WEBVTT - Carbon Offsets and the New Wild West 0:00:00.120 --> 0:00:02.560 This is Data Perkins, and you're listening to Switch on 0:00:02.840 --> 0:00:05.360 the B and EF podcast. This is not our first 0:00:05.400 --> 0:00:08.720 episode on the voluntary carbon offset space, and it likely 0:00:08.760 --> 0:00:11.640 will not be our last. This is a topic that 0:00:11.680 --> 0:00:14.400 has been generating a lot of buzz lately, so this 0:00:14.440 --> 0:00:17.120 week we look at what might happen in the offset 0:00:17.160 --> 0:00:20.120 space in the longer term. Currently, there is a lot 0:00:20.160 --> 0:00:23.720 of price variability, a lot of different approaches, and frankly, 0:00:23.880 --> 0:00:26.639 a lot of concern about the additionality of some of 0:00:26.680 --> 0:00:29.400 the projects as well as how to go about verifying them. 0:00:29.680 --> 0:00:32.879 So what is clear is that the offset space is 0:00:32.960 --> 0:00:36.239 here to stay. With emission solutions for some of the 0:00:36.280 --> 0:00:38.920 harder to abate industries still in an R and D 0:00:39.040 --> 0:00:43.440 phase and companies announcing things like negative emissions targets, how 0:00:43.479 --> 0:00:47.559 does one get there without carbon removal or at minimum trees. 0:00:48.440 --> 0:00:51.440 So this week Switched On speaks with B and f's 0:00:51.520 --> 0:00:55.560 head of sustainability Research, Kyle Harrison, about a recent report 0:00:55.600 --> 0:00:59.800 he authored titled Long Term Carbon Offsets Outlook two. He 0:01:00.000 --> 0:01:04.959 looks at the supply side, demand pricing, geographic breakdown, and 0:01:05.000 --> 0:01:08.360 a bunch of other things. Any clients can access this 0:01:08.400 --> 0:01:11.080 analysis at B NF go on the Bloomberg terminal or 0:01:11.120 --> 0:01:13.520 at benf dot com. And now let's speak with Kyle 0:01:13.640 --> 0:01:24.959 about the future of the offset space. Kyle, thank you 0:01:25.000 --> 0:01:27.520 so much for joining today on switched On. Thanks for 0:01:27.560 --> 0:01:30.840 having me Dana. So, Kyle, you are a veteran of 0:01:30.920 --> 0:01:33.360 switched On. You've been on here to talk about voluntary 0:01:33.360 --> 0:01:36.679 carbon offsets before, and we just recently put out a 0:01:36.680 --> 0:01:39.080 report that it really is a forecast for this market. 0:01:39.440 --> 0:01:41.960 Why was now the time for us to have kind 0:01:41.959 --> 0:01:45.760 of an official, codified be enough forecast, because you know, 0:01:45.840 --> 0:01:49.040 these market outlooks are something that many of our analysts 0:01:49.280 --> 0:01:51.360 make for the industries that we cover in other parts 0:01:51.400 --> 0:01:54.200 of the business. For the carbon offset market, I think 0:01:54.280 --> 0:01:56.920 maybe to put that into context, So, the carbon off 0:01:56.920 --> 0:01:59.440 set market has been around for a couple of decades now, 0:01:59.480 --> 0:02:03.320 since the the late nineties, and companies have been going 0:02:03.360 --> 0:02:07.280 out and buying these offsets to reach sustainability goals since then. 0:02:07.720 --> 0:02:09.400 But it really has been only in kind of like 0:02:09.440 --> 0:02:12.360 the last two or three years that the market has 0:02:12.400 --> 0:02:15.399 started to grow at a level commensurate with how much 0:02:15.440 --> 0:02:19.160 interest companies haven't in carbon offsets. So really it's kind 0:02:19.160 --> 0:02:22.760 of this renaissance moment for not only the voluntary carbon market, 0:02:22.800 --> 0:02:25.400 but just carbon markets in general like the EU, E 0:02:25.480 --> 0:02:28.000 T S and of course other markets around the world. 0:02:28.400 --> 0:02:31.359 So being if you know, us covering what the carbon 0:02:31.400 --> 0:02:34.400 off set market looked like in the past has been sufficient. 0:02:34.520 --> 0:02:36.760 It's given people an idea of if they want to 0:02:36.840 --> 0:02:39.720 enter this market, what can they expect, Where does supply 0:02:39.800 --> 0:02:42.920 come from, where's demand coming from, things like that. But 0:02:42.960 --> 0:02:45.760 what we're increasingly seeing, as you know, I've spoken to 0:02:45.880 --> 0:02:47.680 so many people and the team has spoken to so 0:02:47.720 --> 0:02:51.359 many people about this market is clients are getting a 0:02:51.360 --> 0:02:54.079 lot more sophisticated on this topic, and as a result, 0:02:54.080 --> 0:02:56.840 b NF needs to get more sophisticated on where this 0:02:56.880 --> 0:02:59.359 market is going to go moving forward. And I think 0:02:59.639 --> 0:03:02.440 we could speak anecdotally to that over the past couple 0:03:02.440 --> 0:03:04.720 of years, but now to finally have some you know, 0:03:04.800 --> 0:03:08.920 cold hard data behind that outlook was really beneficial for us, 0:03:08.960 --> 0:03:10.480 and it's going to lead to a lot more again 0:03:10.840 --> 0:03:13.840 sophisticated discussions with our clients around how this market is 0:03:13.840 --> 0:03:15.959 evolving and how far out into the future are we 0:03:16.040 --> 0:03:19.880 looking the BNP special right. I think part of this 0:03:19.960 --> 0:03:22.280 is of course a short term outlook, and I think 0:03:22.400 --> 0:03:25.480 over the next few years. That's where there's kind of 0:03:25.480 --> 0:03:29.160 one element of the carbon offset market remaining similar to 0:03:29.200 --> 0:03:31.920 how it is today. That's where that's the most fertile ground. 0:03:32.240 --> 0:03:34.079 But what we wanted to do is to say, how 0:03:34.120 --> 0:03:37.320 can this carbon offset market evolve over time? You know, 0:03:37.400 --> 0:03:40.360 in terms of who's buying offsets, but also where's the 0:03:40.400 --> 0:03:42.880 supply coming from and who's regulating that market. And in 0:03:42.960 --> 0:03:45.760 order for us to really accurately have an idea of 0:03:45.840 --> 0:03:47.840 how that's going to change, we needed to look at 0:03:47.880 --> 0:03:50.960 the evolution of the market out and this is both 0:03:51.000 --> 0:03:54.720 regarding the compliance and the voluntary markets. For the report, 0:03:54.840 --> 0:03:57.280 we basically just call it a carbon off set. Were 0:03:57.320 --> 0:03:59.760 market agnostic in this case, and and that's a really 0:03:59.800 --> 0:04:02.600 good question. Actually, it's a very important point with this outlook. 0:04:03.080 --> 0:04:06.200 One of the big question marks around how carbon offset 0:04:06.240 --> 0:04:09.080 markets are going to evolve over time is will a 0:04:09.160 --> 0:04:12.320 bigger offset market or a global carbon market come in 0:04:12.760 --> 0:04:15.520 and swallow all of the existing markets that exist out there, 0:04:15.760 --> 0:04:18.960 right like again the EU e t S, the Corsia 0:04:19.040 --> 0:04:22.120 offset market for airlines, and then of course the voluntary 0:04:22.120 --> 0:04:24.920 carbon off set market. And this is a real possibility, 0:04:25.080 --> 0:04:27.920 you know, our our policy team at BNF has discussed 0:04:27.960 --> 0:04:29.880 this quite extensively, and you had a lot of world 0:04:29.960 --> 0:04:32.839 leaders discussing this at CUP twenty six a couple of 0:04:32.839 --> 0:04:35.640 months ago. So for this report, what we wanted to 0:04:35.640 --> 0:04:37.840 do is kind of just make it carbon off set agnostic, 0:04:38.240 --> 0:04:41.280 to tell clients that there is this distinct possibility that 0:04:41.800 --> 0:04:44.520 the voluntary market that we look at it today may 0:04:44.720 --> 0:04:47.000 very well be an entirely different type of market in 0:04:47.040 --> 0:04:49.200 the future. But we still wanted to give clients an 0:04:49.240 --> 0:04:51.240 idea of what that could look like. That was the 0:04:51.279 --> 0:04:53.840 longlined to answer, and the short answer is yes, it 0:04:54.040 --> 0:04:56.760 does look at all carbon markets essentially. So we're going 0:04:56.800 --> 0:04:58.960 to talk about the three different scenarios that you laid 0:04:59.000 --> 0:05:02.480 out in the podcast today. They are the voluntary companies, 0:05:02.480 --> 0:05:06.040 then the science based targets initiative, and then the hybrid ones. 0:05:06.160 --> 0:05:08.599 Let's start with the voluntary ones. So where is the 0:05:08.640 --> 0:05:11.400 demand coming from? I know that an increasing number of 0:05:11.400 --> 0:05:15.880 companies are making net zero and in some cases actually 0:05:15.960 --> 0:05:19.159 negative emissions claims for the future and targets going forward, 0:05:19.200 --> 0:05:22.680 and certainly the majority of countries in the world made 0:05:22.680 --> 0:05:25.600 a commitment to net zero. So where is the demand 0:05:25.640 --> 0:05:28.480 coming from on the voluntary side. So if you think 0:05:28.520 --> 0:05:32.039 about the voluntary market scenario that we looked at on 0:05:32.080 --> 0:05:35.279 our report, again, what it's assuming is that the voluntary 0:05:35.279 --> 0:05:38.159 carbon off set market remains the same as it does 0:05:38.200 --> 0:05:41.599 today out into I know we've talked about this on 0:05:41.760 --> 0:05:45.160 previous podcasts, as you mentioned, Dana, but just for all 0:05:45.160 --> 0:05:47.640 those listeners out there, the way the market is structured 0:05:47.680 --> 0:05:51.839 today is it's primarily used for corporations to go ahead 0:05:52.000 --> 0:05:55.800 and achieve their sustainability goals or to purchase offsets on 0:05:55.839 --> 0:05:58.600 a behavioral basis. And what I mean by that is 0:05:58.640 --> 0:06:01.800 they're not necessarily buying off sets in every situation to 0:06:02.080 --> 0:06:04.520 reach a net zero goal, and instead they might be 0:06:04.560 --> 0:06:07.359 going out and creating carbon neutral L and G or 0:06:07.440 --> 0:06:09.880 green steel or green aluminum, and I want to use 0:06:09.920 --> 0:06:12.360 offsets on an ad hoc basis in order to offer 0:06:12.400 --> 0:06:15.200 that type of product. In terms of the supplying the 0:06:15.200 --> 0:06:18.560 market today, it's all different types of sectors, right, So 0:06:18.720 --> 0:06:22.880 it's anything ranging from a four street projects in substerarent 0:06:22.920 --> 0:06:26.480 Africa to a clean energy project, say in India or 0:06:26.560 --> 0:06:29.480 China or the United States. So we basically said, let's 0:06:29.520 --> 0:06:32.000 keep all those assumptions the same and let's see what 0:06:32.040 --> 0:06:35.599 happens to supply demand in pricing. To your original question 0:06:35.640 --> 0:06:37.920 about this market, the first thing that we did to 0:06:38.000 --> 0:06:41.720 kind of assess demand for the voluntary carbon offset scenario 0:06:42.440 --> 0:06:44.080 is we looked at all the companies that are going 0:06:44.080 --> 0:06:46.919 out there and are setting those net zero targets as 0:06:46.960 --> 0:06:50.200 you mentioned, because what we can assume is that over time, 0:06:50.880 --> 0:06:53.320 companies are going to focus less on purchasing offsets for 0:06:53.320 --> 0:06:56.640 those behavioral reasons like I mentioned, and the demand is 0:06:56.640 --> 0:06:59.520 actually going to be classified more as fundamental. And what 0:06:59.600 --> 0:07:01.760 that means is that they need to be net zero 0:07:01.880 --> 0:07:08.040 by and they're going to have residual emissions no matter 0:07:08.040 --> 0:07:11.480 how aggressive they are in their own internal sustainability initiatives, 0:07:12.040 --> 0:07:14.480 and that's going to create some type of demand for offsets. 0:07:15.440 --> 0:07:17.480 So what we wanted to do is look at all 0:07:17.480 --> 0:07:20.360 the companies that we've tracked at BENF in our Corporate 0:07:20.440 --> 0:07:22.960 net Zero Assessment tool, but also some of the other 0:07:23.000 --> 0:07:26.000 tools that we have of all the largest heavy emitting 0:07:26.000 --> 0:07:27.920 companies in the world that have already set in net 0:07:28.040 --> 0:07:30.239 zero goal. What we can do is we can actually 0:07:30.320 --> 0:07:33.520 calculate the amount of emission reductions that are purely going 0:07:33.600 --> 0:07:36.320 to come from achieving those net zero goals. So that's 0:07:36.320 --> 0:07:39.200 basically the baseline that we need companies to achieve. And 0:07:39.240 --> 0:07:41.600 then what we assume is that companies are going to 0:07:41.760 --> 0:07:44.280 reduce their gross emissions to a certain amount as well. 0:07:44.480 --> 0:07:47.160 So what that means is that they're gonna buy clean energy, 0:07:47.320 --> 0:07:50.920 or change their internal practices or purchase e vs, do 0:07:51.040 --> 0:07:53.720 things to actually reduce their own emissions, and they're gonna 0:07:53.760 --> 0:07:56.200 do that to a certain extent. And then again, that 0:07:56.320 --> 0:07:59.720 gap between how much they're reducing their gross emissions and 0:07:59.760 --> 0:08:03.280 that net zero trajectory I mentioned before, that's your potential 0:08:03.440 --> 0:08:06.680 universe for carbon off set demand. So we basically ran 0:08:06.800 --> 0:08:10.000 that scenario for a couple hundred companies, and then we 0:08:10.080 --> 0:08:13.400 extrapolated that to assume that more companies over time will 0:08:13.440 --> 0:08:15.760 set net zero goals um and that kind of gives 0:08:15.800 --> 0:08:18.000 us a good idea of what we're talking about in 0:08:18.080 --> 0:08:21.000 terms of long term demand, assuming the carbon off set 0:08:21.040 --> 0:08:23.480 market remains the same as it does today. Now for 0:08:23.520 --> 0:08:30.760 a very short break, stay with us. You brought up 0:08:30.800 --> 0:08:32.920 the building of clean energy as a way to do 0:08:33.320 --> 0:08:36.000 offsets in our prior podcast. If you did hear this one, 0:08:36.040 --> 0:08:37.599 you can go back in time and find Kyle and 0:08:37.640 --> 0:08:40.800 I discussing this specifically the voluntary market. We talked a 0:08:40.840 --> 0:08:43.920 lot about additionality. I think it's worth bringing up again 0:08:44.160 --> 0:08:47.760 here as we're looking forward. How hard is it for 0:08:47.840 --> 0:08:51.640 a company to, let's say, if they are generating clean 0:08:51.640 --> 0:08:55.520 electricity and then create a clean energy certificate, how hard 0:08:55.600 --> 0:08:57.520 is it for them to, you know, double count the 0:08:57.559 --> 0:09:01.559 saved emissions and is the accounting on this fairly straightforward 0:09:01.720 --> 0:09:04.199 or is it still quite blurry around the edges. It's 0:09:04.360 --> 0:09:08.040 very blurry and candidly it's not very well regulated right now. 0:09:08.480 --> 0:09:11.320 So all the areas of supply that we talked about 0:09:11.440 --> 0:09:13.480 in the report, and then we can certainly dive into 0:09:13.480 --> 0:09:16.240 this a little bit more later on. Clean energy is 0:09:16.280 --> 0:09:19.280 probably the most controversial, and there's a couple of reasons 0:09:19.280 --> 0:09:23.080 for that. The first one is this overarching topic of 0:09:23.760 --> 0:09:28.080 removal carbon offsets versus avoidance carbon off sets. When you 0:09:28.120 --> 0:09:30.320 have people on both sides of this kind of argument 0:09:30.480 --> 0:09:33.280 saying that one is better than the other, or that 0:09:33.559 --> 0:09:36.000 all types should be used or that only one should 0:09:36.000 --> 0:09:38.520 be used. If you think about a clean energy project, 0:09:38.640 --> 0:09:41.640 when you build a solar wind project, you're not actually 0:09:41.720 --> 0:09:46.040 leading to further carbon sequestration, right You're simply avoiding, say 0:09:46.120 --> 0:09:48.720 the emissions from a combined cycle gas plant or a 0:09:48.760 --> 0:09:52.120 coal plant. So clean energy is firmly classified as an 0:09:52.160 --> 0:09:54.720 avoidance offset, and you have a lot of skeptics and 0:09:54.760 --> 0:09:57.840 critics saying that type of offset should not be allowed 0:09:57.880 --> 0:10:00.559 for companies to go ahead and achieve an net zero 0:10:00.600 --> 0:10:03.720 goal or some other type of sustainability target. So that's 0:10:03.800 --> 0:10:06.679 kind of the first area of criticism around carbon off 0:10:06.679 --> 0:10:10.880 sets from clean energy. The second one is around the economics, 0:10:10.920 --> 0:10:14.200 and this is specifically where that term additionality is very important. Here. 0:10:14.640 --> 0:10:18.719 Additionality means how can I, as a developer or a 0:10:18.760 --> 0:10:23.079 customer buying carbon offsets, how can I incentivize and contribute 0:10:23.120 --> 0:10:27.600 to new added decarbonization that wouldn't have otherwise happened if 0:10:27.640 --> 0:10:30.560 those offsets weren't monetized, and you know, being when I 0:10:30.600 --> 0:10:34.040 hadn't actually just published are our latest levelized cost of 0:10:34.080 --> 0:10:37.959 electricity update, And what that report shows is clean energy 0:10:38.040 --> 0:10:40.680 is now cost competitive in most markets around the world. 0:10:41.120 --> 0:10:44.840 In some markets, solar wind is the cheapest source of technology, 0:10:44.960 --> 0:10:47.040 and even if they're not the cheapest, they're still in 0:10:47.160 --> 0:10:51.439 competitive range with a lot of fossil generation. Theoretically, in 0:10:51.480 --> 0:10:55.360 a perfect world, a developer, someone who's selling clean energy 0:10:55.600 --> 0:10:58.760 should only be monetizing carbon offsets if it's going to 0:10:58.800 --> 0:11:02.600 help bridge that gap and make that project competitive. So, 0:11:02.679 --> 0:11:05.720 for example, if the levelized cost of electricity for a 0:11:05.760 --> 0:11:09.400 gas plant is ten dollars a megawatt hour, and I'm 0:11:09.440 --> 0:11:11.640 building a solar project and I can only sell that 0:11:11.679 --> 0:11:15.800 power for fifteen theoretically that gap between those two with 0:11:15.920 --> 0:11:18.720 that five dollar per megawatt hour, that should be my 0:11:18.800 --> 0:11:21.480 cost of carbon. But in a lot of these countries 0:11:21.520 --> 0:11:24.880 around the world, since clean energy is already cheaper, the 0:11:24.920 --> 0:11:27.839 premise or the need to sell carbon off sets doesn't 0:11:27.840 --> 0:11:30.680 actually exist, So that right there is going to actually 0:11:30.720 --> 0:11:33.079 make it. So a lot of projects around the world 0:11:33.160 --> 0:11:36.960 don't meet that additionality criteria. And then the third point 0:11:37.000 --> 0:11:39.199 I just want to add on this. You mentioned the accounting. 0:11:40.400 --> 0:11:43.520 There's really not a lot stopping a company now from 0:11:43.679 --> 0:11:49.120 selling power from a clean energy project, monetizing renewable energy certificates, 0:11:49.160 --> 0:11:51.960 which of course are similar to a carbon offset, but 0:11:52.000 --> 0:11:54.440 they pertain to a megawatt hour rather than a ton 0:11:54.480 --> 0:11:57.840 of carbon like an offset does. And then selling carbon 0:11:57.880 --> 0:12:00.560 offsets is that third stream of revenue. And of course 0:12:00.559 --> 0:12:03.120 there is a huge risk of double counting there. It's 0:12:03.160 --> 0:12:06.080 absolutely you know, there's a very high likelihood that a 0:12:06.120 --> 0:12:08.320 lot of the clean energy projects that are very active 0:12:08.320 --> 0:12:11.760 in this market today are guilty of that double counting, 0:12:11.920 --> 0:12:15.040 taking advantage of two commodities that really should be treated 0:12:15.080 --> 0:12:17.880 as one. So, Dana, it's a it's a really controversial sector, 0:12:17.960 --> 0:12:20.120 and we talk a lot about that in the report 0:12:20.200 --> 0:12:22.840 the Fate of clean Energy and it's importance in the 0:12:22.880 --> 0:12:26.040 overall offset supply moving forward well, and the real question 0:12:26.120 --> 0:12:28.280 also with this has to do with with these auctions 0:12:28.320 --> 0:12:31.720 and with these projects that are happening at scale and 0:12:31.760 --> 0:12:35.160 hopefully much more quickly. I mean, this is a conversation 0:12:35.200 --> 0:12:37.640 for another podcast, but in our new Energy Outlook also 0:12:37.640 --> 0:12:40.040 out to the year, we look at this hockey stick 0:12:40.080 --> 0:12:45.600 shape of needed implementation and building of clean energy in 0:12:45.720 --> 0:12:49.200 order to meet our climate goals. I would anticipate that 0:12:49.240 --> 0:12:50.920 these are at the scale where it's kind of hard 0:12:50.960 --> 0:12:55.320 to say that this was spurred by an offset, that 0:12:55.440 --> 0:12:58.959 it probably was part of the business strategy. To your 0:12:58.960 --> 0:13:01.840 point on how cheap these are, maybe I'm actually taking 0:13:01.880 --> 0:13:04.040 I'm taking too much of a biased stance. I guess 0:13:04.160 --> 0:13:06.960 we know where I lie. On this question in terms 0:13:07.040 --> 0:13:09.640 of the debate. So there's two sides to it, and 0:13:09.920 --> 0:13:12.040 I shouldn't pick one. No, it's a it's a very 0:13:12.080 --> 0:13:13.679 good point. And the last thing I'll say on this 0:13:13.800 --> 0:13:17.360 is that I personally am sure there are companies out 0:13:17.360 --> 0:13:21.280 there that are looking at building a clean energy project 0:13:21.280 --> 0:13:23.480 and the biggest chunk of that revenue is going to 0:13:23.600 --> 0:13:26.480 come from offsets. But I personally have never seen a 0:13:26.520 --> 0:13:29.120 project that is built on that premise. And a lot 0:13:29.160 --> 0:13:32.000 of the major registries, so that the two biggest actually 0:13:32.280 --> 0:13:35.480 VERA and gold Standard, they acknowledge this, and they've recently 0:13:35.480 --> 0:13:39.320 put forward changes that you can only issue carbon offsets 0:13:39.360 --> 0:13:42.840 from clean energy projects in the least developed countries. So 0:13:43.040 --> 0:13:47.400 all that clean energy offsets supply from the United States, India, China, 0:13:47.520 --> 0:13:50.640 like I mentioned before, that does exist today and is 0:13:50.679 --> 0:13:53.920 allowed in the voluntary carbon market, It's not necessarily going 0:13:53.960 --> 0:13:55.760 to be the case moving forward. We're going to need 0:13:55.800 --> 0:13:58.360 to rely a lot more on projects and say Sub 0:13:58.400 --> 0:14:00.600 Saharan Africa, which is where we of a deep dive 0:14:00.640 --> 0:14:04.040 for our report. Let's go into the Science Based Targets initiative. 0:14:04.120 --> 0:14:07.040 So what is the s p t I. So the 0:14:07.040 --> 0:14:11.720 science Based Targets Initiative is a group that allows companies 0:14:11.760 --> 0:14:14.960 to set a paras aligned climate goal. So you think 0:14:15.000 --> 0:14:17.160 about the Paris Agreement. You have all of these countries 0:14:17.160 --> 0:14:20.680 out there that are making their nationally determined contributions their 0:14:20.720 --> 0:14:24.200 paras aligned you know, climate goals. What the Science Based 0:14:24.240 --> 0:14:28.480 Targets Initiative operates under. What it assumes is that, let's 0:14:28.480 --> 0:14:31.200 say every country in the world dropped the ball on 0:14:31.240 --> 0:14:34.240 achieving their climate goals, and instead they rely on the 0:14:34.280 --> 0:14:38.560 individual private sector actors within those countries to go ahead 0:14:38.560 --> 0:14:41.880 and do the heavy lifting themselves. This assumes that every 0:14:42.040 --> 0:14:44.440 single corporation in the world goes out and plays their 0:14:44.520 --> 0:14:48.720 part rather than relying on those countries. Historically, the Science 0:14:48.720 --> 0:14:52.080 Based Targets Initiative would allow companies to go out and 0:14:52.120 --> 0:14:56.000 set a near term paras aligned climate target. Most of 0:14:56.040 --> 0:15:00.200 those goals actually ended in they're not net zero goals, right, 0:15:00.280 --> 0:15:02.840 and they only go to a certain extent, you know, 0:15:02.880 --> 0:15:05.120 maybe a company reducing its Scope one and Scope two 0:15:05.120 --> 0:15:11.680 emissions by for example, and under that group, carbon offsets 0:15:11.720 --> 0:15:14.480 are not allowed under any circumstance. If you are a 0:15:14.520 --> 0:15:17.280 member of the Science Based Targets Initiative and have set 0:15:17.320 --> 0:15:20.280 a regular parasol lined goal with them to achieve that goal, 0:15:20.440 --> 0:15:24.960 you can't use offsets. However, around top, the Science Based 0:15:25.000 --> 0:15:29.400 Targets Initiative put out a net zero science based framework, 0:15:29.760 --> 0:15:32.400 so that allows companies to take those science based targets 0:15:32.400 --> 0:15:35.080 I mentioned earlier and bring them out a step further, 0:15:35.280 --> 0:15:40.200 going to net and zero emissions by earlier. The key 0:15:40.280 --> 0:15:42.240 thing here and the reason why we call this an 0:15:42.360 --> 0:15:45.200 s p t I scenario in our report, which actually 0:15:45.320 --> 0:15:47.800 might be a little bit generous in giving them full 0:15:47.840 --> 0:15:51.200 credit for this push here, But what they're saying is 0:15:51.200 --> 0:15:55.440 that a company can use offsets to achieve a science 0:15:55.440 --> 0:15:58.960 based net zero goal. Now, however, they can only purchase 0:15:59.040 --> 0:16:01.920 offsets to achieve that goal that are in that removal 0:16:01.960 --> 0:16:05.400 category that I mentioned before. So any type of offset 0:16:05.440 --> 0:16:09.480 supply that simply avoids emissions, like a clean energy project 0:16:09.560 --> 0:16:12.760 that I mentioned before, or something like installing clean cook 0:16:12.840 --> 0:16:16.400 stoves in emerging economies which is another sector we modeled, 0:16:16.920 --> 0:16:20.640 or the biggest one, which is avoided deforestation, so actually 0:16:20.640 --> 0:16:24.360 protecting a at risk forest or vulnerable forest from being 0:16:24.400 --> 0:16:27.720 cut down. All those projects simply avoid emissions. They don't 0:16:27.800 --> 0:16:31.320 lead to further sequestration and As a result, spt I 0:16:31.400 --> 0:16:34.360 is saying that you cannot use that type of supply 0:16:34.720 --> 0:16:37.640 in order to achieve your net zero goal. In the 0:16:37.720 --> 0:16:40.960 spt I scenario, what we're saying is that the demand 0:16:41.040 --> 0:16:43.800 is still coming from all those corporations that I mentioned before. 0:16:44.160 --> 0:16:46.080 So again, we looked at all these companies with net 0:16:46.160 --> 0:16:48.480 zero goals, then we looked at how much they could 0:16:48.480 --> 0:16:50.800 produce their gross emissions, and we assume that the gap 0:16:50.840 --> 0:16:54.160 between the two is offset demand. But what we're doing 0:16:54.160 --> 0:16:57.080 here is we're actually shortening supply quite a bit. So 0:16:57.120 --> 0:16:59.880 instead of letting supply run unregulated, I mean you can 0:17:00.000 --> 0:17:02.600 i from anywhere, you can only buy from two key 0:17:02.640 --> 0:17:06.080 sectors that we modeled in the report, and that is reforestation, 0:17:06.560 --> 0:17:10.439 so planting new trees or a forestation, planting forests in 0:17:10.440 --> 0:17:13.560 an area where there's never historically been a forest. And 0:17:13.600 --> 0:17:16.399 then we also look at technology based removal, and in 0:17:16.400 --> 0:17:19.280 the case of this report, we use direct air capture 0:17:19.400 --> 0:17:22.840 as a proxy for all technology based removal. And the 0:17:22.880 --> 0:17:26.840 big takeaway from this is that really, until direct air 0:17:26.880 --> 0:17:30.280 capture comes into maturity, which we can't necessarily expect for 0:17:30.359 --> 0:17:33.920 another few decades, you're gonna have a huge shortfall when 0:17:33.920 --> 0:17:37.199 it comes to carbon off set supply. So what we 0:17:37.240 --> 0:17:40.520 say is that there's gonna be an undersupply of carbon 0:17:40.560 --> 0:17:44.080 off sets starting in the late and what that means 0:17:44.119 --> 0:17:45.959 is that the price for carbon off set is going 0:17:45.960 --> 0:17:49.120 to shoot up to very unsustainable highs. In this case 0:17:49.200 --> 0:17:55.760 over two dollars a ton starting around wow. Yes, very expensive. 0:17:55.760 --> 0:17:58.040 And to put that into contacts the current price or 0:17:58.040 --> 0:18:02.040 the average price in twenty around two dollars and fifty 0:18:02.080 --> 0:18:04.600 cents a ton well. And also to put into context, 0:18:04.640 --> 0:18:06.800 so our team that looks specifically at the E E 0:18:06.880 --> 0:18:10.080 T S compliance market, they're thinking that we're going to 0:18:10.200 --> 0:18:15.119 hit a hundred euros a ton by just before so 0:18:15.280 --> 0:18:18.600 around the same time that which is what is considered 0:18:18.600 --> 0:18:20.159 to be maybe one of the most if not the 0:18:20.240 --> 0:18:25.679 most mature carbon market, you know, around the same time 0:18:26.200 --> 0:18:29.600 you're seeing other spaces, maybe because it's such a complicated 0:18:29.600 --> 0:18:32.719 space with so much diversity across the world, they're being 0:18:32.760 --> 0:18:35.119 prices around two hundred. I mean that is um I know, 0:18:35.160 --> 0:18:37.720 we're talking US dollars to to euros. So there's a 0:18:37.760 --> 0:18:40.080 little bit of a difference there, but not enough to 0:18:40.160 --> 0:18:42.879 account for such a high price that potentially in the 0:18:42.920 --> 0:18:46.719 future it's very expensive, and just for context, so that 0:18:46.720 --> 0:18:50.280 that two dollars and it's it's around roughly actually two 0:18:51.640 --> 0:18:55.320 a ton to be specific, that price is from direct 0:18:55.320 --> 0:18:57.920 air capture, so that is the cost for direct air capture. 0:18:57.960 --> 0:19:02.199 Around that time. Our Aniable Materials team anticipates that the 0:19:02.240 --> 0:19:05.000 price for direct aircapture, of course will come down. We've 0:19:05.040 --> 0:19:07.359 seen that with the learning rates for solar and wind 0:19:07.400 --> 0:19:10.440 and so many other technologies that we've covered at VNF. Right, 0:19:10.840 --> 0:19:13.040 but I think the big takeaway is that you know, 0:19:13.080 --> 0:19:16.800 even in we anticipate that the cost for direct air 0:19:16.840 --> 0:19:19.800 capture is going to be around hundred dollars a ton, 0:19:19.880 --> 0:19:23.280 still still super expensive compared to what prices for carbon 0:19:23.320 --> 0:19:26.360 off sets are today, and there could be benefits to this. Right. 0:19:26.520 --> 0:19:30.240 One of the benefits to such extremely high prices is 0:19:30.280 --> 0:19:33.600 that this will function as effectively a carbon tax. All 0:19:33.600 --> 0:19:36.199 those companies that haven't net zero goal, they won't be 0:19:36.240 --> 0:19:39.639 able to rely on carbon offsets as a lifeline or 0:19:39.720 --> 0:19:42.080 get out of jail free card. They'll have to focus 0:19:42.119 --> 0:19:45.640 more on reducing their own gross emissions and rely less 0:19:45.640 --> 0:19:47.879 on offsets. And really that is the goal of a 0:19:47.880 --> 0:19:51.119 carbon market in the end. Right to incentivize companies to 0:19:52.400 --> 0:19:54.560 focus on cleaning up their own act as much as 0:19:54.600 --> 0:19:57.320 they can and then using offsets for any of those 0:19:57.320 --> 0:20:00.720 residual emissions. So there is a nice ben fit there. 0:20:00.760 --> 0:20:02.760 But I think the main takeaway year is that, you know, 0:20:02.800 --> 0:20:06.200 all those advocates for a removal only carbon off set 0:20:06.240 --> 0:20:09.760 market at least to cover again that fundamental demand. It's 0:20:09.760 --> 0:20:11.679 a it's a little bit of a flawed outlook because 0:20:11.720 --> 0:20:15.560 it kind of underscores how dire that supply situation could 0:20:15.560 --> 0:20:24.480 really be in a removal only world. We'll be right back, Okay, 0:20:24.600 --> 0:20:27.320 So we've been through these two scenarios and your third 0:20:27.359 --> 0:20:31.320 one is sort of not its own scenario because it's hybrid. 0:20:31.400 --> 0:20:34.200 So what is the hybrid scenario? The hybrid scenario is 0:20:34.240 --> 0:20:37.120 meant to represent a gradual evolution of the carbon off 0:20:37.119 --> 0:20:40.920 set market. So, just for a refresher, that voluntary scenario 0:20:41.359 --> 0:20:44.159 that assumes the market stays as it does today and 0:20:45.000 --> 0:20:47.840 you know, nothing changes in terms of regulation or who's 0:20:47.880 --> 0:20:51.040 buying in what types of supply exists. We take that 0:20:51.119 --> 0:20:53.760 voluntary scenario and we make a few little tweaks to 0:20:53.840 --> 0:20:57.760 it from now out until in our hybrid scenario. So 0:20:57.800 --> 0:21:00.080 what it's saying is that, yeah, sure, they're all a 0:21:00.080 --> 0:21:02.719 lot of critics to how the offset market works today. 0:21:02.800 --> 0:21:05.800 The market is rapidly evolving. Things are going to change, 0:21:06.080 --> 0:21:08.240 but those changes are going to take time, and that's 0:21:08.280 --> 0:21:11.040 kind of what we assume for this hybrid scenario. So 0:21:11.240 --> 0:21:14.640 the market remains very similar out to What that means 0:21:14.680 --> 0:21:17.560 is that prices, well, they do go up compared to 0:21:17.600 --> 0:21:20.560 what they are today, they still remain fairly manageable for 0:21:20.600 --> 0:21:23.320