Episode Description
In January of 2023, a headline from Boston Consulting Group read: The voluntary carbon market [VCM] is thriving. Their evidence? A 4-fold increase in the value of the market in the course of a year, to a valuation over $2 billion USD and growing. Nine months later, Reuters headlined a very different take: Carbon credit market confidence ebbs as big names retreat, citing the first dip in the number of credits used by companies in at least 7 years. What was causing such rapid growth in the VCM? What caused the decline? And, what is the chance of the VCM recovering?
In the final episode of our 3 part examination of VCMs, we take a look at how these markets have evolved in terms of their growth and their efficacy, how they are operating right now, and what their future could look like. To shape our conversation, we are joined by a group of VCM buyers, sellers, consultants and skeptics: Katie Sierks (Microsoft), Laura Zapata (Clearloop), Dr. Colin McCormick and Alex Dolginow (Carbon Direct), and Dr. Joe Romm (Penn Center for Science, Sustainability, and the Media).
“I think we could benefit from noting durabilities are variable…a metric ton of CO2 that’s sequestered for 30 years in a forestry project is different than a metric ton of CO2 that’s sequestered for more than 10,000 years in a DAC project.”
- Katie Sierks, Microsoft
Transcript
00] Welcome to Climate Now, a podcast that explores and explains the ideas, technologies, and the solutions that we need to address the global climate emergency. I’m your host, James Lawler, and happy New Year, everyone. This is the third and final episode in our series on the voluntary carbon market. Also known as the VCM.
The VCM has formed around the practice of voluntarily sponsoring carbon removal projects in order to offset one’s overall carbon footprint. In episodes 1 and 2, released over the last couple of weeks, we gave an overview of the VCM and how it works, and then we looked at a number of specific VCM methodologies, discussing the strengths and challenges of each one.
In this episode, we take a step back and look at the past, present, and future of the voluntary carbon market as a whole. So far, we’ve spoken to people who believe the VCM has become a powerful tool to curb global emissions. And we’ve also spoken to critics that believe it is in need of serious reform, if not complete dismissal.[00:01:00]
For this final episode, my big questions are: is the voluntary carbon market as it stands today truly effective? If it’s not, what reforms might be needed? And finally, is it worth rethinking the basic concept of a carbon offset and carbon credit? Or are the concepts themselves strong enough and all that’s needed is some tweaks around the margins of the marketplace?
These questions were partly inspired by a white paper by Dr. Joe Romm, a researcher of the climate economy from the Penn Center for Science, Sustainability, and the Media. In that white paper, which again, you can find the link to via the transcript on the climatenow.com website, Joe Romm explains the history and present state of the voluntary carbon market and comes to a rather grim conclusion, which he sums up in the paper’s title, quote, “Carbon Offsets are Unscalable, Unjust, and Unfixable”, and a threat to the Paris Agreement.
In that paper, he argues that a surging demand for carbon offset credits since the Paris Agreement has resulted in a booming, but largely unregulated market for offsets in which [00:02:00] both buyers and sellers are incentivized to inflate the value of the product that is being exchanged. Even the world’s leading carbon credit verification agencies have done little to keep the VCM from succumbing to sham carbon offsets that are either fake or grossly overvalued.
Is the state of the VCM, a $2 billion market, really that dismal? To find out, I decided to meet with Joe Romm myself. Joe began our conversation with a brief history of the VCM as we know it. He said it really began to heat up, so to speak, after the signing of the 2015 Paris Agreement. The global community finally hit a clear global warming target, the famous 1. 5 degrees Celsius warming cap, and governments and corporations alike began laying out ambitious carbon reduction goals.
Joe Romm: So 2015, the Paris Accord, December 2015, the world says we’re going to zero and we’re going to keep emissions well below 2 degrees C, and we’re going to try to go to 1.5 degrees C. But either way, you want to meet [00:03:00] the Paris target, the world’s going to go to zero.
That was 2015. So after 2015, companies started joining this bandwagon.
James Lawler: Coca Cola, Microsoft, Delta Airlines, Unilever, and other industry leaders would promise to slash their net emissions to zero. Even oil major BP made a net zero pledge, along with a rebrand from British Petroleum to Beyond Petroleum, indicating a new emphasis on clean energy.
How could these colossal commercial giants ever hope to meet such commitments? Companies began sponsoring remote clean power projects, paying farms to practice low-carbon agriculture and above all, purchasing nature-based carbon offsets, which usually involve preserving forests in developing countries, to offset their emissions.
From the years 2020 to 2021, the VCM exploded from less than $400 million in annual sales to about $2 billion. That’s billion with a B.
Joe Romm: And so the offset market blew up, it went to $2 billion. [00:04:00] It was becoming known, you know that, that the market was blowing up and that got the attention of, you know, your Boston Consulting Groups.
They started doing their forecast and saying, “hey, this market. It’s 2 billion now, it was whatever, 400 million, you know, a year ago. It’s going to be 10 to $40 billion by 2030”. And so, as these companies are making their net zero pledges, it’s not just that the price is going up and the demand is going up, but the speculators say, “oh man, this market is going places, we’re going to buy in cheap”.
James Lawler: Then, the VCM bubble did what bubbles do.
Joe’s whitepaper contains a graph of the average price of nature-based carbon credits, which represent more than 90 percent of carbon credits, according to the report. The price per credit plummeted from around $15 per ton in June of 2022 to less than $2 per ton in June of 2023. Investors were [00:05:00] no longer willing to pay what they used to for carbon offsets of certain kinds.
In case you’re wondering what the price is today, you can go to carboncredits.com. As of this recording in late December, the price is near historic lows.
Joe Romm: Since the peak in November ‘21 at Glasgow, all of the major carbon offsets have declined in price a lot. Several things were happening that affected this. There was definitely a rise in lawsuits. Lawsuits by consumers saying “bought your product, right? You said your product was carbon neutral and we bought your product because we thought, hey, these people have addressed the climate problem and then we learned, hey, these offsets are kind of dubious and maybe we were deceived”.
Delta had been going around claiming “we’re the first carbon-neutral airline”. And they were putting it on napkins and all this stuff. And so finally, someone sued saying, “you know, hey, we bought a [00:06:00] ticket from it- Delta, because we thought, hey, you guys have solved the climate problem. And you haven’t”. So this is all happening over the last year.
And then there have been exposés. Bloomberg has been issuing exposé after exposé. They have been relentless. But the big one that got a lot of people’s attention was announced by three media outlets, The Guardian and DZ, in January. Nine months of investigation. They got scientists involved, et cetera, et cetera.
And they looked at Verra, the number one offset releaser. Offsets that they were saying were high quality, of protecting the Brazilian rainforest that they were selling to companies like Disney and Shell and Gucci. And they came in after this investigation in January and said 94 percent of these tons are worthless.
So this caused a very big splash and Verra, of course, and I have to represent Verra, they say, “hey, not true”, you know, blah, blah, blah. But, are they stepping back and taking a look at their portfolio? Yes, they are. [00:07:00]
James Lawler: Joe Romm believes the voluntary carbon market has a fundamental flaw. Neither the buyer nor the seller has a strong incentive to push for verified, high quality carbon credits.
There may be ways to ensure objective, measurable carbon offsets. Indeed, in our last episode, we discussed direct air capture firm Climeworks, which can literally weigh the carbon that it removes on a scale. But the highest value credits would cost tens or hundreds of times more than the most popular credits from forestry or clean power projects.
Those aren’t the sort of credits that will help Delta Airlines print carbon neutral on its napkins and posters.
Joe Romm: That’s what makes the market perverse, because this is a market where neither the buyer or seller care about quality. People have called it the wild, wild west. And when you have that type of market, there’s a race to the bottom.
If I’m selling what I say are better ones for ten bucks, but someone else is selling ones for two bucks, if there’s nobody to call balls and strikes, the person selling it for two bucks is [00:08:00] gonna win.
James Lawler: Joe Romm did tell me that he believes most investors in the VCM and the executives and teams in charge of helping corporations achieve their emissions reduction goals are indeed well meaning people. From the way he described it, the VCM faces a kind of prisoner’s dilemma.
It only works if everyone voluntarily, again, this is a voluntary market, voluntarily spends the resources to seek out and pay for the highest value credits that may be orders of magnitude more expensive than mainstream offsets- offsets that have been certified by reputable agencies like Verra and Gold Standard. I was able to discuss this with someone whose job it is to untangle this very dilemma.
Katie Sierks: My name is Katie Sierks. I’m part of the Microsoft Carbon Removal Team.
I lead our diligence and quality work. Our team is responsible for helping Microsoft achieve our 2030 carbon negativity commitment. [00:09:00]
James Lawler: Microsoft made its net zero by 2030 commitment in 2020. Katie says the commitment involves first reducing the company’s direct emissions by at least half, and then accounting for the rest however it can, in particular through the voluntary carbon market, by funding carbon dioxide removal projects.
Katie Sierks: So that’s where my team comes in, is trying to build an adequate volume of high-quality CDR that Microsoft can procure to reach our 2030 carbon negative goal and more broadly try to position our company and our society to minimize the likelihood of climate disaster.
James Lawler: And by the way, I was on the road when I spoke with Katie, so pardon my rough and ready audio here.
So tell us what is your mandate there in terms of tonnage of CO2 and exactly how does Microsoft engage with companies and others to sort of meet these removal targets?
Katie Sierks: Yeah, so we expect we’ll need to procure at least 8 to 10 million tons of CDR [00:10:00] annually by 2030 to achieve this carbon negative commitment.
So it’s a big goal and we are working to achieve that using our own procurement process. We are looking for high-quality CDR solutions with potential to scale by 2030. So, um, anyone who looks at that website, if you’re a supplier, we recommend you read the quality criteria for how we define high quality CDR to help us increase the likelihood of reaching our 2030 goals and help build a high quality, large scale CDR market.
James Lawler: Great. Well, that’s a perfect segue to the next question. Let’s focus on quality. So Katie, define CDR quality for us, if you would. What are the vectors of quality that matter?
Katie Sierks: I have been likening it to building blocks. So the quality criteria is composed of six different building blocks that we think are integral to project quality: accounting, additionality, environmental justice, [00:11:00] durability, leakage, and harms and benefits.
James Lawler: We’ve touched on all of these six criteria in our Voluntary Carbon Market series so far, especially additionality, which is the question of whether a project’s alleged carbon benefit would exist, even without the funds that paid for that project. For example, if you invest in a solar power array, Would it have been built anyway, regardless of your particular investment dollars?
Durability, or permanence as it’s sometimes called, indicates how a project’s captured carbon will stay sequestered, ideally at least a hundred years. Leakage refers to whether or not an offset project will lead to other emissions elsewhere. For example, if you pay a landowner to not cut down a forest, will another forest get clear cut instead due to market demand?
Finally, the criteria of environmental justice and harms and benefits have to do with the environmental impacts of a project and its effects on local communities. Katie says that within this framework, are musts and shoulds, in other words, deal breakers, [00:12:00] for Microsoft’s investments and mere nice to haves.
But overall, this is the basic map Microsoft uses to discover carbon credits worth investing in.
Katie Sierks: One example of how we would use it is looking at a direct air capture project. So if you think about the harms and benefits block, so harms and benefits broadly are looking at how we can avoid negative impacts to economies, societies, and environmental systems that result from CDR projects, avoiding harm, and maximizing benefits to local communities and ecosystems.
So if that’s the like, here’s what the block is defined by: we don’t think you can have a quality CDR project that is going to be able to scale if there’s material risk to the operators who are working in the plant every day. So that’s like, if you don’t have that, it’s certainly not going to be a high-quality DAC project.
Then you look at like the should and what the block is comprised of. We think DAC projects should use Earth-abundant inputs or more inputs that are appropriate for a given process. So we think there’s a way you [00:13:00] could build a quality DAC project if it relies on a rare earth metal. We would have less confidence that this is going to get to scale, especially affordable scale if there’s one source for this input, it’s going to be astronomically expensive.
So we might say we should still work forward with this project and work with the developer to figure out if there’s a path to shore up the construction of this harms and benefits block to give more confidence that will lead to a scalable, high-quality project in the future.
James Lawler: And so is- fundamentally Microsoft’s approach is technology agnostic. So you’ll sort of take any comer. And you’ll assess them across these various criteria. I’m wondering, you know, as you’ve seen the- Microsoft’s portfolio in the space grow, if you could speak to kind of, um, where your attention has been drawn in terms of interesting solutions that do seem to satisfy all these criteria that seem to be like really promising for the future that maybe surprised you, you know, that you didn’t expect [00:14:00] coming into this.
Katie Sierks: Yeah, I think that’s an interesting question. I am very supportive of Microsoft’s all-of-the-above approach to different CDR solutions. I don’t think society as a whole is aligned on one winner and that’s where we should funnel all of our resources. So I like the framing that we should continue to bet on the most promising CDR pathways and then double down on the ones that we think are further along in terms of the building blocks that would lead to a quality, scalable solution.
Yeah, and Microsoft I think has learned a lot over the past couple years of our CDR program. We’ve learned a lot in terms of diligence and risks associated with different CDR pathways or things that might be less of a risk than we thought. Like, for example, we’ve procured from forestry projects that burned down.
So I think given that, we’re able to refine our estimated failure rate in terms of how we’re contracting for things and, like, correct for this at a portfolio level, realizing we still think forestry is going to be a tenant of our portfolio. And here’s how we can [00:15:00] tweak our diligence process to better as much as we can, like, anticipate this fire risk.
And if it’s material and it’s real, account for that in our portfolio structure, if we need to overbuy or other things, like, knowing that these kinds of things are going to happen in the future. So I think we’ve tweaked our portfolio in terms of understanding of risk and then also I think the composition of the portfolio itself.
James Lawler: Your role when it comes to these projects is to assess how they stack up against these various criteria. Is that right?
Katie Sierks: Yeah. So our diligence process, yeah, we look at how projects align with the criteria and then use our forms of leverage and market power to attempt to promulgate these criteria throughout the market and maximize Microsoft’s likelihood of achieving our 2030 negativity target.
Our diligence process is solely focused on how projects align with this quality criteria.
James Lawler: So tell us about the [00:16:00] state of the voluntary carbon markets today. I mean, Microsoft is making direct deals with companies, you know, you have your own website, you sort of are your own market, right? And you have your own process internally, like you’re, you know, you’re working with consultants to sort of help you figure this out, but it’s very much bespoke.
Like one cannot simply walk to the market.
Katie Sierks: You can’t go get CDR on a shelf. Yes, totally.
James Lawler: Yes. Yes. You cannot go buy this if you are, you know, if you’re not Microsoft basically, or a handful of other people. So I’m just wondering if you could reflect over the time that you’ve been working in these markets, like how they’ve changed.
Number one, what sort of the critical path looks like to actually sort of making them scale in the way that the planet needs effectively.
Katie Sierks: I think in terms of what I’ve learned over the past- throughout my career, basically, I remain super optimistic. I love that I get to work with committed, hardworking project developers and other [00:17:00] enablers who are trying to build something new.
Like this is hard. And I continually- to get energy from all of the experts I get to work with, especially talking about, like, these novel paths for CDR. So that part is super cool. And the other thing I like about that is the vast majority of people I’ve, I’ve met with, I would, I would say we’re on the same team.
I think there’s some concerns about fraud in CDR, and not to say that doesn’t happen, but in my experience, most folks are trying to do good, and just trying to figure out how to do so in a pragmatic way. There’s differing approaches to doing that. So in general, I remain optimistic. It was maybe the SF in me, the like, uh, techno-optimism, but I think this combination of human ingenuity and some of these new technologies coming out in CDR make me more optimistic than ever.
The market today, there’s room for improvement, I think, in terms of, like, the underlying asset, like the carbon credit itself, and the structure of the market.
James Lawler: Yeah, [00:18:00] let’s talk about that. So if I go and I’m hungry for ice cream, I can go. And I pay two, I pay a dollar or $2 or $10, whatever, depending on where you live, and I buy an ice cream cone and I can hold it and I can look at it and it tastes good and I know what I bought and I feel great about that.
In carbon CDR, right? You can’t do that. Like you, you have one ton of CO2 by virtue of all the things- parameters we’ve already talked about, I’ve often wondered if, like, carbon is the wrong thing. The thing that we’re trying to achieve is a reduction in the warming effect of carbon dioxide in the atmosphere, right?
And we’re also- the other thing we’re trying to achieve is we’re trying to achieve this quickly, not over the long term. So, it’s like, is a pound or is a ton of CO2 removed actually the quantity, actually the asset that we should be pricing? And I’m not sure that the answer is yes. And increasingly, I don’t think it is. What do you thInk?
Katie Sierks: Yeah, maybe I disagree with you slightly on that, because I do [00:19:00] think the underlying attribute of one metric ton of CO2 equivalent, and yes, there’s a lot of nuances in terms of like, how you’re determining equivalency, I would continue to denominate it in tons of carbon dioxide equivalent. And I think what we should add as an attribute to this underlying, I think quantity is too strong, but the like foundation of carbon markets is two quantitative things and one qualitative attribute.
Quantitatively, I think we could benefit from noting durabilities are variable. I think this gets to some of your question about instant. It’s a little bit not quite instantaneous, but like a metric ton of CO2 that’s sequestered for 30 years in a forestry project is different than a metric ton of CO2 that’s sequestered for more than 10,000 years in a DAC project.
We just talked about six different quality criteria and all of these nuances on top of what, what is a carbon credit. So I think [00:20:00] it’s too simple to just say it is one metric ton of CO2. Like, you’re not buying a scoop of chocolate ice cream. I guess where I’m coming from is I think the carbon market today, it’ll take a long time to rethink that, like, structural components of what is traded and how it’s analyzed.
It could be more effective to try to tweak what we have to better align with quality standards than to burn it to the ground and build something new.
James Lawler: Katie Sierks, of course, has a reason to be more optimistic than Joe Romm about the VCM. After all, it’s her whole mission to make it work for Microsoft’s sustainability goals.
But I think she makes an interesting point about today’s carbon market. It doesn’t have to be a perfect silver bullet for emissions reductions to be useful. It can still be a useful, valuable part of our low carbon future. But that might mean changing how we think about a carbon credit to something more complex than simply X dollars is equivalent to Y tons of carbon gone from the atmosphere.[00:21:00]
Microsoft, at least, is still willing to invest vast amounts of money into the VCM. In September of 2023, the company announced a deal with direct air capture company Heirloom for 315,000 credits, collectively worth at least $200 million, reported by the Wall Street Journal. But what if you aren’t Microsoft?
What if you’re a smaller company, and you want to reduce your net emissions, but you don’t have tens or hundreds of millions of dollars to invest in sustainability? One option would be to hire a consultant. Earlier in this series, I spoke with Alex Dolginow and Colin McCormick from carbon management firm Carbon Direct.
Alex and Colin are head of portfolio diligence and chief innovation officer, respectively. Carbon Direct has a variety of scientists and analysts on retainers or as full-time employees who identify, evaluate, and ultimately help companies invest in high quality carbon credits. Their clients have included Microsoft, Mitsubishi, and BlackRock, among other corporate giants.
But CarbonDirect also caters to smaller clients, guiding them through the complicated and at [00:22:00] times fraught VCM. In the latter part of our conversation, I asked “exactly, how does that work?”. Colin McCormick said it starts with an audit.
Colin McCormick: So, one of the first things companies that are new to this want to do is, is a footprint.
They want to understand where their emissions are across their operations. And I think there’s a lot of things to, to discover, even for companies who may be fairly far along on their decarbonization journey. So we provide that service. That’s actually fairly scalable and doesn’t require full armies of, of scientists to, to pursue.
That can uncover further reduction opportunities that, that really, the company hadn’t fully appreciated. And we always emphasize, always emphasize the need to be pursuing emissions reductions to the maximum extent possible.
James Lawler: Then Alex Dolginow explained what clients can expect to pay per credit.
Alex Dolginow: In terms of if you were to go out and wanna buy a high, high-quality credit today, I think if you’re looking at nature-based removal credits, you’re probably looking at at least $30 per ton of carbon credit.[00:23:00]
And if you’re looking at hybrid or engineered credits, you’re looking at, in the case of hybrid credits, probably between- upwards of a hundred dollars per ton. In the case of engineered credits, upwards of a few hundred dollars per ton.
James Lawler: Let’s say that I’m coming to you without having, you know, thought deeply about this for years.
And I’m just, you know, Alex, just give it to me straight. I’m emitting. I’ve got too much emissions. I’ve done all I can. I just want some carbon credits. And you’re telling me they’re $30 to hundreds of dollars. How do I make sense of that?
Alex Dolginow: Yeah. And I think it goes back to this question we were having around durability.
So if you were to put them all on the same scale, if you were to, for example, take that nature-based credit and add the additional cost of making sure that it never disappeared, if it did disappear, you would replace it. You’re monitoring it over time, all that stuff. Even though we say it’s $30 per ton, it’s probably actually more expensive than $30 per ton.
James Lawler: But do I need to do that as an [00:24:00] emitter? Like what if I just want to get to net zero for myself? Because everybody says I need to be net zero. So I’m wondering
Alex Dolginow: Yeah I think at net zero there’s a, a strong desire to have full neutralization of your emissions. And so you, you really probably would want to meet that high bar of any residual emissions that you have, you would want to try and deal with in a way that was not just high quality, but ideally durable.
If you’re doing something else with that carbon credit and making some sort of softer claim to contribute towards climate benefit, and there’s a lot of sort of movement within the market. That’s kind of thinking about how do we accommodate people who are not willing to spend hundreds of dollars per ton on a, you know, sort of permanent carbon removal, which is scarce today.
Like, what, what can we do for the rest of that? And how do we make sure that we are providing benefits for activities that are beneficial, even if they are, you know, imperfect from [00:25:00] the perspective of a net zero claim?
Out of that whole discussion has sort of come a slight softening of how carbon credits are conceptualized from sort of a pure offset to something that’s a little bit more of a, you know, in some cases, a little bit more of we are supporting some climate benefit.
The exact nature of that benefit might be a little bit squishy.
James Lawler: So, Alex and Colin have bad news and good news. The bad news is, unless you are willing to spend hundreds of dollars per ton, it will be difficult to achieve a quantifiable emissions reduction with nature-based and other less expensive carbon credits.
The good news is that investing in carbon credits can still be worthwhile, even if the benefits are a little squishy. For example, something like forest preservation has a number of benefits to ecosystems and local communities that are entirely independent to the specific amount of carbon that that forest may draw down.
Or say you choose to buy credits generated from wind or solar projects. It may be difficult to link those credits to all six [00:26:00] of Microsoft’s criteria for quality, but you are still contributing to the long-term transition to renewable power.
The latter example falls within the purview of my next guest. Laura Zapata is co-founder and CEO of Clearloop, which helps companies of all sizes invest in solar power projects across the United States. Clearloop specifically focuses on regions and communities that are lagging behind in their clean power adoption. So, if you’re a company in California, where more than a third of the electricity comes from renewable sources already, Clearloop can help you invest in a solar power project in Mississippi, whose power mix is only about one percent renewable.
Laura Zapata: So my name is Laura Zapata. I am the co-founder and CEO of Clearloop. And Clearloop, what we focus on is a carbon solutions platform.
What that means is basically we are trying to help these companies that are saying and setting these very high, important climate goals and trying to help them abate and tackle their carbon [00:27:00] footprint by putting their dollars to work in decarbonizing our grid. So for every carbon footprint that a company has, they can put their dollars to work in a variety of different ways, efficiencies, different things.
What we’re focused on is basically taking their dollars and helping build more solar projects in the United States specifically. And then the companies get credit for the carbon that they’re helping abate as a result of that new solar project going online in a part of the country that would not have otherwise seen that solar project come up.
James Lawler: Can you tell me a little bit more about how this works from a practical standpoint? So, if I’m a company and I have assessed that my carbon footprint is so many thousands of tons of carbon per year. So, I’m interested in Clearloop’s value proposition. I reach out. And how does the Clearloop solution differ from the number of other offset options that companies have available on the market today?
Laura Zapata: Yeah, I think what’s [00:28:00] very similar is we’re all going after some piece of carbon, right? Like we’re all trying to decarbonize something or suck carbon out of the air or take it out of the grid. The solution that we have come up with- our thesis has been, you know, one and two of the carbon footprint of the United States is one: transportation, two: power sector.
And so we have the technology to decarbonize the power sector. Let’s go after it and really accelerate that. And so that’s why we’re so focused on renewables as our solution today. And it depends on where in the country you are because our grid is not equally as carbon intense, as fossil fuel dependent.
James Lawler: Correct me if I’m off here, but in different parts of the country, we have different sources of energy generation. Some parts of the country, these sources or these generators are more fossil intense. That is, perhaps they rely on some mix of coal and, and natural gas, right? In other parts, you may have far more renewables, right?
And so you’d have a lower carbon intensity. So you’re saying [00:29:00] your focus would be on creating generation in the areas that are more carbon intense.
Laura Zapata: Exactly. So basically what we’re saying is there’s a translation. So metric ton of carbon, how many watts does it take to take care of that, to tackle that carbon footprint you have?
And the, the more carbon-intense, the grid, the fewer watts you need. So you can build a project that has just as much impact in a place like Tennessee versus a place like California. We’re basically saying, “okay, let’s go to the most carbon-intense places. You can get more bang for your buck in those places”.
You can translate your metric time to number of watts, and then we can build the project that’s basically, you know, matching your carbon footprint. And so what we’re saying is instead of- there’s the transaction that we all know, you. Do a dollar, you’re buying your carbon offset, and then you go plant a tree.
It’s a similar transaction in that you’re paying us a carbon fee. You get the environmental attribute from [00:30:00] that project. And we go use that to go build a project. If you want to liken it to a tree program or a carbon capture program, the end result of the carbon quantification is the same. It’s just the, the vehicle by which we’re doing that is we are building a solar project as a result of your contribution.
James Lawler: Clearloop actually deals in two different products, carbon credits and another kind of credit that specifically represents clean electricity. These are called Renewable Energy Certificates, or RECs. A REC represents ownership of a single megawatt hour of clean power added to the grid.
They’re based in U.S. law and allow companies to purchase and claim credit for using clean power, even if they never actually use those specific electrons. But RECs don’t represent carbon reduction. Clearloop gives their clients a choice. You can sponsor a new solar power project and then either claim a REC or a carbon credit.
Laura Zapata: So you can quantify it as metric tons of carbon or RECs. You can’t do both. You have one [00:31:00] environmental attribute that you’re buying and purchasing from us. So as a result, we’ve turned our projects into what is the carbon that you are actually abating as a result of building this brand new project? What is the metric ton of carbon?
‘Cause that’s the unit of measure. So you can either say you produce X number of megawatt hours, which we can do in our projects that are meter associated. We are creating electricity. But we think it’s even more impactful to actually measure it as a unit of carbon, because that’s what we’re after.
James Lawler: It’s a fascinating model and I’d love to just poke at it.
So it makes sense that you have a choice one or the other, like you can either claim the RECs or you can claim the carbon. Because if you think about it from a carbon accounting standpoint, from the position of the emitter, if you were to claim both, you would be double counting, right?
Because you’d be counting your emissions associated with electricity generation and the reduction thereof, and also as an offset to the total [00:32:00] emissions if you were to do both. So you really have to choose, okay? You’re going to put this money to Clearloop, they’re going to deploy it, they’re going to give you either these RECs or this carbon reduction that you can then apply in your accounting.
That makes a lot of sense. The REC piece, these solar panels are up, they’re producing, you know how much, you’ve got an offtake, like. you’re claiming those megawatts, got it. On the carbon piece, this seems to be more complex because the carbon intensity of a particular region of the grid could be changing on a day by day basis, right?
I mean, you have like, if I’m in a particular part of the grid and I put up solar panels on my roof, suddenly, you know, the carbon intensity of this region is lower than it otherwise would be. How is that dynamism ultimately reflected in the value that’s conferred to investors in these projects?
Laura Zapata: Yes. Great question. So we spent a lot of time making sure that we get the [00:33:00] best possible data on this because it is complicated, but it’s not impossible. And so the way that- what we’re doing is working with other experts who, who are- have really pioneered the work of locational marginal emissions. And so locational marginal emissions, what it basically quantifies is what happens on the margin when you go and plug in a brand new solar project in a particular location, in a particular time, what is turning off or turning down as a result of that intervention.
And so there’s an organization that sprouted sort of out of Berkeley and RMI, the Rocky Mountain Institute called WattTime. And what they have done and pioneered, and now have a cadre of lots of different people that are coming together to do this, is basically quantify, okay, so- and actually have predictability into that dynamic, because you’re right, every five minutes, if you were to go to our website right [00:34:00] now, there is a dashboard that we’ve created.
It’s, it’s a- B zero right now, but it essentially shows you as we generate, um, every five minutes, you can see one of our live projects is one megawatt project, but you can actually see what is happening with the grid mix during that time. So what is the carbon footprint that it’s responsible for at five minute in- intervals, and you will see that it changes throughout the day.
James Lawler: I want to ask you about this because there seems to be some misalignment. And I know this is not specific to Clearloop. This is a general question about this rule. We know that there’s a, an essential time component to the destructive impact of CO2 in the atmosphere, right? That we’re reducing emissions today versus in 10 years, right? Or 20 years.
So the idea that I’m releasing X tons of CO2 today, or I’m claiming an- avoided emissions over a 10 year period, all right, is very different from releasing 10 tons today and then also [00:35:00] removing 10 tons today. One in one case, right? We have 10 tons of emissions that will be warming the planet for, you know, several decades until those are avoided.
And in the other case, we actually have zero impact, right? So we have very different warming profiles from those two different structures of claiming a reduction. I’m trying to wrap my head around why that regulation is the way it is because it doesn’t- that doesn’t seem to be achieving what we’d want it to achieve.
Laura Zapata: Yeah, what we’re trying to achieve on the way that we’ve built Clearloop is can you build infrastructure today and invest in infrastructure today so that over the life of that, that project is not just that one solar project, it’s the lifetime of the solar project, but then we’ll also have a lasting legacy.
So it’s the idea that what you’re actually trying to do is accelerate the, the timeline that we’re taking to decarbonize the grid. [00:36:00] And so what we’re trying to do is basically saying, okay, um, it’s very rare that you can do one for one today, right? Like to say I’ve emitted this and then I’ve taken up by it- by doing XYZ today by sucking it out of the air today.
What we’re saying is, “Hey, look, there’s a huge carbon footprint coming from our power sector and we need to clean it up ASAP as possible”. And the way that we can do that is by putting more deployment down because these things, these projects take time to build. It takes time to actually start generating. And as we electrify more stuff, what we’re actually building today oftentimes is fossil fuel generated.
And so as we start electrifying vehicles and buildings and other things, we’re going to be putting a massive amount of pressure on the grid. And what we’re going to end up with is not only are we not cleaning up fast enough, but then we’re actually exacerbating the problem because we continue to dig the hole by adding more fossil fuels [00:37:00] and sort of not stopping the problem.
So I think there’s definitely a time component. There’s a time and there’s an opportunity for both things, right? We should be sucking it out of the air, but we should also stop burning it. And in our best solution, our kind of answer to that is let’s go build this infrastructure today because it’s not happening fast enough.
Today, the way that renewable energy is structured and, and accounted for, there’s no emissions impact. And so that’s the part where like, you know, if you talk about carbon accounting today, and like what we’re after, and you sort of you know, scope to it was created in a way to show signal in- demand signals from, from folks and showing that there’s more renewable energy needs.
And I think it did its job right? Like we see renewables really taking up and we’ve seen lots and lots of companies who’ve been able to do that successfully. But now it’s time to really acknowledge that there is a carbon impact because that is what we’re after. Like, it is all [00:38:00] about emissions reductions.
It is not about these fungible credits. And I think sometimes we miss the mark when we talk about fungibility and carbon credits and trading. And it’s like, what is it that we’re trying to do? And what we’re trying to do is reduce emissions in as many different places as possible.
James Lawler: Well, Laura, this is very, very impressive what you’re putting together, and it’s exciting to hear you talk about it.
So I wish you all the best and your company as you continue to grow.
Laura Zapata: Thank you so much.
James Lawler: At the end of this series, I have somewhat mixed feelings about the voluntary carbon market. On the one hand, it’s clear heavy reforms are needed. If the VCM is ever to be more than a license to pollute, as Joe Romm would currently describe it, carbon credit suppliers and offset projects need better regulation and verification mechanisms.
And there need to be mechanisms in place to motivate both buyers and sellers to emphasize the quality of the credits they’re trading. I’m also not sure how I think about the idea of [00:39:00] changing the definition of a carbon credit. The idea of changing how we think about a carbon credit, I think, is problematic.
At the end of the day, if a company is selling a carbon dioxide offset, it better actually offset carbon dioxide emissions. If it doesn’t, we should call it something else or invent a new category of thing that people might want to buy.
And that’s it for part three of our series on the VCM. I’d like to thank Joe, Katie, Colin, Alex, and Laura for joining me and lending their excellent insights. You can hear more about carbon credits and carbon offsetting in our previous episodes on climatenow.com. And please let us know what you think. We love to hear from our listeners.
Reach out to us via email at contact@ClimateNow.com. We hope you’ll join us for our next conversation.[00:40:00]
Climate Now is made possible in part by our science partners like the Livermore Lab Foundation. The Livermore Lab Foundation supports climate research and carbon cleanup initiatives at the Lawrence Livermore National Lab, which is a Department of Energy applied science and research facility. More information on the foundation’s climate work can be found at livermorelabfoundation.org.
Episode 3 of 3: The Voluntary Carbon Offset Market