 --> 0:08:47.040 over the course of the last year. And it's essentially, 0:08:47.400 --> 0:08:49.600 and you can listen to our back catalog, there's essentially 0:08:49.640 --> 0:08:51.680 a machine that is sucking carbon out of the air 0:08:51.720 --> 0:08:54.480 and doing the sorts of things that trees do, but 0:08:54.640 --> 0:08:57.480 it's a machine. And the question I have for the 0:08:57.480 --> 0:08:59.880 two of you, as people who spend your time focused 0:08:59.920 --> 0:09:02.680 on carbon offsets, do you think that direct air capture 0:09:02.679 --> 0:09:06.880 has become popular because of this accounting issue essentially that 0:09:06.960 --> 0:09:09.120 you've brought up, which has to do with the fact 0:09:09.160 --> 0:09:11.400 that it's difficult to actually come up with the math 0:09:11.640 --> 0:09:15.640 of how impactful a forestry project actually. Is there any 0:09:15.679 --> 0:09:18.880 other project that's in a nature based solution category or 0:09:18.920 --> 0:09:23.000 do you think it's direct air capture? And the things 0:09:23.040 --> 0:09:26.840 that we are already doing from a nature based solutions universe. 0:09:26.880 --> 0:09:29.160 And then that's really what you're seeing from companies when 0:09:29.160 --> 0:09:30.400 it comes to their interest. 0:09:30.800 --> 0:09:34.520 It's definitely a end question rather than an or question. 0:09:34.679 --> 0:09:36.640 So you're going to need all of the tools in 0:09:36.679 --> 0:09:39.240 the toolkit, or companies are going to need all the 0:09:39.280 --> 0:09:41.680 tools in the toolkit to achieve their net zero targets. 0:09:41.720 --> 0:09:44.160 They're going to need nature based solutions, they're going to 0:09:44.160 --> 0:09:47.240 need technology based removal, they're going to need carbon avoidance, 0:09:47.280 --> 0:09:49.680 they'll need carbon removal. Everything is going to play a 0:09:49.760 --> 0:09:51.880 very important role. And what's important to note, and I 0:09:51.920 --> 0:09:54.520 think a lot of people don't necessarily connect these dots 0:09:54.559 --> 0:09:57.920 when they think about the interoperability of these different solutions, 0:09:58.000 --> 0:10:01.240 is that the primary vehicle for finance direct air capture 0:10:01.760 --> 0:10:04.320 is and will continue to be carbon credits, and the 0:10:04.400 --> 0:10:06.760 primary source of that financing is going to come from 0:10:06.800 --> 0:10:10.240 corporate buyers. And so BNF's current estimates put the cost 0:10:10.280 --> 0:10:13.360 of direct air capture today at around eleven hundred dollars 0:10:13.440 --> 0:10:16.160 a ton on average, which is incredibly expensive. Right to 0:10:16.160 --> 0:10:18.599 give you a sense of scale, the average price or 0:10:18.640 --> 0:10:21.240 the average cost of creating a carbon credit in nature 0:10:21.240 --> 0:10:24.720 based solutions is anywhere from five to fifteen dollars a ton. 0:10:24.840 --> 0:10:28.320 So direct air capture is prohibitively expensive for most companies today. 0:10:28.360 --> 0:10:30.040 But what you're starting to see is some of these 0:10:30.080 --> 0:10:33.640 more inelastic companies, these companies with higher profit margins and 0:10:33.679 --> 0:10:37.920 lower emissions, like Microsoft, like pharmaceutical companies. These companies are 0:10:37.960 --> 0:10:41.600 going out and they're signing forward looking contracts to guarantee 0:10:41.920 --> 0:10:44.760 a procurement of direct air capture credits over the next ten, 0:10:44.880 --> 0:10:47.280 twenty thirty years. And what that's doing is it's allowing 0:10:47.280 --> 0:10:50.160 a project to be bankable data. We've spoken on prior 0:10:50.240 --> 0:10:53.560 podcasts about corporate clean energy power purchase agreements. This is 0:10:53.559 --> 0:10:55.960 a very similar type of structure, and what it's going 0:10:55.960 --> 0:10:57.920 to do over time is it should hopefully bring the 0:10:58.000 --> 0:11:00.400 cost down for direct air capture, but all so other 0:11:00.480 --> 0:11:04.160 technology based removals like bio energy, carbon capture and storage, 0:11:04.200 --> 0:11:06.920 and that should make it more approachable or easier for 0:11:07.000 --> 0:11:09.080 other companies to get involved in this space at a 0:11:09.080 --> 0:11:11.880 lower price point. And so, going back to your original question, 0:11:11.920 --> 0:11:14.600 it's definitely an end question rather than an ore. 0:11:15.040 --> 0:11:17.600 But to add to all of that is, because of 0:11:17.679 --> 0:11:21.200 the emergence of direct air capture and buyers in general 0:11:21.559 --> 0:11:24.599 just throwing a lot of money into tech based removals. 0:11:24.640 --> 0:11:27.719 We're seeing similar buyers throw a lot of money into 0:11:27.880 --> 0:11:31.640 nature based removals, so you see them being valued because 0:11:31.679 --> 0:11:34.960 of their additional benefits beyond decarbonization. And that goes back 0:11:34.960 --> 0:11:38.000 to the end that Kyle was talking about, is that, yes, 0:11:38.160 --> 0:11:40.720 we can benefit from tech based removals because you can 0:11:40.760 --> 0:11:43.720 count those emissions and you can actively see and feel 0:11:43.800 --> 0:11:47.520 where that carbon production is going. But you can't also 0:11:47.840 --> 0:11:51.360 discredit the need for nature based solutions. So deforestation is 0:11:51.360 --> 0:11:54.520 still a risk, and avoided deforestation projects address that risk, 0:11:54.600 --> 0:11:57.800 but they also come with benefits for preserving biodiversity and 0:11:58.000 --> 0:12:01.640 creating sustainable jobs for indigenous communities. So it all comes 0:12:01.679 --> 0:12:05.079 down to us doing our due diligence, but also mobilizing 0:12:05.200 --> 0:12:10.000 investment into high integrity and high quality projects on both ends. 0:12:10.440 --> 0:12:13.160 So now, twenty twenty three saw a number of carbon 0:12:13.240 --> 0:12:16.680 offset retirements. Can you explain first of all, what a 0:12:16.720 --> 0:12:19.760 retirement is in this space and then secondly, really what 0:12:19.800 --> 0:12:21.880 the magnitude of it was when we look back at 0:12:21.880 --> 0:12:23.080 this year that's just gone by. 0:12:23.440 --> 0:12:28.520 A retirement is when an offset buyer purchases that offset, 0:12:28.559 --> 0:12:32.319 but also cancels it. So for an offset to be retired, 0:12:32.440 --> 0:12:35.720 it means that it's no longer circulating in the market. 0:12:35.920 --> 0:12:38.640 I can't pick that offset again and use it. If 0:12:38.679 --> 0:12:41.160 I was let's say Shell, and I bought one million 0:12:41.160 --> 0:12:44.320 tons of CO two in offset. Now they count towards 0:12:44.320 --> 0:12:47.680 my own emission reduction goals. Some companies can buy those 0:12:47.760 --> 0:12:50.840 offsets and choose not to retire them. They could maybe 0:12:51.040 --> 0:12:54.040 retire it later, maybe trade it at a higher price, 0:12:54.320 --> 0:12:56.520 and so on. So that is what a retirement is, 0:12:56.520 --> 0:12:58.240 is that you buy it, you cancel it, and then 0:12:58.280 --> 0:13:01.480 it counts towards your own emission reduction. In twenty twenty three, 0:13:01.520 --> 0:13:04.679 it was actually a turbulent year, so when we started 0:13:04.800 --> 0:13:08.319 off demand levels were suppressed when you compare to twenty 0:13:08.320 --> 0:13:11.520 twenty two, but then it's picked up massively towards the end, 0:13:11.559 --> 0:13:14.840 and we saw around thirty seven million offsets retired in 0:13:14.880 --> 0:13:18.440 December versus the fifteen that we saw month on month 0:13:18.520 --> 0:13:20.720 earlier in the year. And there at Broughte it up 0:13:20.760 --> 0:13:23.880 to around one hundred and sixty four million officets retired, 0:13:24.000 --> 0:13:27.040 and it's a six percent increase from the previous year, 0:13:27.080 --> 0:13:28.520 and it's a record year again. 0:13:28.760 --> 0:13:30.840 So let's talk a little bit more then about where 0:13:30.880 --> 0:13:34.080 the demand for this is actually coming from. And I 0:13:34.120 --> 0:13:36.200 want to start with you've already mentioned actually a couple 0:13:36.280 --> 0:13:40.960 of different companies. Are there specific industries you'd mentioned airlines, 0:13:41.000 --> 0:13:42.960 you mentioned oil on gas. Is it the hard to 0:13:43.000 --> 0:13:45.600 abate space that's really looking at this because they don't 0:13:45.600 --> 0:13:48.840 have a clear path decarbonization or are there simply trends 0:13:48.840 --> 0:13:51.559 that can't be explained? Really? Where is the demand coming from? 0:13:51.920 --> 0:13:55.200 The short answer data is that every single sector is 0:13:55.240 --> 0:13:57.840 going to need carbon credits in order to get to 0:13:57.880 --> 0:14:00.680 net zero. Companies can be as aggressive as they want 0:14:00.720 --> 0:14:03.600 in reducing their own gross emissions, but if they're serious 0:14:03.640 --> 0:14:06.160 about making a net zero claim, there's always going to 0:14:06.200 --> 0:14:09.040 be residual emissions somewhere along their value chain that they'll 0:14:09.080 --> 0:14:11.800 need to neutralize. Right, that's the itch that they can't scratch. 0:14:11.960 --> 0:14:15.120 If you look specifically at retirement activity today, while you 0:14:15.160 --> 0:14:17.800 are seeing it across pretty much every sector, there is 0:14:17.840 --> 0:14:21.640 a much more emphasis from oil and gas companies, from airlines, 0:14:22.040 --> 0:14:24.480 and from technology companies as well. But the types of 0:14:24.560 --> 0:14:27.400 credits that these different sectors are buying very significantly, and 0:14:27.440 --> 0:14:29.520 we've kind of gotten at this a little bit already. Today, 0:14:29.600 --> 0:14:33.880 those companies with perhaps lower profit margins but much higher emissions, 0:14:33.920 --> 0:14:36.640 those airlines, for example, they can really only afford to 0:14:36.680 --> 0:14:39.720 purchase cheaper carbon credits. In most cases they're going to 0:14:39.760 --> 0:14:42.080 pass that cost on to customers, and so as a result, 0:14:42.080 --> 0:14:44.240 they need to buy carbon credits that are five dollars 0:14:44.240 --> 0:14:46.640 a ton, four dollars a ton, or even cheaper, and 0:14:46.680 --> 0:14:49.000 that's why companies have gotten scrutiny in the past. You 0:14:49.080 --> 0:14:51.600 see very similar trends from the oil and gas sector, 0:14:51.680 --> 0:14:54.520 although the quality of the credits are purchasing are slightly higher. 0:14:54.600 --> 0:14:57.280 So Shell was the largest buyer of carbon credits in 0:14:57.320 --> 0:14:59.640 twenty twenty three, it's off to a very hot start 0:14:59.640 --> 0:15:01.920 in twenty four as well, and it's buying a whole 0:15:02.040 --> 0:15:05.720 range of carbon credits from energy generation projects to nature 0:15:05.760 --> 0:15:09.680 based solutions across Latin America, Sub Saharan Africa and Southeast Asia. 0:15:09.720 --> 0:15:11.400 And then on the other end of the spectrum you 0:15:11.480 --> 0:15:14.320 have the technology companies, the ones with those higher profit 0:15:14.360 --> 0:15:17.160 margins that will require less carbon credits in order to 0:15:17.200 --> 0:15:19.640 get to net zero, and these companies are really making 0:15:19.720 --> 0:15:23.640 those big icebreaker investments into technology based removal and I 0:15:23.680 --> 0:15:27.200 would specifically highlight Microsoft as a leader here. Microsoft has 0:15:27.200 --> 0:15:30.160 signed a whole slew of deals ranging from direct air 0:15:30.200 --> 0:15:33.880 capture to enhanced weathering to biochar in order to diversify 0:15:33.920 --> 0:15:35.960 its portfolio to neutralize those emissions. 0:15:36.360 --> 0:15:38.760 The different types of offsets that you just mentioned are 0:15:38.800 --> 0:15:41.600 actually things that have been coming up more recently, and 0:15:41.720 --> 0:15:43.640 I'm even thinking about you know, each year we do 0:15:43.840 --> 0:15:46.800 our Pioneers program where we look at a couple of 0:15:46.920 --> 0:15:50.200 companies that will actually several companies that are attacking a 0:15:50.240 --> 0:15:54.320 certain part of the energy transition and decarbonization that needs 0:15:54.320 --> 0:15:56.680 to be addressed. And within one of the previous years, 0:15:56.680 --> 0:15:58.680 one of the winners was a biochart company, so we 0:15:58.760 --> 0:16:01.360 got very familiar with that here at BNF. And I 0:16:01.400 --> 0:16:05.240 think I saw my first biotar in person at kop 0:16:05.400 --> 0:16:08.000 in Dubai last year because they had set up an 0:16:08.080 --> 0:16:11.240 area where you could actually see some of the agriculture 0:16:11.360 --> 0:16:14.560 solutions that actually were there. So they actually look a 0:16:14.560 --> 0:16:17.720 little bit like rabbit pellets. I want to say, they're 0:16:17.840 --> 0:16:20.280 quite tiny. I thought they would be bigger discs, but 0:16:20.720 --> 0:16:23.280 you know, there we are. Okay, So we've talked about 0:16:23.520 --> 0:16:26.160 the demand side of things, let's talk a little bit 0:16:26.160 --> 0:16:28.320 about supply, because you know you've come on the show 0:16:28.360 --> 0:16:31.240 and passed and talked about renoal Ble energy credits. What 0:16:31.400 --> 0:16:33.880 is popular at the moment, What has been popular in 0:16:33.920 --> 0:16:34.880 this last year. 0:16:35.040 --> 0:16:38.160 Well, the two main sectors that have always been popular 0:16:38.360 --> 0:16:40.960 and we see demand rising in them a lot is 0:16:41.160 --> 0:16:44.720 energy generation and avoided deforestation. There are mainly two reasons 0:16:44.800 --> 0:16:48.080 for that release. So energy generation projects are abundant and 0:16:48.120 --> 0:16:51.120 they're cheap, so they're low hanging fruit for buyers that 0:16:51.200 --> 0:16:55.280 want to offset before regulation and standardization kicks on. Avoided 0:16:55.280 --> 0:16:59.000 deforestation also is one of the more popular ones. They 0:16:59.040 --> 0:17:02.480 also come with what we mentioned before, the additional benefits 0:17:02.480 --> 0:17:06.600 beyond decarbonization, and depending on where that project is, it 0:17:06.720 --> 0:17:09.919 also could be very cheap. But usually for companies that 0:17:09.960 --> 0:17:12.920 are opting for a more of like a higher quality ones, 0:17:12.960 --> 0:17:16.000 they would go for avoided deforestation because it signature based 0:17:16.040 --> 0:17:18.280 solution and there's a more of a story to tell 0:17:18.320 --> 0:17:21.439 behind those offsets. So those two have been mainly the 0:17:21.480 --> 0:17:24.840 ones that are supplying the market and demand is mainly 0:17:24.880 --> 0:17:27.320 coming from there. But there are other sectors that are 0:17:27.320 --> 0:17:29.560 emerging and they're growing, and we saw that a lot 0:17:29.600 --> 0:17:32.560 between twenty twenty two and twenty twenty three, sectors such 0:17:32.560 --> 0:17:36.680 as energy demand and it's mostly of projects to install 0:17:36.880 --> 0:17:41.320 clean cook stoves in Africa, for example, and emissions projects 0:17:41.359 --> 0:17:45.160 and those are ones that reduce industrial emissions and they 0:17:45.160 --> 0:17:47.720 were very prominent in the US right now. It's a 0:17:47.720 --> 0:17:51.760 whole range of sectors, but it's also interesting to look 0:17:51.840 --> 0:17:56.040 at the geographic differences, so which sectors are more popular 0:17:56.240 --> 0:18:00.280 in which regions. But overall, up until now, we see 0:18:00.359 --> 0:18:03.960 most of the supply coming from Asia, Latin America and Africa, 0:18:04.080 --> 0:18:06.639 and most of the demand coming from the US and 0:18:06.680 --> 0:18:10.080 so North America and Europe. And that dichotomy between supply 0:18:10.160 --> 0:18:13.080 and demand did spur something in the market over the 0:18:13.119 --> 0:18:17.239 past year and made governments aware of the economic but 0:18:17.280 --> 0:18:21.879 also geopolitical benefits of sitting on potential to have a 0:18:22.000 --> 0:18:25.440 huge carbon offset market. So we saw more policy updates 0:18:25.520 --> 0:18:28.280 going on there, especially around Zimbabwe when they wanted to 0:18:28.560 --> 0:18:31.480 reap some of the benefits of carbon offsets and capitalize 0:18:31.520 --> 0:18:34.440 on their own forestry projects, and we saw other African 0:18:34.480 --> 0:18:37.439 countries do the same, depending on the sectors that they 0:18:37.480 --> 0:18:37.800 sit on. 0:18:38.119 --> 0:18:41.160 Yeah, and I would just say one kind of unifying 0:18:41.160 --> 0:18:44.560 factor amount all the sectors that Laylor just mentioned is 0:18:44.560 --> 0:18:48.000 that the creation of credits from those sectors is almost instantaneous. 0:18:48.119 --> 0:18:51.200 Right a sector like reforestation, for example, you can make 0:18:51.200 --> 0:18:54.160 an investment in a reforestation project today, but you might 0:18:54.200 --> 0:18:57.399 not see those credits materialize for several decades because you 0:18:57.400 --> 0:18:59.720 need time for that forest to mature after you've planted 0:18:59.720 --> 0:19:04.040 those But sectors like avoided deforestation, like energy generation, those 0:19:04.080 --> 0:19:08.240 projects either exist today, which does bring up questions around additionality. 0:19:08.520 --> 0:19:11.280 But in the case of avoided deforestation, it's about using 0:19:11.280 --> 0:19:13.920 that investment to protect an at risk forest and as 0:19:13.920 --> 0:19:16.560 a result, those trees can continue to sequest your carbon, 0:19:16.600 --> 0:19:19.480 and so it's an instantaneous delivery of credits that's been 0:19:19.520 --> 0:19:22.080 really popular with companies and that's why supply in these 0:19:22.080 --> 0:19:24.040 sectors is much higher. And at the same time, that 0:19:24.160 --> 0:19:26.760 is why some of these governments are implementing these what 0:19:26.800 --> 0:19:30.000 we would call carbon nationalism policies to take advantage of 0:19:30.000 --> 0:19:32.120 investment into these instantaneous sectors. 0:19:32.359 --> 0:19:34.199 So thank you for getting me up to date on 0:19:34.359 --> 0:19:37.679 really what's transpired since we last spoke on this show. 0:19:37.760 --> 0:19:41.160 So now let's look into the future. We recently published 0:19:41.200 --> 0:19:45.359 a long term carbon offsets outlook, and we actually broke 0:19:45.359 --> 0:19:48.000 it down into different possible scenarios for us to really 0:19:48.040 --> 0:19:51.399 think about where this market could go. Let's go into 0:19:51.400 --> 0:19:53.960 those scenarios. So let's start with I mean, I don't know, 0:19:54.000 --> 0:19:55.560 do we start with the good news or the bad news. 0:19:55.600 --> 0:19:57.440 Let's start with the good news, which is the high 0:19:57.560 --> 0:20:00.679 quality scenario. What does that really tell tell us about 0:20:00.720 --> 0:20:04.800 what could happen in the voluntary carbon space and what 0:20:04.840 --> 0:20:07.280 would need to happen in order for this scenario to 0:20:07.400 --> 0:20:07.840 be true? 0:20:08.160 --> 0:20:10.080 I can jump in here. What we've done is we've 0:20:10.400 --> 0:20:13.520