1 00:00:00,120 --> 00:00:02,560 Speaker 1: This is Data Perkins, and you're listening to Switch on 2 00:00:02,840 --> 00:00:05,360 Speaker 1: the B and EF podcast. This is not our first 3 00:00:05,400 --> 00:00:08,720 Speaker 1: episode on the voluntary carbon offset space, and it likely 4 00:00:08,760 --> 00:00:11,640 Speaker 1: will not be our last. This is a topic that 5 00:00:11,680 --> 00:00:14,400 Speaker 1: has been generating a lot of buzz lately, so this 6 00:00:14,440 --> 00:00:17,120 Speaker 1: week we look at what might happen in the offset 7 00:00:17,160 --> 00:00:20,120 Speaker 1: space in the longer term. Currently, there is a lot 8 00:00:20,160 --> 00:00:23,720 Speaker 1: of price variability, a lot of different approaches, and frankly, 9 00:00:23,880 --> 00:00:26,639 Speaker 1: a lot of concern about the additionality of some of 10 00:00:26,680 --> 00:00:29,400 Speaker 1: the projects as well as how to go about verifying them. 11 00:00:29,680 --> 00:00:32,879 Speaker 1: So what is clear is that the offset space is 12 00:00:32,960 --> 00:00:36,239 Speaker 1: here to stay. With emission solutions for some of the 13 00:00:36,280 --> 00:00:38,920 Speaker 1: harder to abate industries still in an R and D 14 00:00:39,040 --> 00:00:43,440 Speaker 1: phase and companies announcing things like negative emissions targets, how 15 00:00:43,479 --> 00:00:47,559 Speaker 1: does one get there without carbon removal or at minimum trees. 16 00:00:48,440 --> 00:00:51,440 Speaker 1: So this week Switched On speaks with B and f's 17 00:00:51,520 --> 00:00:55,560 Speaker 1: head of sustainability Research, Kyle Harrison, about a recent report 18 00:00:55,600 --> 00:00:59,800 Speaker 1: he authored titled Long Term Carbon Offsets Outlook two. He 19 00:01:00,000 --> 00:01:04,959 Speaker 1: looks at the supply side, demand pricing, geographic breakdown, and 20 00:01:05,000 --> 00:01:08,360 Speaker 1: a bunch of other things. Any clients can access this 21 00:01:08,400 --> 00:01:11,080 Speaker 1: analysis at B NF go on the Bloomberg terminal or 22 00:01:11,120 --> 00:01:13,520 Speaker 1: at benf dot com. And now let's speak with Kyle 23 00:01:13,640 --> 00:01:24,959 Speaker 1: about the future of the offset space. Kyle, thank you 24 00:01:25,000 --> 00:01:27,520 Speaker 1: so much for joining today on switched On. Thanks for 25 00:01:27,560 --> 00:01:30,840 Speaker 1: having me Dana. So, Kyle, you are a veteran of 26 00:01:30,920 --> 00:01:33,360 Speaker 1: switched On. You've been on here to talk about voluntary 27 00:01:33,360 --> 00:01:36,679 Speaker 1: carbon offsets before, and we just recently put out a 28 00:01:36,680 --> 00:01:39,080 Speaker 1: report that it really is a forecast for this market. 29 00:01:39,440 --> 00:01:41,960 Speaker 1: Why was now the time for us to have kind 30 00:01:41,959 --> 00:01:45,760 Speaker 1: of an official, codified be enough forecast, because you know, 31 00:01:45,840 --> 00:01:49,040 Speaker 1: these market outlooks are something that many of our analysts 32 00:01:49,280 --> 00:01:51,360 Speaker 1: make for the industries that we cover in other parts 33 00:01:51,400 --> 00:01:54,200 Speaker 1: of the business. For the carbon offset market, I think 34 00:01:54,280 --> 00:01:56,920 Speaker 1: maybe to put that into context, So, the carbon off 35 00:01:56,920 --> 00:01:59,440 Speaker 1: set market has been around for a couple of decades now, 36 00:01:59,480 --> 00:02:03,320 Speaker 1: since the the late nineties, and companies have been going 37 00:02:03,360 --> 00:02:07,280 Speaker 1: out and buying these offsets to reach sustainability goals since then. 38 00:02:07,720 --> 00:02:09,400 Speaker 1: But it really has been only in kind of like 39 00:02:09,440 --> 00:02:12,360 Speaker 1: the last two or three years that the market has 40 00:02:12,400 --> 00:02:15,399 Speaker 1: started to grow at a level commensurate with how much 41 00:02:15,440 --> 00:02:19,160 Speaker 1: interest companies haven't in carbon offsets. So really it's kind 42 00:02:19,160 --> 00:02:22,760 Speaker 1: of this renaissance moment for not only the voluntary carbon market, 43 00:02:22,800 --> 00:02:25,400 Speaker 1: but just carbon markets in general like the EU, E 44 00:02:25,480 --> 00:02:28,000 Speaker 1: T S and of course other markets around the world. 45 00:02:28,400 --> 00:02:31,359 Speaker 1: So being if you know, us covering what the carbon 46 00:02:31,400 --> 00:02:34,400 Speaker 1: off set market looked like in the past has been sufficient. 47 00:02:34,520 --> 00:02:36,760 Speaker 1: It's given people an idea of if they want to 48 00:02:36,840 --> 00:02:39,720 Speaker 1: enter this market, what can they expect, Where does supply 49 00:02:39,800 --> 00:02:42,920 Speaker 1: come from, where's demand coming from, things like that. But 50 00:02:42,960 --> 00:02:45,760 Speaker 1: what we're increasingly seeing, as you know, I've spoken to 51 00:02:45,880 --> 00:02:47,680 Speaker 1: so many people and the team has spoken to so 52 00:02:47,720 --> 00:02:51,359 Speaker 1: many people about this market is clients are getting a 53 00:02:51,360 --> 00:02:54,079 Speaker 1: lot more sophisticated on this topic, and as a result, 54 00:02:54,080 --> 00:02:56,840 Speaker 1: b NF needs to get more sophisticated on where this 55 00:02:56,880 --> 00:02:59,359 Speaker 1: market is going to go moving forward. And I think 56 00:02:59,639 --> 00:03:02,440 Speaker 1: we could speak anecdotally to that over the past couple 57 00:03:02,440 --> 00:03:04,720 Speaker 1: of years, but now to finally have some you know, 58 00:03:04,800 --> 00:03:08,920 Speaker 1: cold hard data behind that outlook was really beneficial for us, 59 00:03:08,960 --> 00:03:10,480 Speaker 1: and it's going to lead to a lot more again 60 00:03:10,840 --> 00:03:13,840 Speaker 1: sophisticated discussions with our clients around how this market is 61 00:03:13,840 --> 00:03:15,959 Speaker 1: evolving and how far out into the future are we 62 00:03:16,040 --> 00:03:19,880 Speaker 1: looking the BNP special right. I think part of this 63 00:03:19,960 --> 00:03:22,280 Speaker 1: is of course a short term outlook, and I think 64 00:03:22,400 --> 00:03:25,480 Speaker 1: over the next few years. That's where there's kind of 65 00:03:25,480 --> 00:03:29,160 Speaker 1: one element of the carbon offset market remaining similar to 66 00:03:29,200 --> 00:03:31,920 Speaker 1: how it is today. That's where that's the most fertile ground. 67 00:03:32,240 --> 00:03:34,079 Speaker 1: But what we wanted to do is to say, how 68 00:03:34,120 --> 00:03:37,320 Speaker 1: can this carbon offset market evolve over time? You know, 69 00:03:37,400 --> 00:03:40,360 Speaker 1: in terms of who's buying offsets, but also where's the 70 00:03:40,400 --> 00:03:42,880 Speaker 1: supply coming from and who's regulating that market. And in 71 00:03:42,960 --> 00:03:45,760 Speaker 1: order for us to really accurately have an idea of 72 00:03:45,840 --> 00:03:47,840 Speaker 1: how that's going to change, we needed to look at 73 00:03:47,880 --> 00:03:50,960 Speaker 1: the evolution of the market out and this is both 74 00:03:51,000 --> 00:03:54,720 Speaker 1: regarding the compliance and the voluntary markets. For the report, 75 00:03:54,840 --> 00:03:57,280 Speaker 1: we basically just call it a carbon off set. Were 76 00:03:57,320 --> 00:03:59,760 Speaker 1: market agnostic in this case, and and that's a really 77 00:03:59,800 --> 00:04:02,600 Speaker 1: good question. Actually, it's a very important point with this outlook. 78 00:04:03,080 --> 00:04:06,200 Speaker 1: One of the big question marks around how carbon offset 79 00:04:06,240 --> 00:04:09,080 Speaker 1: markets are going to evolve over time is will a 80 00:04:09,160 --> 00:04:12,320 Speaker 1: bigger offset market or a global carbon market come in 81 00:04:12,760 --> 00:04:15,520 Speaker 1: and swallow all of the existing markets that exist out there, 82 00:04:15,760 --> 00:04:18,960 Speaker 1: right like again the EU e t S, the Corsia 83 00:04:19,040 --> 00:04:22,120 Speaker 1: offset market for airlines, and then of course the voluntary 84 00:04:22,120 --> 00:04:24,920 Speaker 1: carbon off set market. And this is a real possibility, 85 00:04:25,080 --> 00:04:27,920 Speaker 1: you know, our our policy team at BNF has discussed 86 00:04:27,960 --> 00:04:29,880 Speaker 1: this quite extensively, and you had a lot of world 87 00:04:29,960 --> 00:04:32,839 Speaker 1: leaders discussing this at CUP twenty six a couple of 88 00:04:32,839 --> 00:04:35,640 Speaker 1: months ago. So for this report, what we wanted to 89 00:04:35,640 --> 00:04:37,840 Speaker 1: do is kind of just make it carbon off set agnostic, 90 00:04:38,240 --> 00:04:41,280 Speaker 1: to tell clients that there is this distinct possibility that 91 00:04:41,800 --> 00:04:44,520 Speaker 1: the voluntary market that we look at it today may 92 00:04:44,720 --> 00:04:47,000 Speaker 1: very well be an entirely different type of market in 93 00:04:47,040 --> 00:04:49,200 Speaker 1: the future. But we still wanted to give clients an 94 00:04:49,240 --> 00:04:51,240 Speaker 1: idea of what that could look like. That was the 95 00:04:51,279 --> 00:04:53,840 Speaker 1: longlined to answer, and the short answer is yes, it 96 00:04:54,040 --> 00:04:56,760 Speaker 1: does look at all carbon markets essentially. So we're going 97 00:04:56,800 --> 00:04:58,960 Speaker 1: to talk about the three different scenarios that you laid 98 00:04:59,000 --> 00:05:02,480 Speaker 1: out in the podcast today. They are the voluntary companies, 99 00:05:02,480 --> 00:05:06,040 Speaker 1: then the science based targets initiative, and then the hybrid ones. 100 00:05:06,160 --> 00:05:08,599 Speaker 1: Let's start with the voluntary ones. So where is the 101 00:05:08,640 --> 00:05:11,400 Speaker 1: demand coming from? I know that an increasing number of 102 00:05:11,400 --> 00:05:15,880 Speaker 1: companies are making net zero and in some cases actually 103 00:05:15,960 --> 00:05:19,159 Speaker 1: negative emissions claims for the future and targets going forward, 104 00:05:19,200 --> 00:05:22,680 Speaker 1: and certainly the majority of countries in the world made 105 00:05:22,680 --> 00:05:25,600 Speaker 1: a commitment to net zero. So where is the demand 106 00:05:25,640 --> 00:05:28,480 Speaker 1: coming from on the voluntary side. So if you think 107 00:05:28,520 --> 00:05:32,039 Speaker 1: about the voluntary market scenario that we looked at on 108 00:05:32,080 --> 00:05:35,279 Speaker 1: our report, again, what it's assuming is that the voluntary 109 00:05:35,279 --> 00:05:38,159 Speaker 1: carbon off set market remains the same as it does 110 00:05:38,200 --> 00:05:41,599 Speaker 1: today out into I know we've talked about this on 111 00:05:41,760 --> 00:05:45,160 Speaker 1: previous podcasts, as you mentioned, Dana, but just for all 112 00:05:45,160 --> 00:05:47,640 Speaker 1: those listeners out there, the way the market is structured 113 00:05:47,680 --> 00:05:51,839 Speaker 1: today is it's primarily used for corporations to go ahead 114 00:05:52,000 --> 00:05:55,800 Speaker 1: and achieve their sustainability goals or to purchase offsets on 115 00:05:55,839 --> 00:05:58,600 Speaker 1: a behavioral basis. And what I mean by that is 116 00:05:58,640 --> 00:06:01,800 Speaker 1: they're not necessarily buying off sets in every situation to 117 00:06:02,080 --> 00:06:04,520 Speaker 1: reach a net zero goal, and instead they might be 118 00:06:04,560 --> 00:06:07,359 Speaker 1: going out and creating carbon neutral L and G or 119 00:06:07,440 --> 00:06:09,880 Speaker 1: green steel or green aluminum, and I want to use 120 00:06:09,920 --> 00:06:12,360 Speaker 1: offsets on an ad hoc basis in order to offer 121 00:06:12,400 --> 00:06:15,200 Speaker 1: that type of product. In terms of the supplying the 122 00:06:15,200 --> 00:06:18,560 Speaker 1: market today, it's all different types of sectors, right, So 123 00:06:18,720 --> 00:06:22,880 Speaker 1: it's anything ranging from a four street projects in substerarent 124 00:06:22,920 --> 00:06:26,480 Speaker 1: Africa to a clean energy project, say in India or 125 00:06:26,560 --> 00:06:29,480 Speaker 1: China or the United States. So we basically said, let's 126 00:06:29,520 --> 00:06:32,000 Speaker 1: keep all those assumptions the same and let's see what 127 00:06:32,040 --> 00:06:35,599 Speaker 1: happens to supply demand in pricing. To your original question 128 00:06:35,640 --> 00:06:37,920 Speaker 1: about this market, the first thing that we did to 129 00:06:38,000 --> 00:06:41,720 Speaker 1: kind of assess demand for the voluntary carbon offset scenario 130 00:06:42,440 --> 00:06:44,080 Speaker 1: is we looked at all the companies that are going 131 00:06:44,080 --> 00:06:46,919 Speaker 1: out there and are setting those net zero targets as 132 00:06:46,960 --> 00:06:50,200 Speaker 1: you mentioned, because what we can assume is that over time, 133 00:06:50,880 --> 00:06:53,320 Speaker 1: companies are going to focus less on purchasing offsets for 134 00:06:53,320 --> 00:06:56,640 Speaker 1: those behavioral reasons like I mentioned, and the demand is 135 00:06:56,640 --> 00:06:59,520 Speaker 1: actually going to be classified more as fundamental. And what 136 00:06:59,600 --> 00:07:01,760 Speaker 1: that means is that they need to be net zero 137 00:07:01,880 --> 00:07:08,040 Speaker 1: by and they're going to have residual emissions no matter 138 00:07:08,040 --> 00:07:11,480 Speaker 1: how aggressive they are in their own internal sustainability initiatives, 139 00:07:12,040 --> 00:07:14,480 Speaker 1: and that's going to create some type of demand for offsets. 140 00:07:15,440 --> 00:07:17,480 Speaker 1: So what we wanted to do is look at all 141 00:07:17,480 --> 00:07:20,360 Speaker 1: the companies that we've tracked at BENF in our Corporate 142 00:07:20,440 --> 00:07:22,960 Speaker 1: net Zero Assessment tool, but also some of the other 143 00:07:23,000 --> 00:07:26,000 Speaker 1: tools that we have of all the largest heavy emitting 144 00:07:26,000 --> 00:07:27,920 Speaker 1: companies in the world that have already set in net 145 00:07:28,040 --> 00:07:30,239 Speaker 1: zero goal. What we can do is we can actually 146 00:07:30,320 --> 00:07:33,520 Speaker 1: calculate the amount of emission reductions that are purely going 147 00:07:33,600 --> 00:07:36,320 Speaker 1: to come from achieving those net zero goals. So that's 148 00:07:36,320 --> 00:07:39,200 Speaker 1: basically the baseline that we need companies to achieve. And 149 00:07:39,240 --> 00:07:41,600 Speaker 1: then what we assume is that companies are going to 150 00:07:41,760 --> 00:07:44,280 Speaker 1: reduce their gross emissions to a certain amount as well. 151 00:07:44,480 --> 00:07:47,160 Speaker 1: So what that means is that they're gonna buy clean energy, 152 00:07:47,320 --> 00:07:50,920 Speaker 1: or change their internal practices or purchase e vs, do 153 00:07:51,040 --> 00:07:53,720 Speaker 1: things to actually reduce their own emissions, and they're gonna 154 00:07:53,760 --> 00:07:56,200 Speaker 1: do that to a certain extent. And then again, that 155 00:07:56,320 --> 00:07:59,720 Speaker 1: gap between how much they're reducing their gross emissions and 156 00:07:59,760 --> 00:08:03,280 Speaker 1: that net zero trajectory I mentioned before, that's your potential 157 00:08:03,440 --> 00:08:06,680 Speaker 1: universe for carbon off set demand. So we basically ran 158 00:08:06,800 --> 00:08:10,000 Speaker 1: that scenario for a couple hundred companies, and then we 159 00:08:10,080 --> 00:08:13,400 Speaker 1: extrapolated that to assume that more companies over time will 160 00:08:13,440 --> 00:08:15,760 Speaker 1: set net zero goals um and that kind of gives 161 00:08:15,800 --> 00:08:18,000 Speaker 1: us a good idea of what we're talking about in 162 00:08:18,080 --> 00:08:21,000 Speaker 1: terms of long term demand, assuming the carbon off set 163 00:08:21,040 --> 00:08:23,480 Speaker 1: market remains the same as it does today. Now for 164 00:08:23,520 --> 00:08:30,760 Speaker 1: a very short break, stay with us. You brought up 165 00:08:30,800 --> 00:08:32,920 Speaker 1: the building of clean energy as a way to do 166 00:08:33,320 --> 00:08:36,000 Speaker 1: offsets in our prior podcast. If you did hear this one, 167 00:08:36,040 --> 00:08:37,599 Speaker 1: you can go back in time and find Kyle and 168 00:08:37,640 --> 00:08:40,800 Speaker 1: I discussing this specifically the voluntary market. We talked a 169 00:08:40,840 --> 00:08:43,920 Speaker 1: lot about additionality. I think it's worth bringing up again 170 00:08:44,160 --> 00:08:47,760 Speaker 1: here as we're looking forward. How hard is it for 171 00:08:47,840 --> 00:08:51,640 Speaker 1: a company to, let's say, if they are generating clean 172 00:08:51,640 --> 00:08:55,520 Speaker 1: electricity and then create a clean energy certificate, how hard 173 00:08:55,600 --> 00:08:57,520 Speaker 1: is it for them to, you know, double count the 174 00:08:57,559 --> 00:09:01,559 Speaker 1: saved emissions and is the accounting on this fairly straightforward 175 00:09:01,720 --> 00:09:04,199 Speaker 1: or is it still quite blurry around the edges. It's 176 00:09:04,360 --> 00:09:08,040 Speaker 1: very blurry and candidly it's not very well regulated right now. 177 00:09:08,480 --> 00:09:11,320 Speaker 1: So all the areas of supply that we talked about 178 00:09:11,440 --> 00:09:13,480 Speaker 1: in the report, and then we can certainly dive into 179 00:09:13,480 --> 00:09:16,240 Speaker 1: this a little bit more later on. Clean energy is 180 00:09:16,280 --> 00:09:19,280 Speaker 1: probably the most controversial, and there's a couple of reasons 181 00:09:19,280 --> 00:09:23,080 Speaker 1: for that. The first one is this overarching topic of 182 00:09:23,760 --> 00:09:28,080 Speaker 1: removal carbon offsets versus avoidance carbon off sets. When you 183 00:09:28,120 --> 00:09:30,320 Speaker 1: have people on both sides of this kind of argument 184 00:09:30,480 --> 00:09:33,280 Speaker 1: saying that one is better than the other, or that 185 00:09:33,559 --> 00:09:36,000 Speaker 1: all types should be used or that only one should 186 00:09:36,000 --> 00:09:38,520 Speaker 1: be used. If you think about a clean energy project, 187 00:09:38,640 --> 00:09:41,640 Speaker 1: when you build a solar wind project, you're not actually 188 00:09:41,720 --> 00:09:46,040 Speaker 1: leading to further carbon sequestration, right You're simply avoiding, say 189 00:09:46,120 --> 00:09:48,720 Speaker 1: the emissions from a combined cycle gas plant or a 190 00:09:48,760 --> 00:09:52,120 Speaker 1: coal plant. So clean energy is firmly classified as an 191 00:09:52,160 --> 00:09:54,720 Speaker 1: avoidance offset, and you have a lot of skeptics and 192 00:09:54,760 --> 00:09:57,840 Speaker 1: critics saying that type of offset should not be allowed 193 00:09:57,880 --> 00:10:00,559 Speaker 1: for companies to go ahead and achieve an net zero 194 00:10:00,600 --> 00:10:03,720 Speaker 1: goal or some other type of sustainability target. So that's 195 00:10:03,800 --> 00:10:06,679 Speaker 1: kind of the first area of criticism around carbon off 196 00:10:06,679 --> 00:10:10,880 Speaker 1: sets from clean energy. The second one is around the economics, 197 00:10:10,920 --> 00:10:14,200 Speaker 1: and this is specifically where that term additionality is very important. Here. 198 00:10:14,640 --> 00:10:18,719 Speaker 1: Additionality means how can I, as a developer or a 199 00:10:18,760 --> 00:10:23,079 Speaker 1: customer buying carbon offsets, how can I incentivize and contribute 200 00:10:23,120 --> 00:10:27,600 Speaker 1: to new added decarbonization that wouldn't have otherwise happened if 201 00:10:27,640 --> 00:10:30,560 Speaker 1: those offsets weren't monetized, and you know, being when I 202 00:10:30,600 --> 00:10:34,040 Speaker 1: hadn't actually just published are our latest levelized cost of 203 00:10:34,080 --> 00:10:37,959 Speaker 1: electricity update, And what that report shows is clean energy 204 00:10:38,040 --> 00:10:40,680 Speaker 1: is now cost competitive in most markets around the world. 205 00:10:41,120 --> 00:10:44,840 Speaker 1: In some markets, solar wind is the cheapest source of technology, 206 00:10:44,960 --> 00:10:47,040 Speaker 1: and even if they're not the cheapest, they're still in 207 00:10:47,160 --> 00:10:51,439 Speaker 1: competitive range with a lot of fossil generation. Theoretically, in 208 00:10:51,480 --> 00:10:55,360 Speaker 1: a perfect world, a developer, someone who's selling clean energy 209 00:10:55,600 --> 00:10:58,760 Speaker 1: should only be monetizing carbon offsets if it's going to 210 00:10:58,800 --> 00:11:02,600 Speaker 1: help bridge that gap and make that project competitive. So, 211 00:11:02,679 --> 00:11:05,720 Speaker 1: for example, if the levelized cost of electricity for a 212 00:11:05,760 --> 00:11:09,400 Speaker 1: gas plant is ten dollars a megawatt hour, and I'm 213 00:11:09,440 --> 00:11:11,640 Speaker 1: building a solar project and I can only sell that 214 00:11:11,679 --> 00:11:15,800 Speaker 1: power for fifteen theoretically that gap between those two with 215 00:11:15,920 --> 00:11:18,720 Speaker 1: that five dollar per megawatt hour, that should be my 216 00:11:18,800 --> 00:11:21,480 Speaker 1: cost of carbon. But in a lot of these countries 217 00:11:21,520 --> 00:11:24,880 Speaker 1: around the world, since clean energy is already cheaper, the 218 00:11:24,920 --> 00:11:27,839 Speaker 1: premise or the need to sell carbon off sets doesn't 219 00:11:27,840 --> 00:11:30,680 Speaker 1: actually exist, So that right there is going to actually 220 00:11:30,720 --> 00:11:33,079 Speaker 1: make it. So a lot of projects around the world 221 00:11:33,160 --> 00:11:36,960 Speaker 1: don't meet that additionality criteria. And then the third point 222 00:11:37,000 --> 00:11:39,199 Speaker 1: I just want to add on this. You mentioned the accounting. 223 00:11:40,400 --> 00:11:43,520 Speaker 1: There's really not a lot stopping a company now from 224 00:11:43,679 --> 00:11:49,120 Speaker 1: selling power from a clean energy project, monetizing renewable energy certificates, 225 00:11:49,160 --> 00:11:51,960 Speaker 1: which of course are similar to a carbon offset, but 226 00:11:52,000 --> 00:11:54,440 Speaker 1: they pertain to a megawatt hour rather than a ton 227 00:11:54,480 --> 00:11:57,840 Speaker 1: of carbon like an offset does. And then selling carbon 228 00:11:57,880 --> 00:12:00,560 Speaker 1: offsets is that third stream of revenue. And of course 229 00:12:00,559 --> 00:12:03,120 Speaker 1: there is a huge risk of double counting there. It's 230 00:12:03,160 --> 00:12:06,080 Speaker 1: absolutely you know, there's a very high likelihood that a 231 00:12:06,120 --> 00:12:08,320 Speaker 1: lot of the clean energy projects that are very active 232 00:12:08,320 --> 00:12:11,760 Speaker 1: in this market today are guilty of that double counting, 233 00:12:11,920 --> 00:12:15,040 Speaker 1: taking advantage of two commodities that really should be treated 234 00:12:15,080 --> 00:12:17,880 Speaker 1: as one. So, Dana, it's a it's a really controversial sector, 235 00:12:17,960 --> 00:12:20,120 Speaker 1: and we talk a lot about that in the report 236 00:12:20,200 --> 00:12:22,840 Speaker 1: the Fate of clean Energy and it's importance in the 237 00:12:22,880 --> 00:12:26,040 Speaker 1: overall offset supply moving forward well, and the real question 238 00:12:26,120 --> 00:12:28,280 Speaker 1: also with this has to do with with these auctions 239 00:12:28,320 --> 00:12:31,720 Speaker 1: and with these projects that are happening at scale and 240 00:12:31,760 --> 00:12:35,160 Speaker 1: hopefully much more quickly. I mean, this is a conversation 241 00:12:35,200 --> 00:12:37,640 Speaker 1: for another podcast, but in our new Energy Outlook also 242 00:12:37,640 --> 00:12:40,040 Speaker 1: out to the year, we look at this hockey stick 243 00:12:40,080 --> 00:12:45,600 Speaker 1: shape of needed implementation and building of clean energy in 244 00:12:45,720 --> 00:12:49,200 Speaker 1: order to meet our climate goals. I would anticipate that 245 00:12:49,240 --> 00:12:50,920 Speaker 1: these are at the scale where it's kind of hard 246 00:12:50,960 --> 00:12:55,320 Speaker 1: to say that this was spurred by an offset, that 247 00:12:55,440 --> 00:12:58,959 Speaker 1: it probably was part of the business strategy. To your 248 00:12:58,960 --> 00:13:01,840 Speaker 1: point on how cheap these are, maybe I'm actually taking 249 00:13:01,880 --> 00:13:04,040 Speaker 1: I'm taking too much of a biased stance. I guess 250 00:13:04,160 --> 00:13:06,960 Speaker 1: we know where I lie. On this question in terms 251 00:13:07,040 --> 00:13:09,640 Speaker 1: of the debate. So there's two sides to it, and 252 00:13:09,920 --> 00:13:12,040 Speaker 1: I shouldn't pick one. No, it's a it's a very 253 00:13:12,080 --> 00:13:13,679 Speaker 1: good point. And the last thing I'll say on this 254 00:13:13,800 --> 00:13:17,360 Speaker 1: is that I personally am sure there are companies out 255 00:13:17,360 --> 00:13:21,280 Speaker 1: there that are looking at building a clean energy project 256 00:13:21,280 --> 00:13:23,480 Speaker 1: and the biggest chunk of that revenue is going to 257 00:13:23,600 --> 00:13:26,480 Speaker 1: come from offsets. But I personally have never seen a 258 00:13:26,520 --> 00:13:29,120 Speaker 1: project that is built on that premise. And a lot 259 00:13:29,160 --> 00:13:32,000 Speaker 1: of the major registries, so that the two biggest actually 260 00:13:32,280 --> 00:13:35,480 Speaker 1: VERA and gold Standard, they acknowledge this, and they've recently 261 00:13:35,480 --> 00:13:39,320 Speaker 1: put forward changes that you can only issue carbon offsets 262 00:13:39,360 --> 00:13:42,840 Speaker 1: from clean energy projects in the least developed countries. So 263 00:13:43,040 --> 00:13:47,400 Speaker 1: all that clean energy offsets supply from the United States, India, China, 264 00:13:47,520 --> 00:13:50,640 Speaker 1: like I mentioned before, that does exist today and is 265 00:13:50,679 --> 00:13:53,920 Speaker 1: allowed in the voluntary carbon market, It's not necessarily going 266 00:13:53,960 --> 00:13:55,760 Speaker 1: to be the case moving forward. We're going to need 267 00:13:55,800 --> 00:13:58,360 Speaker 1: to rely a lot more on projects and say Sub 268 00:13:58,400 --> 00:14:00,600 Speaker 1: Saharan Africa, which is where we of a deep dive 269 00:14:00,640 --> 00:14:04,040 Speaker 1: for our report. Let's go into the Science Based Targets initiative. 270 00:14:04,120 --> 00:14:07,040 Speaker 1: So what is the s p t I. So the 271 00:14:07,040 --> 00:14:11,720 Speaker 1: science Based Targets Initiative is a group that allows companies 272 00:14:11,760 --> 00:14:14,960 Speaker 1: to set a paras aligned climate goal. So you think 273 00:14:15,000 --> 00:14:17,160 Speaker 1: about the Paris Agreement. You have all of these countries 274 00:14:17,160 --> 00:14:20,680 Speaker 1: out there that are making their nationally determined contributions their 275 00:14:20,720 --> 00:14:24,200 Speaker 1: paras aligned you know, climate goals. What the Science Based 276 00:14:24,240 --> 00:14:28,480 Speaker 1: Targets Initiative operates under. What it assumes is that, let's 277 00:14:28,480 --> 00:14:31,200 Speaker 1: say every country in the world dropped the ball on 278 00:14:31,240 --> 00:14:34,240 Speaker 1: achieving their climate goals, and instead they rely on the 279 00:14:34,280 --> 00:14:38,560 Speaker 1: individual private sector actors within those countries to go ahead 280 00:14:38,560 --> 00:14:41,880 Speaker 1: and do the heavy lifting themselves. This assumes that every 281 00:14:42,040 --> 00:14:44,440 Speaker 1: single corporation in the world goes out and plays their 282 00:14:44,520 --> 00:14:48,720 Speaker 1: part rather than relying on those countries. Historically, the Science 283 00:14:48,720 --> 00:14:52,080 Speaker 1: Based Targets Initiative would allow companies to go out and 284 00:14:52,120 --> 00:14:56,000 Speaker 1: set a near term paras aligned climate target. Most of 285 00:14:56,040 --> 00:15:00,200 Speaker 1: those goals actually ended in they're not net zero goals, right, 286 00:15:00,280 --> 00:15:02,840 Speaker 1: and they only go to a certain extent, you know, 287 00:15:02,880 --> 00:15:05,120 Speaker 1: maybe a company reducing its Scope one and Scope two 288 00:15:05,120 --> 00:15:11,680 Speaker 1: emissions by for example, and under that group, carbon offsets 289 00:15:11,720 --> 00:15:14,480 Speaker 1: are not allowed under any circumstance. If you are a 290 00:15:14,520 --> 00:15:17,280 Speaker 1: member of the Science Based Targets Initiative and have set 291 00:15:17,320 --> 00:15:20,280 Speaker 1: a regular parasol lined goal with them to achieve that goal, 292 00:15:20,440 --> 00:15:24,960 Speaker 1: you can't use offsets. However, around top, the Science Based 293 00:15:25,000 --> 00:15:29,400 Speaker 1: Targets Initiative put out a net zero science based framework, 294 00:15:29,760 --> 00:15:32,400 Speaker 1: so that allows companies to take those science based targets 295 00:15:32,400 --> 00:15:35,080 Speaker 1: I mentioned earlier and bring them out a step further, 296 00:15:35,280 --> 00:15:40,200 Speaker 1: going to net and zero emissions by earlier. The key 297 00:15:40,280 --> 00:15:42,240 Speaker 1: thing here and the reason why we call this an 298 00:15:42,360 --> 00:15:45,200 Speaker 1: s p t I scenario in our report, which actually 299 00:15:45,320 --> 00:15:47,800 Speaker 1: might be a little bit generous in giving them full 300 00:15:47,840 --> 00:15:51,200 Speaker 1: credit for this push here, But what they're saying is 301 00:15:51,200 --> 00:15:55,440 Speaker 1: that a company can use offsets to achieve a science 302 00:15:55,440 --> 00:15:58,960 Speaker 1: based net zero goal. Now, however, they can only purchase 303 00:15:59,040 --> 00:16:01,920 Speaker 1: offsets to achieve that goal that are in that removal 304 00:16:01,960 --> 00:16:05,400 Speaker 1: category that I mentioned before. So any type of offset 305 00:16:05,440 --> 00:16:09,480 Speaker 1: supply that simply avoids emissions, like a clean energy project 306 00:16:09,560 --> 00:16:12,760 Speaker 1: that I mentioned before, or something like installing clean cook 307 00:16:12,840 --> 00:16:16,400 Speaker 1: stoves in emerging economies which is another sector we modeled, 308 00:16:16,920 --> 00:16:20,640 Speaker 1: or the biggest one, which is avoided deforestation, so actually 309 00:16:20,640 --> 00:16:24,360 Speaker 1: protecting a at risk forest or vulnerable forest from being 310 00:16:24,400 --> 00:16:27,720 Speaker 1: cut down. All those projects simply avoid emissions. They don't 311 00:16:27,800 --> 00:16:31,320 Speaker 1: lead to further sequestration and As a result, spt I 312 00:16:31,400 --> 00:16:34,360 Speaker 1: is saying that you cannot use that type of supply 313 00:16:34,720 --> 00:16:37,640 Speaker 1: in order to achieve your net zero goal. In the 314 00:16:37,720 --> 00:16:40,960 Speaker 1: spt I scenario, what we're saying is that the demand 315 00:16:41,040 --> 00:16:43,800 Speaker 1: is still coming from all those corporations that I mentioned before. 316 00:16:44,160 --> 00:16:46,080 Speaker 1: So again, we looked at all these companies with net 317 00:16:46,160 --> 00:16:48,480 Speaker 1: zero goals, then we looked at how much they could 318 00:16:48,480 --> 00:16:50,800 Speaker 1: produce their gross emissions, and we assume that the gap 319 00:16:50,840 --> 00:16:54,160 Speaker 1: between the two is offset demand. But what we're doing 320 00:16:54,160 --> 00:16:57,080 Speaker 1: here is we're actually shortening supply quite a bit. So 321 00:16:57,120 --> 00:16:59,880 Speaker 1: instead of letting supply run unregulated, I mean you can 322 00:17:00,000 --> 00:17:02,600 Speaker 1: i from anywhere, you can only buy from two key 323 00:17:02,640 --> 00:17:06,080 Speaker 1: sectors that we modeled in the report, and that is reforestation, 324 00:17:06,560 --> 00:17:10,439 Speaker 1: so planting new trees or a forestation, planting forests in 325 00:17:10,440 --> 00:17:13,560 Speaker 1: an area where there's never historically been a forest. And 326 00:17:13,600 --> 00:17:16,399 Speaker 1: then we also look at technology based removal, and in 327 00:17:16,400 --> 00:17:19,280 Speaker 1: the case of this report, we use direct air capture 328 00:17:19,400 --> 00:17:22,840 Speaker 1: as a proxy for all technology based removal. And the 329 00:17:22,880 --> 00:17:26,840 Speaker 1: big takeaway from this is that really, until direct air 330 00:17:26,880 --> 00:17:30,280 Speaker 1: capture comes into maturity, which we can't necessarily expect for 331 00:17:30,359 --> 00:17:33,920 Speaker 1: another few decades, you're gonna have a huge shortfall when 332 00:17:33,920 --> 00:17:37,199 Speaker 1: it comes to carbon off set supply. So what we 333 00:17:37,240 --> 00:17:40,520 Speaker 1: say is that there's gonna be an undersupply of carbon 334 00:17:40,560 --> 00:17:44,080 Speaker 1: off sets starting in the late and what that means 335 00:17:44,119 --> 00:17:45,959 Speaker 1: is that the price for carbon off set is going 336 00:17:45,960 --> 00:17:49,120 Speaker 1: to shoot up to very unsustainable highs. In this case 337 00:17:49,200 --> 00:17:55,760 Speaker 1: over two dollars a ton starting around wow. Yes, very expensive. 338 00:17:55,760 --> 00:17:58,040 Speaker 1: And to put that into contacts the current price or 339 00:17:58,040 --> 00:18:02,040 Speaker 1: the average price in twenty around two dollars and fifty 340 00:18:02,080 --> 00:18:04,600 Speaker 1: cents a ton well. And also to put into context, 341 00:18:04,640 --> 00:18:06,800 Speaker 1: so our team that looks specifically at the E E 342 00:18:06,880 --> 00:18:10,080 Speaker 1: T S compliance market, they're thinking that we're going to 343 00:18:10,200 --> 00:18:15,119 Speaker 1: hit a hundred euros a ton by just before so 344 00:18:15,280 --> 00:18:18,600 Speaker 1: around the same time that which is what is considered 345 00:18:18,600 --> 00:18:20,159 Speaker 1: to be maybe one of the most if not the 346 00:18:20,240 --> 00:18:25,679 Speaker 1: most mature carbon market, you know, around the same time 347 00:18:26,200 --> 00:18:29,600 Speaker 1: you're seeing other spaces, maybe because it's such a complicated 348 00:18:29,600 --> 00:18:32,719 Speaker 1: space with so much diversity across the world, they're being 349 00:18:32,760 --> 00:18:35,119 Speaker 1: prices around two hundred. I mean that is um I know, 350 00:18:35,160 --> 00:18:37,720 Speaker 1: we're talking US dollars to to euros. So there's a 351 00:18:37,760 --> 00:18:40,080 Speaker 1: little bit of a difference there, but not enough to 352 00:18:40,160 --> 00:18:42,879 Speaker 1: account for such a high price that potentially in the 353 00:18:42,920 --> 00:18:46,719 Speaker 1: future it's very expensive, and just for context, so that 354 00:18:46,720 --> 00:18:50,280 Speaker 1: that two dollars and it's it's around roughly actually two 355 00:18:51,640 --> 00:18:55,320 Speaker 1: a ton to be specific, that price is from direct 356 00:18:55,320 --> 00:18:57,920 Speaker 1: air capture, so that is the cost for direct air capture. 357 00:18:57,960 --> 00:19:02,199 Speaker 1: Around that time. Our Aniable Materials team anticipates that the 358 00:19:02,240 --> 00:19:05,000 Speaker 1: price for direct aircapture, of course will come down. We've 359 00:19:05,040 --> 00:19:07,359 Speaker 1: seen that with the learning rates for solar and wind 360 00:19:07,400 --> 00:19:10,440 Speaker 1: and so many other technologies that we've covered at VNF. Right, 361 00:19:10,840 --> 00:19:13,040 Speaker 1: but I think the big takeaway is that you know, 362 00:19:13,080 --> 00:19:16,800 Speaker 1: even in we anticipate that the cost for direct air 363 00:19:16,840 --> 00:19:19,800 Speaker 1: capture is going to be around hundred dollars a ton, 364 00:19:19,880 --> 00:19:23,280 Speaker 1: still still super expensive compared to what prices for carbon 365 00:19:23,320 --> 00:19:26,360 Speaker 1: off sets are today, and there could be benefits to this. Right. 366 00:19:26,520 --> 00:19:30,240 Speaker 1: One of the benefits to such extremely high prices is 367 00:19:30,280 --> 00:19:33,600 Speaker 1: that this will function as effectively a carbon tax. All 368 00:19:33,600 --> 00:19:36,199 Speaker 1: those companies that haven't net zero goal, they won't be 369 00:19:36,240 --> 00:19:39,639 Speaker 1: able to rely on carbon offsets as a lifeline or 370 00:19:39,720 --> 00:19:42,080 Speaker 1: get out of jail free card. They'll have to focus 371 00:19:42,119 --> 00:19:45,640 Speaker 1: more on reducing their own gross emissions and rely less 372 00:19:45,640 --> 00:19:47,879 Speaker 1: on offsets. And really that is the goal of a 373 00:19:47,880 --> 00:19:51,119 Speaker 1: carbon market in the end. Right to incentivize companies to 374 00:19:52,400 --> 00:19:54,560 Speaker 1: focus on cleaning up their own act as much as 375 00:19:54,600 --> 00:19:57,320 Speaker 1: they can and then using offsets for any of those 376 00:19:57,320 --> 00:20:00,720 Speaker 1: residual emissions. So there is a nice ben fit there. 377 00:20:00,760 --> 00:20:02,760 Speaker 1: But I think the main takeaway year is that, you know, 378 00:20:02,800 --> 00:20:06,200 Speaker 1: all those advocates for a removal only carbon off set 379 00:20:06,240 --> 00:20:09,760 Speaker 1: market at least to cover again that fundamental demand. It's 380 00:20:09,760 --> 00:20:11,679 Speaker 1: a it's a little bit of a flawed outlook because 381 00:20:11,720 --> 00:20:15,560 Speaker 1: it kind of underscores how dire that supply situation could 382 00:20:15,560 --> 00:20:24,480 Speaker 1: really be in a removal only world. We'll be right back, Okay, 383 00:20:24,600 --> 00:20:27,320 Speaker 1: So we've been through these two scenarios and your third 384 00:20:27,359 --> 00:20:31,320 Speaker 1: one is sort of not its own scenario because it's hybrid. 385 00:20:31,400 --> 00:20:34,200 Speaker 1: So what is the hybrid scenario? The hybrid scenario is 386 00:20:34,240 --> 00:20:37,120 Speaker 1: meant to represent a gradual evolution of the carbon off 387 00:20:37,119 --> 00:20:40,920 Speaker 1: set market. So, just for a refresher, that voluntary scenario 388 00:20:41,359 --> 00:20:44,159 Speaker 1: that assumes the market stays as it does today and 389 00:20:45,000 --> 00:20:47,840 Speaker 1: you know, nothing changes in terms of regulation or who's 390 00:20:47,880 --> 00:20:51,040 Speaker 1: buying in what types of supply exists. We take that 391 00:20:51,119 --> 00:20:53,760 Speaker 1: voluntary scenario and we make a few little tweaks to 392 00:20:53,840 --> 00:20:57,760 Speaker 1: it from now out until in our hybrid scenario. So 393 00:20:57,800 --> 00:21:00,080 Speaker 1: what it's saying is that, yeah, sure, they're all a 394 00:21:00,080 --> 00:21:02,719 Speaker 1: lot of critics to how the offset market works today. 395 00:21:02,800 --> 00:21:05,800 Speaker 1: The market is rapidly evolving. Things are going to change, 396 00:21:06,080 --> 00:21:08,240 Speaker 1: but those changes are going to take time, and that's 397 00:21:08,280 --> 00:21:11,040 Speaker 1: kind of what we assume for this hybrid scenario. So 398 00:21:11,240 --> 00:21:14,640 Speaker 1: the market remains very similar out to What that means 399 00:21:14,680 --> 00:21:17,560 Speaker 1: is that prices, well, they do go up compared to 400 00:21:17,600 --> 00:21:20,560 Speaker 1: what they are today, they still remain fairly manageable for 401 00:21:20,600 --> 00:21:23,320 Speaker 1: companies and actually I would say in terms of overall 402 00:21:23,400 --> 00:21:26,199 Speaker 1: market design that they're great right because they go up 403 00:21:26,200 --> 00:21:28,960 Speaker 1: to a level where it's gonna price some companies out 404 00:21:28,960 --> 00:21:30,639 Speaker 1: of the market, but it's still going to get to 405 00:21:30,640 --> 00:21:34,000 Speaker 1: a level where it's gonna incentivize more supply. Traders are 406 00:21:34,000 --> 00:21:35,639 Speaker 1: gonna get involved more, and it's going to create a 407 00:21:35,680 --> 00:21:40,080 Speaker 1: more liquid market. Then will we assume from is that 408 00:21:40,160 --> 00:21:42,920 Speaker 1: the market starts to resemble that spt I scenario that 409 00:21:42,960 --> 00:21:46,200 Speaker 1: we just discussed. So there's some more regulation that's put 410 00:21:46,240 --> 00:21:50,560 Speaker 1: in place, and there's more stringent kind of beliefs around 411 00:21:50,560 --> 00:21:53,560 Speaker 1: how carbon offset should work, and the overall kind of 412 00:21:53,600 --> 00:21:56,960 Speaker 1: market shifts towards a removal only world. So demand is 413 00:21:56,960 --> 00:22:00,119 Speaker 1: still driven by companies, but it's removal only, and that 414 00:22:00,200 --> 00:22:02,639 Speaker 1: leads to kind of similar issues that we saw in 415 00:22:02,680 --> 00:22:05,040 Speaker 1: the s p t I scenario, and the market really 416 00:22:05,119 --> 00:22:09,280 Speaker 1: quickly again becomes undersupplied and prices shoot up above that 417 00:22:09,400 --> 00:22:13,040 Speaker 1: two ton of threshold. Again. The most interesting change though 418 00:22:13,160 --> 00:22:17,880 Speaker 1: in the hybrid scenario from is something that I discussed 419 00:22:18,000 --> 00:22:20,480 Speaker 1: at the beginning of the discussion today, and that is 420 00:22:21,200 --> 00:22:26,080 Speaker 1: that those discussions at copy around a global carbon market 421 00:22:26,480 --> 00:22:29,080 Speaker 1: where instead of companies as the main players, it's actually 422 00:22:29,119 --> 00:22:32,320 Speaker 1: countries that comes to fruition and there's a very high 423 00:22:32,320 --> 00:22:35,159 Speaker 1: likelihood that happens. The big question is how long is 424 00:22:35,160 --> 00:22:37,359 Speaker 1: that get to take right, getting every country in the 425 00:22:37,400 --> 00:22:40,560 Speaker 1: world to set an ambitious sustainability goal and then allow 426 00:22:40,680 --> 00:22:44,760 Speaker 1: for the trading of verified emission reductions between countries is 427 00:22:45,040 --> 00:22:49,240 Speaker 1: a very complicated process. So what we say that that happens, 428 00:22:49,280 --> 00:22:51,280 Speaker 1: but it takes a little while for it to take hold. 429 00:22:51,720 --> 00:22:54,320 Speaker 1: But when it does take hold, countries are again the 430 00:22:54,359 --> 00:22:57,760 Speaker 1: main ones buying offsets. Corporations take a back seat in 431 00:22:57,800 --> 00:23:00,320 Speaker 1: this market, but we still remain in a room moval 432 00:23:00,400 --> 00:23:03,959 Speaker 1: only world. Again, prices still remain very high, but they 433 00:23:04,000 --> 00:23:06,240 Speaker 1: come down a little bit compared to the spt I 434 00:23:06,280 --> 00:23:09,920 Speaker 1: scenario because it's no longer direct air capture that's dictating 435 00:23:09,920 --> 00:23:13,640 Speaker 1: the market, and there's some other technologies or offset sectors 436 00:23:13,680 --> 00:23:17,240 Speaker 1: like reforestation that play a more prominent role in setting price. 437 00:23:17,760 --> 00:23:19,800 Speaker 1: I realized that was kind of a mouthful, but I 438 00:23:19,800 --> 00:23:21,920 Speaker 1: think that the main point here is that the hyde 439 00:23:21,960 --> 00:23:23,840 Speaker 1: with scenario, it does kind of take a lot of 440 00:23:23,880 --> 00:23:26,199 Speaker 1: liberties and it makes a lot of assumptions, but what 441 00:23:26,280 --> 00:23:29,760 Speaker 1: it does encapsulate is that there's so much uncertainty in 442 00:23:29,800 --> 00:23:32,040 Speaker 1: the market right now, and it's not going to stay 443 00:23:32,080 --> 00:23:33,879 Speaker 1: the same way as it does today right It's going 444 00:23:33,920 --> 00:23:36,200 Speaker 1: to go through a lot of changes, and we wanted 445 00:23:36,240 --> 00:23:39,119 Speaker 1: to look at a scenario where that could potentially happen. 446 00:23:39,640 --> 00:23:43,840 Speaker 1: So when did carbon offsets first start the market? At 447 00:23:43,880 --> 00:23:46,959 Speaker 1: least in terms of the voluntary market that was created 448 00:23:46,960 --> 00:23:49,439 Speaker 1: in the late nineties, But if you look at actual 449 00:23:49,680 --> 00:23:54,160 Speaker 1: supply and demand even up until it's been pretty inconsistent. 450 00:23:54,600 --> 00:23:58,119 Speaker 1: So if you look at a year, for example, we 451 00:23:58,200 --> 00:24:02,600 Speaker 1: saw just over forty million carbon off sets retired by companies. 452 00:24:03,000 --> 00:24:04,760 Speaker 1: What that means is that companies went out and they 453 00:24:04,800 --> 00:24:07,920 Speaker 1: bought those offsets and then they effectively removed them from 454 00:24:07,920 --> 00:24:11,200 Speaker 1: the market and use them to account for their sustainability goals. 455 00:24:11,520 --> 00:24:13,439 Speaker 1: And that's the best way for us to kind of 456 00:24:13,440 --> 00:24:17,199 Speaker 1: assess demand historically is to look at retirements. If you 457 00:24:17,240 --> 00:24:22,000 Speaker 1: fast forward to we saw nine three million carbon off 458 00:24:22,000 --> 00:24:25,080 Speaker 1: sets retired, so it's a little more than double what 459 00:24:25,160 --> 00:24:29,240 Speaker 1: we saw. But you know, you know this better than anyone, Dana, 460 00:24:29,440 --> 00:24:33,080 Speaker 1: any technology or market that we look at at benf 461 00:24:33,119 --> 00:24:35,000 Speaker 1: it's kind of everything is moving up into the left, 462 00:24:35,119 --> 00:24:39,080 Speaker 1: right or up into the right. I'm sorry, um, very 463 00:24:39,080 --> 00:24:41,760 Speaker 1: different choice you're looking at exactly now. This is this 464 00:24:41,800 --> 00:24:43,719 Speaker 1: is very much a positive one and it's moving up 465 00:24:43,720 --> 00:24:46,199 Speaker 1: into the right. So that is the case here. But 466 00:24:46,359 --> 00:24:48,320 Speaker 1: that type of growth over five years is nothing to 467 00:24:48,320 --> 00:24:51,600 Speaker 1: write home about. And then it was again another record 468 00:24:51,680 --> 00:24:54,199 Speaker 1: year for retirement when the market did come close to 469 00:24:54,280 --> 00:24:57,320 Speaker 1: doubling in terms of demand, but it's still fairly small 470 00:24:57,359 --> 00:24:59,840 Speaker 1: in the grand scheme of things. A company like Shell, 471 00:25:00,040 --> 00:25:03,240 Speaker 1: for example, their scope three emissions which come from the 472 00:25:03,400 --> 00:25:06,760 Speaker 1: say the use of their their oil downstream in jet 473 00:25:06,800 --> 00:25:10,600 Speaker 1: fuel and plastics and cars. Their scope three missions alone 474 00:25:10,720 --> 00:25:13,840 Speaker 1: or seven are several hundred million metric tons of c 475 00:25:13,960 --> 00:25:15,760 Speaker 1: O two. So if they wanted to go ahead and 476 00:25:15,840 --> 00:25:19,600 Speaker 1: purchase offsets to address just their scope three emissions. The 477 00:25:19,640 --> 00:25:22,920 Speaker 1: market wouldn't be big enough today for comparisons sake. So 478 00:25:22,960 --> 00:25:25,600 Speaker 1: it's growing, but it's right now still tiny and has 479 00:25:25,640 --> 00:25:27,919 Speaker 1: such a long way to go to meet the demand 480 00:25:27,960 --> 00:25:30,119 Speaker 1: for all these companies out there. So this is an 481 00:25:30,160 --> 00:25:32,960 Speaker 1: industry that has been considered to be fairly nascent or 482 00:25:33,000 --> 00:25:37,399 Speaker 1: small up until quite recently, even though it's had a 483 00:25:37,440 --> 00:25:40,080 Speaker 1: couple of decades. You know, you're saying this up into 484 00:25:40,080 --> 00:25:44,680 Speaker 1: the right. It really depends on what the severity is 485 00:25:44,800 --> 00:25:47,399 Speaker 1: of how hot something is, and I think I have 486 00:25:47,520 --> 00:25:50,200 Speaker 1: an idea as to why this might be a very 487 00:25:50,200 --> 00:25:56,439 Speaker 1: hot space right now. So November copy article six came 488 00:25:56,520 --> 00:26:02,840 Speaker 1: up again and this idea of global interplayer in some 489 00:26:03,000 --> 00:26:07,359 Speaker 1: way embracing some version of carbon offsets came up and 490 00:26:07,359 --> 00:26:10,119 Speaker 1: actually got traction for the first real time at a 491 00:26:10,160 --> 00:26:12,159 Speaker 1: cop Yes, it had been discussed, but I mean this 492 00:26:12,200 --> 00:26:15,719 Speaker 1: seemed like this was more of a triumph than in 493 00:26:15,880 --> 00:26:19,439 Speaker 1: previous versions. Do you think that that is the primary 494 00:26:19,480 --> 00:26:21,239 Speaker 1: reason why this is taking off or does it have 495 00:26:21,400 --> 00:26:24,760 Speaker 1: much more to do with maybe different company and country 496 00:26:24,800 --> 00:26:27,080 Speaker 1: net zero targets And really this is just being a 497 00:26:27,200 --> 00:26:30,359 Speaker 1: necessity for some of these places and companies to actually 498 00:26:30,359 --> 00:26:33,720 Speaker 1: reach those goals. It's a combination of both. Right, A 499 00:26:33,760 --> 00:26:37,000 Speaker 1: lot of companies are again setting these these net zero goals, 500 00:26:37,040 --> 00:26:40,080 Speaker 1: and every single day a major company goes out and 501 00:26:40,560 --> 00:26:43,000 Speaker 1: either sets in at zero goal or ratchets up there 502 00:26:43,000 --> 00:26:47,520 Speaker 1: existing one. So there a lot of it is again 503 00:26:47,640 --> 00:26:51,760 Speaker 1: company driven. But what their discussions at cop did around 504 00:26:51,840 --> 00:26:54,560 Speaker 1: this article six, like you mentioned, is I think you're right, 505 00:26:54,560 --> 00:26:58,440 Speaker 1: it got a lot of public attention on the importance 506 00:26:58,520 --> 00:27:00,879 Speaker 1: of having a global carbon mark get I think just 507 00:27:00,960 --> 00:27:03,320 Speaker 1: the real question now is who's going to be the 508 00:27:03,320 --> 00:27:06,320 Speaker 1: major player in that? Will it be companies? If you 509 00:27:06,400 --> 00:27:09,120 Speaker 1: ask me, I think companies will be the major players 510 00:27:09,160 --> 00:27:10,800 Speaker 1: for at least the next couple of years at an 511 00:27:10,840 --> 00:27:13,719 Speaker 1: absolute minimum. But I think that's one of the big questions. 512 00:27:13,720 --> 00:27:15,960 Speaker 1: And then the other one is what types of supply 513 00:27:16,000 --> 00:27:19,320 Speaker 1: will be permitted. So that's why I think this offsets 514 00:27:19,320 --> 00:27:21,960 Speaker 1: outlook that we've just produced. It. It comes out at 515 00:27:22,000 --> 00:27:24,120 Speaker 1: such an important time because it allows us to kind 516 00:27:24,119 --> 00:27:27,639 Speaker 1: of flex some of these assumptions and put to test 517 00:27:28,200 --> 00:27:30,120 Speaker 1: some of the ways that people think this market should 518 00:27:30,160 --> 00:27:32,560 Speaker 1: evolve and actually look at is it sustainable or not? 519 00:27:32,960 --> 00:27:34,760 Speaker 1: The results are you know, of course, as we've been 520 00:27:34,760 --> 00:27:39,439 Speaker 1: discussing here, you know, pretty shocking. So there are some 521 00:27:39,520 --> 00:27:41,879 Speaker 1: bodies and organizations are out there that are aware of 522 00:27:41,920 --> 00:27:46,840 Speaker 1: these limitations in terms of verification and additionality and just 523 00:27:46,920 --> 00:27:49,960 Speaker 1: some of the things we've discussed around you know, how 524 00:27:50,000 --> 00:27:52,840 Speaker 1: many where, When? Why? What are the bodies and the 525 00:27:52,920 --> 00:27:55,639 Speaker 1: organizations that are looking to put some structure in place 526 00:27:55,800 --> 00:28:00,239 Speaker 1: for the buyers. The first ones are the Registry is 527 00:28:00,600 --> 00:28:03,439 Speaker 1: kind of oversee the market today. You can't see me 528 00:28:03,560 --> 00:28:05,280 Speaker 1: right now, but if I were to say oversea, I'd 529 00:28:05,280 --> 00:28:08,560 Speaker 1: be putting those kind of in quotations right because any 530 00:28:08,560 --> 00:28:11,640 Speaker 1: project that wants to get verified to buy or sell 531 00:28:11,680 --> 00:28:15,480 Speaker 1: a carbon offset should be on those registries. But beyond that, 532 00:28:15,480 --> 00:28:18,280 Speaker 1: there's very little regulation that we're seeing in the market 533 00:28:18,359 --> 00:28:22,480 Speaker 1: right now. That's changing though again those registries I mentioned before, 534 00:28:22,680 --> 00:28:25,359 Speaker 1: like gold Standard and VERA, as well as ones like 535 00:28:25,400 --> 00:28:29,680 Speaker 1: the American Carbon Registry and Climate Action Reserve, these groups 536 00:28:29,680 --> 00:28:32,199 Speaker 1: are getting a lot more pressure now both from the 537 00:28:32,240 --> 00:28:36,359 Speaker 1: media but also from investors in various stakeholders to ramp 538 00:28:36,440 --> 00:28:38,760 Speaker 1: up the regulation. I mean, that's why we did see 539 00:28:38,760 --> 00:28:42,320 Speaker 1: a change like limiting clean energy offset to apply to 540 00:28:42,440 --> 00:28:46,520 Speaker 1: least developed countries. These registries are also now creating kind 541 00:28:46,520 --> 00:28:50,960 Speaker 1: of a bifurcation to allow for a distinguishment of high 542 00:28:51,080 --> 00:28:54,600 Speaker 1: quality credits compared to low quality ones. So VERA has 543 00:28:54,640 --> 00:28:59,520 Speaker 1: what it's called its Climate, Community and Biodiversity or CCB verification, 544 00:29:00,000 --> 00:29:02,800 Speaker 1: and that actually earmarks the carbon offset projects that have 545 00:29:03,320 --> 00:29:06,560 Speaker 1: what we call CO benefits, so beyond reducing emissions, they 546 00:29:06,560 --> 00:29:11,440 Speaker 1: will benefit communities or tech biodiversity, or improve water filtration 547 00:29:11,560 --> 00:29:14,640 Speaker 1: or or all these different things. So the registries are 548 00:29:14,640 --> 00:29:17,080 Speaker 1: going to have a big say in this. The other 549 00:29:17,120 --> 00:29:20,120 Speaker 1: one that I would just mention is the Task Force 550 00:29:20,320 --> 00:29:23,800 Speaker 1: on Scaling Voluntary Carbon Markets. So that is a group 551 00:29:23,840 --> 00:29:26,440 Speaker 1: that has been run by Mark Harney as well as 552 00:29:26,440 --> 00:29:29,560 Speaker 1: some other people for the past couple of years. And 553 00:29:29,760 --> 00:29:32,280 Speaker 1: what the task Force one of the kind of major 554 00:29:32,400 --> 00:29:34,880 Speaker 1: pieces of output from it was to create a governance 555 00:29:34,920 --> 00:29:38,880 Speaker 1: body that's going to create things like core carbon principles 556 00:29:39,480 --> 00:29:43,320 Speaker 1: for the carbon offset markets to basically determine, you know, 557 00:29:43,760 --> 00:29:46,600 Speaker 1: if I, as a customer want to buy a carbon offset, 558 00:29:47,000 --> 00:29:49,240 Speaker 1: I can guarantee that it's going to meet this level 559 00:29:49,520 --> 00:29:52,480 Speaker 1: or this threshold of quality. Right, it'll meet It'll check 560 00:29:52,560 --> 00:29:55,520 Speaker 1: you know, boxes X, Y and Z. So those core 561 00:29:55,600 --> 00:29:58,280 Speaker 1: carbon principles and that governance body are going to be 562 00:29:58,320 --> 00:30:02,240 Speaker 1: really essential and essentially building a you know, a carbon 563 00:30:02,280 --> 00:30:04,240 Speaker 1: market two point o or a carbon office at market 564 00:30:04,240 --> 00:30:06,680 Speaker 1: two point oh. That's going to function much more like 565 00:30:06,720 --> 00:30:10,160 Speaker 1: a traditional commodity market. And of course, if you're a 566 00:30:10,200 --> 00:30:12,960 Speaker 1: trader or you're an investor, you know you're seeing dollar 567 00:30:13,040 --> 00:30:15,160 Speaker 1: signs when you hear that, right. That as a tremendous 568 00:30:15,160 --> 00:30:18,360 Speaker 1: opportunity for traders and banks to get involved in this 569 00:30:18,440 --> 00:30:22,680 Speaker 1: space kind of help boost that liquidity and help suppliers 570 00:30:22,720 --> 00:30:26,080 Speaker 1: offload their offsets and help all these corporations and again 571 00:30:26,160 --> 00:30:29,800 Speaker 1: maybe one day countries to achieve their climate goals. So 572 00:30:29,960 --> 00:30:34,200 Speaker 1: on that functioning like a commodity we have this forecast 573 00:30:34,240 --> 00:30:36,960 Speaker 1: where we're looking out into many years in the future 574 00:30:36,960 --> 00:30:39,600 Speaker 1: and where the price may eventually go. And you know 575 00:30:39,640 --> 00:30:42,840 Speaker 1: you had mentioned essentially two U s dollars a ton 576 00:30:42,960 --> 00:30:46,800 Speaker 1: by the year. Are you also seeing a good amount 577 00:30:46,840 --> 00:30:50,680 Speaker 1: of volatility? Will this be something that is actively traded 578 00:30:51,280 --> 00:30:54,600 Speaker 1: and the traders themselves have an opportunity to make quite 579 00:30:54,640 --> 00:30:56,320 Speaker 1: a bit of money if they're they're looking at the 580 00:30:56,360 --> 00:30:58,520 Speaker 1: vets correctly, because you know, one of the things we 581 00:30:58,520 --> 00:31:00,720 Speaker 1: saw in the uts market is that for a long time, 582 00:31:01,160 --> 00:31:03,719 Speaker 1: it didn't have the volatility. Now that of course has changed, 583 00:31:03,760 --> 00:31:05,360 Speaker 1: and this is now a very hot space to be 584 00:31:05,400 --> 00:31:09,320 Speaker 1: in again, but for a while it wasn't absolutely and 585 00:31:09,360 --> 00:31:11,960 Speaker 1: that's the goal I think a lot of traders, you know, 586 00:31:12,000 --> 00:31:16,120 Speaker 1: we get a lot of questions now from energy companies, utilities, 587 00:31:16,440 --> 00:31:20,040 Speaker 1: from banks. They're all setting up trading desks specifically to 588 00:31:20,240 --> 00:31:23,760 Speaker 1: capitalize on the volatility in the carbon offset markets. So 589 00:31:23,800 --> 00:31:27,160 Speaker 1: we do expect more volatility today's market, you know, as 590 00:31:27,200 --> 00:31:29,320 Speaker 1: much as we keep referring to it as a market 591 00:31:29,640 --> 00:31:34,120 Speaker 1: today's discussion, it's really anything but a legitimate commodity market. Right, 592 00:31:34,720 --> 00:31:38,040 Speaker 1: Like I mentioned, pricings is not driven by supply and 593 00:31:38,120 --> 00:31:42,160 Speaker 1: demand fundamentals. It's much more driven by behavioral decisions like 594 00:31:42,240 --> 00:31:44,520 Speaker 1: a company waking up one day and saying, I think 595 00:31:44,560 --> 00:31:47,880 Speaker 1: I'll buy offsets today. Right. That type of behavior or 596 00:31:47,880 --> 00:31:51,880 Speaker 1: that type of supply demand is not sustainable long term 597 00:31:51,880 --> 00:31:53,880 Speaker 1: in this market. And again that's one of the outcomes 598 00:31:53,880 --> 00:31:57,080 Speaker 1: of that voluntary scenario we looked at. If the market 599 00:31:57,120 --> 00:31:59,840 Speaker 1: stays the same as it does today, prices will will 600 00:31:59,840 --> 00:32:03,280 Speaker 1: make unsustainably low and the markets basically get to die 601 00:32:03,280 --> 00:32:06,320 Speaker 1: out before it even gets going. What we need to 602 00:32:06,360 --> 00:32:09,160 Speaker 1: see is is again an increase in price in And 603 00:32:09,800 --> 00:32:12,360 Speaker 1: again I think traders are banking on that increased amount 604 00:32:12,400 --> 00:32:15,440 Speaker 1: of volatility. So there's gonna be a huge business opportunity 605 00:32:15,480 --> 00:32:20,000 Speaker 1: for them as supply and demand increase over time. And yeah, 606 00:32:20,000 --> 00:32:21,720 Speaker 1: we do. We do make a very big assumption in 607 00:32:21,800 --> 00:32:25,120 Speaker 1: this report that this does start to resemble a more 608 00:32:25,120 --> 00:32:28,400 Speaker 1: traditional commodity. That may not necessarily be the case, but 609 00:32:28,480 --> 00:32:31,360 Speaker 1: it's going to be what's needed in order to scale 610 00:32:31,360 --> 00:32:33,360 Speaker 1: the market up. You do have some critics for that, 611 00:32:33,520 --> 00:32:35,560 Speaker 1: but I think that is kind of the cold hard 612 00:32:35,560 --> 00:32:38,520 Speaker 1: reality of it. Final question, just to put into context, 613 00:32:39,520 --> 00:32:42,360 Speaker 1: keeping in mind that I think an individual living in 614 00:32:42,400 --> 00:32:46,960 Speaker 1: Western Europe where I am, generates about ten tons of 615 00:32:47,000 --> 00:32:48,600 Speaker 1: c O two a year, and I believe where you 616 00:32:48,640 --> 00:32:50,760 Speaker 1: are in North America it's about twelve tons a year 617 00:32:51,120 --> 00:32:53,600 Speaker 1: last time I checked. So, just on an individual basis, 618 00:32:54,360 --> 00:32:57,120 Speaker 1: how many tons of c O two have been offset 619 00:32:57,160 --> 00:32:59,520 Speaker 1: to date? If you look at the amount that's actually 620 00:32:59,560 --> 00:33:03,880 Speaker 1: been retired, So of course there is issuance of carbon offsets, 621 00:33:03,920 --> 00:33:06,600 Speaker 1: that's how much supply has come into the market. I 622 00:33:06,600 --> 00:33:10,320 Speaker 1: don't necessarily think that's a next a great or accurate 623 00:33:10,400 --> 00:33:12,760 Speaker 1: picture because a lot of those offsets are just out 624 00:33:12,760 --> 00:33:15,640 Speaker 1: there floating around um. A lot of them probably didn't 625 00:33:15,680 --> 00:33:19,000 Speaker 1: need to be verified for an offset anyway. So I 626 00:33:19,000 --> 00:33:22,360 Speaker 1: think something like a retirement is a much more accurate 627 00:33:22,400 --> 00:33:24,960 Speaker 1: way of looking at this. And if we look at 628 00:33:25,080 --> 00:33:30,200 Speaker 1: the the amount of carbon offsets retired, since it's around 629 00:33:30,520 --> 00:33:34,040 Speaker 1: four hundred and fifty million metric tons of carbon dioxide 630 00:33:34,040 --> 00:33:39,360 Speaker 1: equivalent and that is collectively, so again that sounds like 631 00:33:39,400 --> 00:33:41,200 Speaker 1: a lot. But in the grand scheme of things what 632 00:33:41,240 --> 00:33:44,200 Speaker 1: we're talking about again with with NEO and with some 633 00:33:44,240 --> 00:33:48,560 Speaker 1: of our other reports about large scale decarbonization, it's tiny, right. 634 00:33:49,000 --> 00:33:51,400 Speaker 1: I think the exciting thing if if again, if you're 635 00:33:51,440 --> 00:33:54,440 Speaker 1: stakeholder and you're listening to this podcast today, I think 636 00:33:54,480 --> 00:33:57,000 Speaker 1: the exciting thing is about where this market could go. 637 00:33:57,200 --> 00:34:00,280 Speaker 1: Because we could see kind of you know, large gale 638 00:34:00,560 --> 00:34:03,720 Speaker 1: significant growth in the immediate future. Let's hope that we 639 00:34:03,800 --> 00:34:06,360 Speaker 1: see some really creative and constructive ways for us to 640 00:34:06,400 --> 00:34:09,440 Speaker 1: think about removing carbon from the atmosphere, not omitting it 641 00:34:09,480 --> 00:34:12,200 Speaker 1: to begin with. On that note, Kyle, thank you very 642 00:34:12,280 --> 00:34:14,959 Speaker 1: much for joining today. Thanks so much. Always fun to 643 00:34:15,000 --> 00:34:22,040 Speaker 1: talk about this market. It's like the wild West. Today's 644 00:34:22,080 --> 00:34:24,840 Speaker 1: episode of Switched On was edited by Rex Warner of 645 00:34:24,840 --> 00:34:26,719 Speaker 1: gray Stoke Media. Bloomberg an e f A is a 646 00:34:26,760 --> 00:34:29,920 Speaker 1: service provided by Bloomberg Finance LP and its affiliates. This 647 00:34:30,040 --> 00:34:32,600 Speaker 1: recording does not constitute, nor should it be construed as 648 00:34:32,600 --> 00:34:36,440 Speaker 1: investment advice, investment recommendations, or recommendation as to an investment 649 00:34:36,560 --> 00:34:39,080 Speaker 1: or other strategy. Bloomberg an f should not be considered 650 00:34:39,080 --> 00:34:42,040 Speaker 1: as information sufficient upon which to base an investment decision. 651 00:34:42,160 --> 00:34:45,000 Speaker 1: Neither Bloomberg Finance LP nor any of its affiliates makes 652 00:34:45,000 --> 00:34:48,160 Speaker 1: any representation or warranty as to the accuracy or completeness 653 00:34:48,160 --> 00:34:51,040 Speaker 1: of the information contained in this recording, and any liability 654 00:34:51,080 --> 00:35:01,160 Speaker 1: of this recording is expressly disclaimed. He