Is there a tectonic shift away from corporate offsetting and into corporate insetting?
In this episode of Reversing Climate Change, we sat down with Lia Nicholson, Head of Sustainability at Terrascope, to discuss the sexiest topic of all—carbon accounting.
Historically, corporations faced justified criticism for opting to buy low-quality carbon offsets instead of making tangible efforts to reduce their own emissions. Lia highlights a significant recent shift from traditional offsetting to insetting, where companies account for carbon-negative behavior within their value chain rather than outsourcing it to a service provider.
As corporations worldwide scramble to mitigate their carbon footprints, understanding how emissions are calculated and reduced becomes paramount. But how should accounting of emissions be structured?
Lia lays out how in a typical company, some 85% of emissions can come from the company’s value chain. Discover how reducing scope 3 emissions is about leverage and influence. As Lia puts it, “the point of corporate accounting is not to add up all the company’s emissions; it’s really to look at where that company has influence on those emissions.
Tune in to explore insights into the standards bodies that corporate accountants refer to, the implications of the new EU carbon border adjustment tax, and how the winds of opportunity, born from disasters, can be harnessed to drive real environmental change.
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Full Transcript
Ross Kenyon: You’re listening to the Reversing Climate Change podcast by the team at Nori, the carbon removal marketplace. This is a show about the innovators and entrepreneurs developing solutions to climate change. Hello and welcome to the Reversing Climate Change podcast with Nori. I’m Ross Kenyon. I’m one of the co-founders of Nori, and I’m also the Director of Creative and Marketing here. Nori is a carbon removal marketplace based in Seattle, Washington. Today I am joined by my co-host, Siobhan Montoya Lavender. Hey, Siobhan.
Siobhan Montoya Lavender: Hey, Ross. How you doing?
Ross Kenyon: I’m doing well. You have an old, old friend of yours from across the world, it seems. We’re — this is the late show, as we were joking about earlier, which means it’ll be more blue than average. I’m going to try not to do my usual Vanna White for our guests.
Siobhan Montoya Lavender: I’m feeling very mellow, perhaps because it’s dark out.
Ross Kenyon: We are here with Lia Nicholson, who has a really interesting and geographically diverse climate career, and she is joining us today all the way from Singapore. So we’re having a phone call here with the future. How — how did Tuesday turn out, Lia?
Lia Nicholson: Tuesday was great. I’m just drinking my coffee, so I’ve got energy for all of us to get the day going.
Siobhan Montoya Lavender: I didn’t know you were going to start with time travel jokes. Some weak stuff right there. You better — you better get your game up.
Ross Kenyon: They’re very good. OK, OK. I should have brought a glass of wine with these things. All right. So Lia has, again, had a really interesting career, everything from representing small island nations at COP26 to doing climate work in West Africa, and, as we just mentioned, she’s in Singapore. So, Lia, I don’t often like to start with kind of the, you know, what’s your back story generic thing, but I think with you it’s pretty relevant, and I think our audience would be curious. How did you get into climate work? Why have you lived all over the world?
Lia Nicholson: For me, it’s been a very personal journey, coming from Antigua and Barbuda in the Caribbean, and one of my early memories is a Category 5 hurricane, which definitely leaves a mark if anyone’s lived through one of them. It was a hurricane that kind of hit the island and then reformed, so it was about 24 to 30 hours long that we were kind of down. I remember my dad and uncle holding the doors closed. So that was a lesson.
And also just living on a small island, catching fish, living that very idyllic life — you’re very close to nature and the environment. So environment has always been my passion, and that’s what I kind of pursued and followed. Worked in local nonprofits in Antigua and Barbuda, eventually studied at the Yale School of the Environment for my master’s, and got into climate change there from an academic perspective. And it really resonated. And it was really amazing to take that and go back to the government and work with the Department of Environment on some of these both local and global issues.
Ross Kenyon: Yeah, now you’re Head of Sustainability at Terrascope. And this episode, for our listeners — you know, we talk a lot about carbon removal. Today’s show is going to be on the more decarb side, and then we’re also going to be talking about this kind of niche genre of carbon removal, which is carbon removal within the value chain, or insetting. And Lia’s kind of an expert in this area. And I think for our listeners who have heard of carbon removal, maybe know something about carbon markets — how is insetting different, and can you explain to us what it is?
Lia Nicholson: Yeah, absolutely. And this conversation, I think, is very emblematic of where the space is at. For me, I’ve always been in the inventory accounting approach, and now you’re in the carbon market space and project accounting, and bringing the two together is what we’re going to see a lot more of in the future, because there’s been some major shifts which I’ll talk about. So I think the lay of the land is, we’ve got the project accounting, we’ve got the inventory. You’ve got different ways of breaking up those emissions. From the national government level — so each government should be able to measure their own emissions, add those up, and we get the total emissions in the world.
From there, there’s a city accounting standard, which I did in West Africa at an urban level, to help mayors figure out what are their city-level emissions and reducing. And then we go into the corporate accounting, and that’s where you hear scope one, two, and three. So scope one, two, and three only exists in the corporate space. The point of corporate accounting is not to add all the company’s emissions up. Actually, it’s really to look at, where does that company have influence on those emissions? So for its purchased goods and services in scope 3, that will sit in the value chain, but that company can influence it, which is why that’s the point of accounting — it’s really looking at that influence piece for corporate.
And then the last one we have is product level. So you’re kind of taking a bottle of milk and looking at what are the life cycle emissions at that product level. So the lay of the land is, there are many different accounting standards, and you use the standard that you need for the purpose that you’re looking at. The corporate accounting one is what we’ll focus mostly on in this session. And so when it comes to — there’s been historically a bigger focus both on measuring and setting targets for scope one and two. Scope one being the kind of emissions from the assets that the company owns, and scope two from the emissions from the electricity that the company purchases.
In the last couple years we’ve seen a huge shift to scope 3, and that is the supply chain emissions. In a typical company, 85% of the company’s emissions will sit in its value chain. So if you’re only looking at scope one and two, it’s really the tip of the iceberg from an emissions perspective. And actually, just focusing on that, you can outsource and have emissions reduction, but that’s not true — that’s paper decarbonization, not true decarbonization. So with this focus on the value chain, there’s this new guidance from the Greenhouse Gas Protocol, which is called Land Sector and Removals. And for the first time, there’s a real focus on removals within the value chain of the company. And this is where we’re seeing the insetting versus offsetting discussion now taking place.
So let’s take, for example, a food and beverage company that’s a processor and they package orange juice. So the emissions for their direct operations would be, you know, just the packaging and the processing. But the scope 3 emissions will be growing those oranges on the farm. And what this standard now says — which is in draft form, so the final version will be released next year, and it’s several hundred pages of kind of accounting guidance for this sector — what this guidance says is, if that company practices more sustainable land management on that orange farm, on that grove, then it can count removals, then it can net those, it can account for those removals against its emission sources.
That’s getting a little bit into the target setting standard, which is the Science Based Targets initiative. So the difference, how that is playing out, is the removals within the value chain are being netted against the kind of sources of emissions for that FLAG sector. And where we’re seeing how does this dovetail with the project level accounting is, the Greenhouse Gas Protocol says, if that company has sold those offsets, or has looked at projects around removals within the value chain, then it may or may not show up in that company’s emissions, because of this difference in, for example, avoided emissions. So that’s kind of the high level, insetting versus offsetting. But we can go deep into that if you want. I know you guys are in a different time zone, but let me know while you have appetite for it.
Ross Kenyon: What do you do when — I mean, like, the old line that always gets used here is that everyone’s scope 3 emissions is someone else’s scope one. Is there a good reason not to simplify and just have everyone do their own scope one, and not worry about really hard to calculate, really diverse value chain questions?
Lia Nicholson: Yes. So first of all, I think the scope 3 is becoming much less hard, and for me that was the point of joining Terrascope, which is a carbon accounting SaaS platform using AI and machine learning to get much better estimates. So even if everyone does the scope one accounting, how can I, as a company — maybe I’m further downstream, I’m a bigger player — how can I incentivize my suppliers to decarbonize? So they may have a scope one emissions measurement, but the scope 3 is really about leverage and influence. It’s about decarbonizing across the value chain.
So when you kind of combine that with the target setting piece, I think a lot of the companies will have their scope 3 targets. And then this is where the kind of contractual obligations come. So I’m going to pick suppliers that have targets themselves, that do measure. So all of the suppliers should be measuring emissions — that’s becoming much more universal. But then it’s leverage. It’s like understanding that 50% of my emissions reductions will come from these ten key suppliers that I have. And who can afford to take those actions? Who can afford to take those risks? And how do we structure those relationships that look at decarbonization across the value chain? I think it’s about influence and leverage, in short.
Siobhan Montoya Lavender: For me, I think that companies like Terrascope — it’s always just a reminder that there’s so many skill sets that are needed for climate change, addressing climate change. And I think a lot of people don’t think accounting, that’s really like a climate skill set, but it’s actually this really critical skill set. But I think it kind of gets brushed over, because it’s not super sexy.
Ross Kenyon: It’s not. Continue, sorry.
Siobhan Montoya Lavender: And so I think — yeah, I think that this idea of tracking and accounting for emissions is really, really crucial. And yet I think a lot of the flash and pizzazz goes to the new technologies, or even marketplaces. And I’m just curious, like, what made you think, OK, this is where I’m going to spend my time, I’m going to dig into different scopes of carbon accounting? How were you drawn to that?
Lia Nicholson: It’s a good question. I also want to see the idea for next year’s Halloween to have a bunch of sexy carbon accountants for costumes.
Ross Kenyon: Awesome, with methane and nitrous oxide all over you.
Lia Nicholson: All right. So the reason why carbon accounting is so critical is coming from the accountability space and transparency. For me, I’ve seen that play out at a multilateral level, which is, we have the Paris Agreement, where every government sets their own targets and reports progress against those targets. And the way to build trust in that bottom-up, very individual-led approach is by having strong accounting, so that I trust your numbers. There’s actually, in the UN, there is a way that government experts go to other governments and inspect their greenhouse gas emissions inventory. It’s part of like this peer review process. So the rubber hits the road when it comes to tracking progress against target, seeing the historical trends, setting targets, and really measuring those in a credible way.
The consequence of not having good accounting and transparency is that you can make very ambitious claims that aren’t backed up, and then, you know, as public opinion moves on and then you circle back, and then there’s greenwashing accusations. I think nobody wants to be caught out in this way. And so it’s really about putting in strong accounting and tracking systems. And even the standards themselves — I mean, the Greenhouse Gas Protocol was developed in the early 90s and is going through a major overhaul and update. So they’ve done a big consultation on, what should we change in the scope 3 accounting standard, and across scope one, two, and three? And so we’re seeing, in today’s world, with new technology, with new techniques, with new expectations that we should trust these numbers, we need to update our standards. So it’s really an evolving space, and the way we will get to net zero is through accounting and transparency and ultimately accountability.
Ross Kenyon: Do you think the Greenhouse Gas Protocol’s here to stay? Because I’ve also seen challenges arise recently, like the E-liability Institute. I think they’re doing really interesting work. I think they’re trying to eliminate multiple scopes and try and simplify things down and use basically best practices from financial accounting, and skip over a lot of the — developed by sustainability experts who are not accountants, that they’re doing things that accountants would shy away from. Things like additionality, that are frankly non-objective measurements of quality, that have a qualitative element to it. Accountants don’t love that. And trying to find ways that are a bit more standardizable and trustworthy, and also less difficult for outsiders to access — or maybe not, maybe just requires a different type of skill set to do so. I don’t know. Are you tracking developments like that, or do you think that the GHG Protocol is still going to remain dominant?
Lia Nicholson: They’re walking a difficult line of making guidance that is acceptable. It’s global, so there will be inherent limitations and scope for interpreting based on the sectors you’re in. Where we’re seeing evolution — and yeah, Greenhouse Gas Protocol is not the only standard, right? We have the ISO standard. There’s a new World Business Council standard for product level accounting that looks at exchanging data across the value chain in a more standardized way. What’s interesting is much more sector-specific guidance. So the landscape feels as though it’s really specializing in a way that is new, whereas — so we’re seeing, you know, the chemicals industry has a guidance on carbon accounting for that space, and this Land Sector and Removals guidance very applicable to the food and agricultural space. So there’s a role for sector-specific addition.
But the Greenhouse Gas Protocol have been reinforcing the big wave through the ISSB, the International Sustainability Standards Board, which has put out this kind of global baseline for climate disclosures that now national — Singapore said they’ll pledge to adopt it, Japan, UK, Australia. So many governments will take ISSB and put it in, and ISSB’s accounting standard is the Greenhouse Gas Protocol 2004 version. If Greenhouse Gas Protocol updates, which they plan to, then ISSB will review. So there’s this really interesting dialogue between the bodies that are kind of at the core of setting these standards and tracking it. I expect us to see more kind of industry-specific guidance and specialization to help get more accuracy in those areas.
Ross Kenyon: You know, standardization is super critical, and it’s kind of both disheartening and relieving to hear that there’s this much kind of unsettled or undefined standards within decarb as well, because we certainly have that over on the carbon removal side, of trying to figure out, how do you compare these heterogeneous credits, and what are the standards, and how should the MRV — the monitoring, reporting, and verification — be conducted in a standard way. So I think the whole kind of climate industry in general is struggling with the standards. You’ve negotiated at COPs, you’re about to go to the next COP, I believe. How do you think people are thinking about standards from these more like big nations negotiating standpoint? Like, is everyone looking for the standards? Is everyone kind of trying to avoid standards? What would you say is kind of the general opinion?
Lia Nicholson: There’s definitely a big divergence about what countries are looking for. So, for example, the EU is doing a lot more transboundary, recognizing that every government kind of can set their own targets and has that sovereignty to adopt and set and determine what is applicable in their boundary, but at the same time climate change being a global movement and a global problem that needs a global solution. So the EU is taking an interesting transboundary approach with the carbon border adjustment tax. They have new kind of reporting requirements for companies that are going to be international but with a certain amount of revenue in the EU. So I think the EU is really looking at this landscape and saying, how do we influence globally through our own domestic regulations?
But the multilateral process is handicapped by — there can be like voluntary recommendations, like the Task Force on Climate-related Financial Disclosures, TCFD, but it’s up to governments what they do, and it’s kind of a peer pressure. OK, there’s this new standard, we’re going to adopt it, are you? We go to the multilateral bodies and do the rounds, COP for, you know, this, and WTO for others. But it’s going to be a patchy landscape for a long time. So you see, even within all these different international standards, there’s domestic variation. But that being said, it’s interesting in the corporate space, where governments make the pledges and then figure out how will they now get their companies to fall in line and to set targets and to measure emissions — so really replicate that process that governments have been doing for a couple of decades.
And that is where, for me, the scope 3 really kicks in, because scope 3 is transboundary as well. So having a company registered in one jurisdiction that must measure scope 3 means that that company’s obligation now is to go to its value chain and ask for the emissions, and so on further out the tier. So for example, in Asia, some of our clients are measuring emissions because their customers are asking them, not because they’re regulated to. So in some ways the scope 3 kind of value chain focus is a winds of change that will permeate at a global level. Because the big challenge for us is that the industrialized countries are already declining emissions, emerging markets are increasing emissions, and, you know, this is where Asia is where the future of emissions are going to come from, but regulations are lagging behind.
And so the focus on the value chain and action within the value chain feels like a very promising element to have some of that technology transfer and those things that we strive for at a kind of domestic, a government level, to actually play out in practice. And I do want to talk a little bit about where the intersection of the carbon markets and the kind of scope 3 corporate value chain is coming in with the land sector, because the type of transparency and the safeguards in place for action within the value chain is actually taking a lot from the carbon market space. So let’s go back to that orange, that kind of orange fruit juice company, right? So on that farm, all the way up the value chain, that company, if they want to count those removals, has to have the storage monitoring, it has to be primary data collection, there has to be reversals accounting.
So a lot of concepts that were developed through the carbon markets accounting standard are now coming into the corporate value chain, from an MRV, from a kind of primary data and other things. What’s missing is the additionality, right? So we don’t look at what could have been in the corporates. It’s just an inventory. It’s like, how much emissions are you emitting and how much are you removing, and that’s it. And if you want to count the removals, you must have these five criteria met. And so it’s kind of a slice of the carbon market piece, and that should help us to have much more of a focus on regenerative agriculture, on land-based kind of on-farm practices, on some of these goals that the carbon market space is trying to foster and to do.
And we now can bring that within the value chain and have another source of hopefully revenue, right? Because most emissions are coming from, in the food and ag, from on those farms. And so we need — if a downstream company values those emission reductions further up its value chain, then there should be kind of a contractual chain of action that can help those smallholder farmers, all those farmers in general, to change their practices, to have more regenerative agriculture, because it shows up in that value chain. So it’s an interesting kind of addition to the landscape of how we’re going to support, finance, and incentivize action.
Ross Kenyon: Does the standard respect like for like, in the sense that it’s not the fossil-based emissions coming off of farms that would be negated by regenerative agriculture? You’re nodding, sounds like it would be.
Lia Nicholson: Ish.
Ross Kenyon: I feel like it has to. Never — never a straightforward answer, yeah. If it doesn’t, I think it’s at risk of not being scientifically valid.
Lia Nicholson: Yeah, yes. So the Science Based Targets initiative has the guidance on the target setting piece. So that’s the forward-looking. It’s like, how am I going to plan my net zero trajectory? And under this, now a company must separate its emissions into two buckets. The first bucket is energy and industry, and, you know, just kind of all non-forest, land and agriculture emissions. The forest, land and agriculture, or FLAG — another new acronym for the — so many. OK. So yes, the answer is yes, the company must separate out its emissions for that.
There’s a challenge around, in practice, separating out farm machinery, equipment that’s kind of managing the land, from the sources of land-based emissions like deforestation. So there’s a little bit of guidance. But once that product or that value chain leaves the farm gate — so that’s really the core boundary, is to farm gates. Any emissions before the farm gate can be essentially counted for removals. Any energy and industry emissions — so from processing, packaging, transportation, downstream — are energy and industry emissions, and you cannot count your carbon removal sequestered through forest as a net against your energy and industry. So yes.
Ross Kenyon: How’d that decision get made that way? How’d it get made? It’s like, why? Why say even if you’re emitting fossil fuels on the farm you can negate it with soil, but once you leave that, truck emitting the same, burning the same fuel, can’t be negated? It probably has to be negated in a more permanent fashion to qualify under this.
Lia Nicholson: Yeah, probably.
Ross Kenyon: So is it just an ease of accounting thing? Is there politics? Like, what leads to this conclusion?
Lia Nicholson: I wasn’t in the room for discussion, so I can give you my view. It’s much more aligned with the science of decarbonization. So if you’re looking at on-farm emissions, you’re looking at typically deforestation, application of fertilizer, and if you ring-fence that — and what are the practices that I could do to reduce those emissions and to sequester through removals? That’s a much more precise way to decarbonize that source of emissions, versus if I’m planting trees and I’m trying to use that to counteract my energy combustion. Planting trees is not going to reduce my emissions. It’s about the reduction from the decarbonization. It makes more onus on rolling out renewable energy to reduce my fossil fuel emissions.
So it’s really about targeting action, because we have so many affordable [unclear] solutions that are already either cheaper or cost competitive or very slightly higher. Then how do we start to create the safeguards, or the guardrails around action, that will produce and deploy those technologies where those sources are happening? That’s my view. I like to think it’s informed by science.
Ross Kenyon: Yeah, I’m sure that it is. It’s just interesting to think that through. And not all of these decisions — because the granularity of information here and that quality has a cost. And maybe it could turn out that measuring the exact source of all those emissions, even on a farm, costs way more than just making a conservative assumption and dealing with it some other way. I think sometimes carbon removal especially has a really strong pedantic quality — this is fighting words maybe — that like the desire to be extremely precise, which is noble, often leads people to — there’s fights over permanence right now about whether 1,000 years or 10,000 years even count.
Honestly, who cares? I really — I’m saying it here, that that fight is foolish. And I think our time would be better spent saying, once you’re in four digits, maybe even high three digits — like, if we don’t have climate change figured out by the three thousands, I think we got bigger problems, and I don’t think we need to be that forward-looking, frankly. But that comes from a good place. But every additional amount of precision or longevity here, it adds a lot to the price tag in many of these cases, of measurement and ongoing verification of this over time. Like, sometimes good enough can be good enough. So I hope you don’t feel like I’m picking on you on that. I think it’s an interesting question, and I just want to zero in on — maybe I’m committing the thing that I’m oftentimes being snide about, or a little bit complaining about, [unclear], on myself.
Lia Nicholson: I couldn’t agree more, absolutely. It’s really about not letting the absence of data prevent action. I mean, we need to get acting. And I think with those time horizons — you know, I was reading the other day that the ocean conveyor belt’s going to shut down much sooner than we thought. Granted, still 100 years, but like, what is 1,000 years, 10,000 years, when you hear about some of these tipping points that are on the horizon? And so that’s personally why I’m really interested in the data science approaches. It’s really using better estimates to get to the big picture faster, and then figuring out where and why do I need to collect more data. And so the goal with doing a first corporate inventory is just getting the numbers and getting the high level sources, and then figuring out what’s material and taking it from there. So it’s very iterative.
We can do a lot more — like, I hope we see more open data, data sharing around this, because so much primary data is collected but it’s just not available to inform better proxies, especially when you dig into kind of global emissions factors, databases and everything. So we need to use much more data that we have for a lot of these kind of carbon removals requirements. That’s where I think the carbon market space has really pioneered satellite monitoring and kind of, you know, quick ways to get accountability around. And so the level of data needed for, for example, reporting — very, very high level, very granular. But once you start looking at contractual obligations between suppliers, then if I’m giving you preferential terms as my supplier, or I’m counting on you to set your own target and meet progress against that target, then we’re talking about a little bit more granular data needed, right?
So it’s really important to think about, what is the purpose of going that extra mile to get more specific data? Ultimately emissions come from five sources. Global companies with big value chains probably reflect a lot of those global sources and already know off the bat what their main emissions drivers will be, and therefore what the decarbonization levers will be. So it’s really about, once I start looking at my individual suppliers and bringing that into context, that’s where I need more supplier-specific emissions data to drive that forward.
Ross Kenyon: Yeah. Surely a big, big purchaser here has a lot of influence over their suppliers, especially once they’re at sufficient scale. As a consumer, I don’t know who those people are. I have only the smallest of sort of aggregate “we matter.” But I’m not rallying against a supplier whose name I am unlikely to know. So yeah, I think that is a very powerful leverage point.
Siobhan Montoya Lavender: I think it’s really interesting how much we’re talking about influence, or peer pressure, or these different, you know, pressure points to apply. I’d love to talk just a little bit about the COP coming up, especially since you’ve been. Ross, you haven’t gone, have you?
Ross Kenyon: I haven’t gone.
Siobhan Montoya Lavender: So I think Lia’s the only one in this room who’s gone, and I’ve never been. Now, I mean, this is a very controversial COP coming up. And what are your kind of hopes and dreams? And as you go and witness this live, what are you really hoping to see? Or, more importantly maybe, what are you hoping not to see?
Lia Nicholson: Hoping to see, hoping not to see. Hoping to see will be — this is the year for the global stocktake. So every five years under the Paris Agreement we are going to assess how well we’re doing with progress against the Paris Agreement goals, and it’s an opportunity to essentially course correct. So I’m hoping to see that kind of forward-looking, course-correcting language coming from COP about — we know that ambition is not enough, we know all of these things, so what are we going to do about it? That will be striking a balance around kind of that inclusive global — a lot of the things we’ve talked about a little bit — but really also looking at the cost of climate change, so the loss and damage, the adaptation cost, as well as some of the text we’ve agreed in the past, like phasing out fossil fuel subsidies, which, you know, since COVID and energy security, gone the other way.
So, course-correcting language from the global stocktake. Last year we agreed on setting up a loss and damage fund. This year we should be agreeing on how that fund is going to operate, and some more detail around capitalizing and getting some of those resources to the most hit and vulnerable countries in the world. There is obviously a big focus on energy this COP. For me, I think while we do need some element of carbon capture and storage, when you look at the cost per ton, the IPCC report says, you know, you need to value carbon over $100 per tonne, versus renewable energy much cheaper, even on-farm agricultural practices — I think $20 a ton and you’ll have unlocked major decarbonization in that sector. So I think putting carbon capture and storage where it belongs, as one lever, but making sure that we’re focusing on the things that are cheap, affordable, and scalable today, and that those have the prominence in our energy transition and in our kind of global decarbonization plan. So that would be my what I don’t want to see.
And I think we’re all — yeah, we’re paying attention. The COPs are really important for language and signalling, but ultimately rubber is already hitting the road in governments and the legislation they’re passing through. So I almost wouldn’t over-anchor on what comes out. And, you know, having been in this space a long time, there’s going to be highs and lows, but we all see the writing on the wall. We agree we need to change, and we’re all working towards that.
Siobhan Montoya Lavender: That’s very encouraging to hear. And I think perhaps you’re right, that those of us in the climate space that aren’t attending COP oftentimes put a lot of pressure and watching COP and thinking, what are they going to decide, what are these targets going to be? But it’s encouraging to hear you’re saying rubber’s meeting the road. How much do you think that’s true on relevant time scales? Relevant to limiting warming to 1.5?
Lia Nicholson: Relative to limiting warming to 1—
Ross Kenyon: Let’s go for two, man.
Lia Nicholson: I’m still on the 1.5. I haven’t let it go. I just think we have to try. We have to keep the 1.5, and we have to try our best to do it, because it’s not even 1.5 to two. It’s like 1.6 is better than 1.7, which is better than 1.8. And we have essentially a political agreement for 1.5 that we hold ourselves to, we hold the world to. And once we know for sure that that’s passed, there should be safeguards that happen, and then you have to start counting the losses of it. So sometimes if I zoom into one thing I can feel really excited and hopeful, and if I zoom into another, I’m really like, wow, we’re just lethargic and moving so slow.
So I think you kind of have to balance and make sure you hold the vision — hold the vision of 1.5, have the problem you’re working on, making sure that you’re doing it in the most kind of credible and transformative way that you can, for that transparency and accountability piece. And so some of the things that give me hope really is the legislation that’s coming up, like this carbon border tax is going to have global repercussions. Because if I’m a company shipping to the EU, and then they start to give up tax revenue to the EU, Thailand is now incentivized to put in a carbon tax. So we’ll start to see some of these kind of policies growing, spreading further throughout the world — already the disclosures and the pieces. So that’s definitely a source of hope. Level of awareness is incredible, just everyone talking about it, thinking about climate action and figuring out how it affects them, whether that’s out front in the media or behind closed doors and strategic boardrooms.
There is, I think, the things that are challenging — yes, even in the legislation pieces, like 2025, 2026 this kicks in, and I’m like, well, we’re supposed to have peaked global emissions by then and already be coming down. The fact that, you know, in 2030 we’re going to almost double — grow by, I think, 40 to 50%, the world economy is planned — and in that time we’re supposed to have emissions. So some of those challenges further out. But I always — I draw a lot of inspiration from this quote that Bill Gates says, which is, we kind of overestimate what we can do in a year or two, but we underestimate the change that will happen in five to 10 years.
So I think with all of us putting attention on what is the next, how can we maximize whatever we’re doing in the next year or two, you can see the way that the systems will change and cost benefit will start to change. And once we start to see those decisions playing out, as the company feels the pain of losing a contract because they weren’t competitive on carbon, and we start to see that more visibly, then that’s going to inform decisions of, you know, billions to hopefully trillions of dollars of deployment of capital. So it’s really just a question of how soon are we going to feel the pain of not doing this. But the elements are there, and we just need to keep putting our effort where we know we’ll pay out.
Ross Kenyon: I’m interested in the transborder tax approach as well. I think it has elements of a market-based policy which are really interesting. It doesn’t tell you exactly how to decarbonize whatever it is that you’re selling. It just tells you to figure out a way to broadly get there, or tells countries to do that internally before you ship things around the world. I think that can be a really powerful thing, and I’m looking forward to seeing how that goes too. I mean, the Brussels effect is pretty powerful too. We’ve seen that with GDPR. So we’ll see. It probably will have an outsized impact, and it will not likely remain just in Europe. Actually, I don’t know. Do you think that’s true?
Lia Nicholson: Well, UK — I mean, UK, you know, borders Europe, but they’ve already said that they’re going to do the carbon border tax [unclear].
Ross Kenyon: Yeah, UK’s — yep, UK is going to do it.
Lia Nicholson: We, in Southeast Asia — Singapore is the only country that has a carbon tax in place. A couple other governments are planning to. But because there’s this equivalency measuring the EU carbon tax, if you’ve paid your tax at the country of origin you have to pay less tax when it’s imported to the EU, for the six commodities, right, that it applies to.
So in Singapore, for example, we have $5 per tonne of carbon tax. It’s going up to $25 next year, and then it will continue to increase. That’s a 5X increase — next year it goes up. It really applies to kind of the energy, so it’s a limited number of companies that have to pay that tax. And as the rules are, you can offset maybe 5% of what you owe with carbon credits, offsetting. So there’s a little bit of room for that as well. It will definitely have transboundary impacts. Whether we can trace and say it’s because of the EU — they’re like, let’s see.
Ross Kenyon: But for sure, I mean, the idea conceptually of just putting a price on carbon and letting the markets figure out what is the optimal way for it, it’s very appealing. Unfortunately it’s politically challenging.
Lia Nicholson: But I think more and more companies are already doing shadow pricing of carbon just to future-proof their business models. But it doesn’t really get converted — it’s not like the company’s actually paying that and feeling the consequence of that decision. So right now it’s a bit of a theoretical planning tool. But putting a price on carbon would solve — I mean, that’s one of those things, right, that if we can get at least maybe G20 — there’s some discussions around G20 exploring to apply a price floor. But yes, absolutely, I think it’s going to have global repercussions, also the disclosures from global companies as well. And yeah, scope 3, yay.
Ross Kenyon: Yeah, I’m glad you brought it back there. I want to talk a little bit more about insetting and scope 3 before we start heading to the conclusion. I think it’s fair to say that there’s been more skepticism about offsets, and companies, especially the bigger ones, are concerned about the Delta lawsuit and other concerns about carbon neutrality and what exactly it means to take care of one’s emissions, and not wanting to get called for misrepresenting oneself in any sort of legal sense. So it makes sense that insetting and just decarbonizing would increase in relative importance. Also, you should probably start there anyways before going right to offsetting in general. Do you agree with that? Do you think companies are going to be looking more inside their own value chain rather than just going to one of the big offset providers and calling it done?
Lia Nicholson: Absolutely. And I also think a lot of these techniques around traceability — well, traceability maybe a little less so — but monitoring, uncertainty, reversals accounting, this is an opportunity for actors in the carbon market to get more involved in the corporate space, in the corporate accounting. So there’s huge opportunity, and actually having some conversations with satellite providers and others that have built up their capacity and business model for the carbon markets, are very keen to work with companies that are looking for the MRV piece within their value chain. So it might be more of a pivot, more of a repositioning, than a complete change.
The insetting piece is interesting because the way it looks like it will play out in the corporate value chain, it’s more of like this kind of contractual agreement with — I, you know, quantify and enter into agreement with this other player in my value chain, or an external player that’s going to do a project in my value chain, and have that kind of insetting piece. But then ultimately you account for it in an inventory approach. So there’s a lot of — I mean, if ultimately we’re all working towards just bringing down the emissions, and carbon markets have been a way of capitalizing and turning that into a cash flow, there are many different ways that use a lot of the techniques that have been developed in carbon markets.
So there’s definitely a lot changing in the whole space. And we’ve got that mitigation hierarchy — you know, you start with what you can avoid, and you look at what you can reduce and substitute, and then ultimately kind of that compensation is in its place. And we’re seeing now the standards starting to back up this conceptual hierarchy, and how a company should have a credible decarbonisation plan. The other big EU — I mean, a lot of this is like, EU is kind of the, you know, one where we’re seeing the movements happening. EU is also looking at, by, you know, a couple years away, banning carbon neutral claims for its products based on offsetting.
So if we look at where the direction is heading, then offsetting is a kind of a CSR piece. It’s like, it’s nice to do — corporate social responsibility. Like if I think about our own Terrascope net zero journey, right, we’ve measured our emissions, we’ve figured out where we need to act in order to decarbonize our own business. We will look at doing offsets as a contribution to the social good, but we will count our emissions and count our removals without the offset piece. So until we get to a certain level where we’ve decarbonized, we’ve done everything we can, and then we offset — and that’s kind of in line with the science based targets. So yeah, there’s like short term need to kind of get money going to those decarbonization places. But how do we do that while really focusing on those difficult, more kind of potentially transformational actions on reducing emissions? How does that sit with you, Ross? I mean, I’d like to hear your perspective.
Ross Kenyon: No, I think — what do you see? I mean, it’s not as good of radio when there isn’t as strong of a — well. I see it a little bit differently, and this is how I feel. I’m like, yeah, I think people probably should go that way. It’s much harder, turns out, taking stock of your life and your moral failures. It’s easier to just give to charity than to address the failures. So I can’t — it’s not surprising that companies would like a simpler solution. Turns out, though, that, you know, the call is coming from inside the house, and as those therapists like to say, you need to deal with that yourself. So I think it’s good. I think regulation done in the right way can be really powerful.
And we started this conversation about standardization and how important and powerful that can be. And I’m also frustrated with the proliferation of so many standards. I can’t keep track of all of them and which ones I’m supposed to care about, and which one is ascending, which one is declining, which ones I actually need to be tracking, which ones are going to fade into irrelevance in a year. And there’s a desire to have like some strong centralized authority just come out and say, this is the way it should be. I think people forget that there’s serious risk to that too. We had the UN body recently almost discredit all engineered carbon removal as sort of a legitimate pathway to net zero, and that scared our industry very strongly, and saying like, wow, this might be entirely out of our hands and in some centralized body that we have very little access to. So maybe the decentralization here can be protective in a way, and not nearly so chaotic.
So anyways, we’re an unhappy race of conscious entities, humans — by which I mean that we’re just unsatisfied and it’s hard to please us. But no, that’s a rambling way of saying I probably agree with you. I hope you’re right. I hope we’re able to start making progress towards this. It scares me when I see headlines about Antarctica, about heat waves in Brazil. I see things happening that are truly spooky, and we don’t have a lot of time to keep talking about exactly how to do this and how to do that. It’s almost like, can we just get a move on? And the good news is, though, you are right — though, some places you look, it’s amazing, I’m really encouraged; some places you look, you’re terrified. I try to get a good balance of both. Maybe. Can you give us like one — what’s like a dark horse thing that the average person doesn’t know about that you think is really going to swoop in here and have a big impact two, three, five years from now? Because you clearly know so much about this and you’re looking ahead.
Lia Nicholson: Well, dark horse in terms of — unfortunately the way we tend to operate is crisis mode, right? So we saw progress after 30 years trying to get a loss and damage fund. It took $10 billion of losses in Pakistan, which was chairing the group of 130 developing countries. I mean, you can never attribute anything to one thing, but having Pakistan chairing a group of developing countries in the year that we went for the loss and damage fund, that was really one of the key factors that that happened. So we’re all working towards averting crises and cost to human lives and to assets. At the rate we’re going, we know it’s just a matter of time to the next one. And for me, those are going to be the dark horses.
If we don’t get our act together and start to avoid some of these things that we know the signs are telling us is out there, then that’s going to trigger short term focus and push a lot of these things through. Like, maybe that is what is required to get a carbon tax agreed among a group of countries that are major industrialised emitters, and then that will have a reactionary but very short term and transformational impact. So yeah, but in the meantime we do the best to avoid these disasters and crises. I think that’s the nature of environment, is you’re always preventing things from exceeding the — like, we try to prevent this build and we try to do this, but inevitably some of these things make their way through, and then you have to use that focus and window of opportunity to get a major win and change things and have that carry forward. So that’s my dark horse perspective.
Ross Kenyon: Dark — the dark horse perspective. Yeah, it was like a Seabiscuit kind of thing, you know, the horse in the back that comes out and surprises everyone, and it’s good. That sounds like a scary black swan, but also with the silver lining. There’s too many mixed metaphors here. Siobhan, save us. We got to get out of here.
Siobhan Montoya Lavender: This is “save me, save me from myself,” really. Well, Lia, I’m really excited that you’re going to this, what many are considering, disaster of a COP. I’m glad you’re working in Terrascope and helping people decarbonize. Tell the people where they can follow you, and what are some projects you’d like to shout out about Terrascope, or how can people work with you guys?
Lia Nicholson: Yeah, absolutely. So on LinkedIn, on the website. I also run every other month a Climate Cafe, which is — I get to talk to really interesting people. Actually I did one yesterday with Ben Caldecott, who does the transition planning work in the UK. So that’s a great forum to kind of keep up to date with some of the things we’re doing. So definitely reach out. LinkedIn is a great spot, Terrascope. And if anyone happens to be in Singapore or be based here, then, you know, we’re trying to avoid flight emissions, but it’s always good to connect with climate folks in this part of the world.
Siobhan Montoya Lavender: Yeah, well, I’m so glad we got to connect with you today. I hope you and I get to connect in person again soon. Ross, believe it or not, Lia and I graduated the same year. And look at all the cool things she’s doing.
Lia Nicholson: Oh, I know.
Ross Kenyon: So don’t — don’t say that about yourself. I think what you’re doing is—
Siobhan Montoya Lavender: Working on this pod.
Ross Kenyon: Yeah, you’re right. You’re right. Sorry. Lia, do you have a much more impressive — no, I’m just kidding. [unclear], edit this. This is — I don’t want to insult you publicly, Siobhan. Don’t put me in a position to. We’re just really glad to have you on. I hope we can have you again in the future, when we have some of these dark horse events and we see some real action, and have you give us the 101, the 101 about what’s happening. So thank you so much. Keep up the good work, and come again.
Lia Nicholson: Thanks. Thanks so much for having me, and I really enjoy the speakers that you’ve had on. And this is super important, getting the word out and getting the education. So awesome.
Ross Kenyon: Thank you so much for listening. If you could please subscribe and give us a great rating and review on Apple Podcasts, or a rating on Spotify, that’d be much appreciated. It helps us get our content out to more people. You can sign up for our newsletter at nori.com, follow us on social media, and we will catch you next time.
