We typically think of value and ROI in monetary terms, but what about the social value of an investment? Or its environmental return? The field of ecological economics is built around the idea that the health of our land serves as the foundation of our economy, and we know that assigning a monetary value to ecosystem services helps us to be better stewards to these resources. So, how do we put carbon sequestration on the balance sheet?
Full Transcript
Ross Kenyon: Hello and welcome to the Reversing Climate Change podcast with Nori. I am Ross Kenyon here with Christophe Jospe. No producer, Paul. We left him in Seattle because we came to Indianapolis for the National No Tillage Conference. It has been fun. We’ve been hanging out with farmers and people who work with farmers. I feel a tiny bit out of my element, but I’ve been learning a ton. Is that how you feel?
Christophe Jospe: It’s been a delight. I mean, it’s the 27th annual National No-Tiller Conference. Some of these people have been doing it forever. Yeah, they were handing out different pins and plaques for people who’ve been here for 25 years. So if that’s any indication of the commitment that people have to this space, I think it’s pretty impressive.
Ross Kenyon: They’re very passionate about it. I know farmers are known for having strong opinions about the way they do things, and this is not an exception here.
Christophe Jospe: I think day one, Ross and I go down there and we clearly did not get the dress code memo. And I’m kind of even surprised when people are like, are you a farmer? How long have you been no-tilling? Are you just saying that to be nice to me?
Ross Kenyon: We got that vest on. I think it fits in pretty well. I think my blazer was out of place, though. It’s like a big city slicker.
Christophe Jospe: Thank you for sending me an article this morning, Ross. Man’s fun socks do not correlate with his personality. For those who know me and if you’re listening, I generally only wear fun socks. Maybe it’s to make up for my deficient personality. You’re kind of a jerk there though.
Ross Kenyon: Is this you preparing to get me back? Yeah, that was a reductrous article I saw this morning. It reminded me of you.
Christophe Jospe: Yeah, well, I think I was listening to a podcast. There’s like five minutes of banter and it just got excruciatingly long and it’s like, oh, get to the episode already.
Ross Kenyon: The one we got scolded for the worst was the one we talked about fish for a couple of minutes at the beginning. They did not appreciate that. The rest of the team said, OK, enough with the fish. We don’t we don’t need it.
Christophe Jospe: Now this is a meta conversation about that. It’s also too long. Well, I think we are allowed to do that because we have a guest on here who’s actually listened to every podcast episode, which is always jarring when you meet someone and they’re like, I know you. That’s like 40 hours of listening to us ramble.
Ryan Anderson: It’s a lot of long commutes.
Christophe Jospe: It is. Well, you heard his voice. I first got to meet this fine gentleman, Ryan Anderson, who is Strategy Lead at the Delta Institute. I met him in May of 2020. And I think one of the first things he said to me is like, I heard about Reversa Palooza. It’s like, oh, it sticks. Really smart people who know something about carbon markets and creating payments to accelerate Reversing Climate Change know about Reversa Palooza. Cool. It’s working. The movement’s happening. And so, It left me with the impression that Ryan is an incredibly smart guy, very knowledgeable on many different sides.
I would even, for those who’ve listened to the podcast many times and know our colleague Alden Donnelly, I’d say Ryan sort of fits the shoes of a mini Alden. That’s a compliment. We like to flatter our guests, but that’s because he is an economist who knows a whole lot about a whole lot more that has to do with farming and climate change, the various dynamics that go into that. We love economists. Sometimes economists Just get stuck in the clouds with thinking about models and theories and don’t always think about what are the practical realities?
What are the things that need to happen in order for these market incentives to work? Ryan is a good guy with a good hat on his shoulders. So we’ll probably stop with the flattery and pass it over to you. You can now flatter us in return. We’ll exchange. Yes. You can comment on my colorful socks if you’d like.
Ryan Anderson: They are very nice.
Christophe Jospe: It’s true because I don’t own boring socks. What?
Ross Kenyon: I don’t think I’ve ever seen you wear normal socks, no. But Ryan, what is your story? How did you get here? You know the drill.
Ryan Anderson: Yeah, that’s right. And Kristoff and Ross, first I’ll say, thanks so much for having me on the pod. You know, I feel like I’m one of those, you know, the longtime listener, first time caller kind of scenarios, right? But I really appreciate what you guys are doing on the podcast and how you’re using it as a tool to really keep the conversation going. Because one of the things that I found in my work is that Climate change, while many of us, especially like I work in the environmental NGO nonprofit world, we just need to keep talking about climate change.
It’s not just about these extreme stories of the skeptics. Or, you know, deniers as some call them. Or some of these fanatical, you know, the world is ending, climate is collapsing stories. We just have to make it an everyday subject about how we’re wrestling with the issues in our economy, in our society. Embedding it into our cultures and conversations. So that’s kind of an opening statement there. But to get to my story of kind of how I got to be on the Reversing Climate Change podcast is that I grew up in the suburbs outside.
Chicago, born and raised in Illinois. I was a little bit of an outsider growing up and just read a lot, played a lot of video games, SimCity and things like that. I didn’t really know where I fit in the world, but I grew up in a household where my dad worked in financial futures, in the commodity markets. I always had this interest in markets and innovative products. Chicago is a Known or I think was known, maybe it’s less so now because of New York and London, other financial centers around the world.
But really in the 70s when my dad was working in the business, that’s when futures contracts for farmers really became a thing. Like the Chicago Board of Trade, taking delivery on anything from corn to pork bellies to... We had futures contracts, options, derivatives, all these different things. And Chicago was a hub for that activity. So I kind of grew up steeped in that environment, always very interested in it, but not really knowing where to plug in. And so when I went to school... Undergrad as a finance major in Chicago, I wasn’t really satisfied with the curriculum.
And so I kept pushing my professors who I still stay in contact with a number of them. And I decided to propose my senior year in independent study. In ecological economics, I had come across the work of Herman Daly, the co-founder of ecological economics as a field. He’s an American economist and in the late 80s started this field. And then one thing led to another and my econ professor at the time said, all right, here’s a new textbook, let’s read it. And I discovered that there were all these sort of environmental policy solutions that previously were not on my radar at all as just an undergrad business major.
And that’s actually where I learned about the concept of cap and trade and alternative mechanisms to address climate change. And so I became very focused on that through the lens of ecological economics. And in my senior year, I applied to, at the time, the only master’s program in the world in the field at University of Leeds in England. And so I went over to the UK for a year and I was the only American in the school, not the whole university, but the school. And I focused on US climate policy.
And my thesis was about how to design a cap and trade program in the US. So that’s how I came to know the Chicago Climate Exchange, which we’ll get into later. And then eventually, a few months later, after returning back to the States, met folks at the Delta Institute. And I’ve been there ever since, since 2007.
Ross Kenyon: Are you willing to let me ask questions about ecological economics? Are you asking me, Ross? You have my permission. I don’t know how strict you are with the way that you envision this going, but what is it as a discipline and what separates it from economics? Is it an alternative to neoclassical economics or is it a part of it, but they’re just including new information inside of those models? How does it work?
Ryan Anderson: Well, first, it’s actually not a discipline. It’s a transdiscipline. So it’s fancy language in our postmodernist times, but it’s essentially the fusing of ecology and economy. So if you go back in the Greek... Oikos, that’s home, and nomia is the management or care of that home. And so economics itself should actually be interpreted, in my view, as care and management or stewardship of our home. So that picks up on themes that authors like Wendell Berry have written about for years. You have Pope Francis writing the encyclical on the care of our common home.
So that to me is actually what it’s about. It’s grounded in an ecological reality that the economy is embedded in. Within society, which is part of a planetary system, right? At the broadest sense. And so that has implications for how we live with and among nature and other species, and for how we should organize our societies, run our economy. So it’s an embedded...
Christophe Jospe: So does that get in a little bit to some of the ecosystem service benefits and trying to assign monetary value to these things, which don’t usually have a monetary value, but they present a real important function in the way that we go about our lives?
Ross Kenyon: And also when you’re talking about the financialization of various assets like that, I would think some of the people you named might think that’s an inappropriate way to view something like that.
Ryan Anderson: Right. So that’s actually been a very longstanding debate within the field of ecological economics. So the other co-founder, so there’s Herman Daly, and he worked at the World Bank and has had a number of interesting positions over the years. The other co-founder, also an American, is Bob Costanza. And you may be familiar with him, but he wrote a very famous paper in 1997 that was published in the journal Nature about the total value of the So they kind of put that out there as a new concept for people to look at.
What if? Not to just that there’s exchange value and turning trees, cut them all down and turn it into dollars. That’s sort of the reductionist interpretation or argument about that. That wasn’t Costanza and that team’s intent. They were trying to say, this is not currently, these ecosystem services are not on our balance sheets for businesses, for governments, communities. And so we need to account for this. We need to have expanded accounts so that we can be better stewards of these resources.
Christophe Jospe: I buy that. I guess sometimes it gets confusing. I mean, yesterday I was at a talk and it was quite fascinating and learned all about earthworms and kind of coming from the philosophy you can’t manage what you can’t measure and it’s probably… It’s probably quite difficult to measure the total amount of earthworms, but they clearly play this incredibly important function of restoring topsoil, improving the health of the soil, making the soils living, literally, doing all these really good things for them. I mean, you’ve been listening to the podcast, so you know how we’re going about it and we’re not necessarily...
And that is an important way this sort of... Feeling that you get as a human being without using machinery, which is a really important ecosystem service or this ecosphere that we’re part of, but we can’t really measure that, can we?
Ryan Anderson: Or what’s the gray area? How do you draw the line, Ryan? Right. And I know that in a recent episode with Charles Massey, you did talk about the industrial mind versus the emergent mind, right? Right. So that’s one way of thinking about it. So with valuing ecosystem services and the way that it’s been approached in ecological economics, there have been some thinkers. So a lot of the debate, to get back to your question, Ross, is kind of between sort of the American ecological economists and practitioners in the field and European, which those institutions and researchers tend to look at things more in a pluralist sense, which is where I was influenced having gone to school there.
They say, okay, as long as we approach these valuation studies with financial or monetized value being one among many, then we’re not going to miss the forest for the trees, so to speak, and maybe quite literally. There are social values, cultural values, aesthetic values. As long as those are also being accounted for, And it doesn’t necessarily have to be monetary in order for it to be valued. So that’s another approach or contribution that the field has made over the years is that it’s not just about reducing it to a dollar value.
I think that’s actually where there’s a bit of difference between ecological development. Ecological Economists There are parts of that field that we really respect, like looking at how to take externalities, whether they’re positive or negative, seriously, but also realizing that markets themselves are only one instrument among several different ways of addressing complex social and ecological challenges. So we see that to run a sustainable, fair, and just economy, there are multiple ways of getting to those goals beyond just, for instance, getting prices right. It’s getting into culture. It’s getting into behavior and so forth.
And I know, Chris, I didn’t really get into the part about Barry, but I think that the same sort of line applies where – and I’ve read enough of Barry’s work to know that he would be very skeptical of a study that’s saying his – His field, his rocky hillsides, the water quality is worth so many dollars per acre, because he would say, you can’t do that. So I respect arguments like that. It’s just when we’re talking about issues like Reversing Climate Change and trying to do that at the speed and scale necessary, there’s also a role for market instruments and incentives to play to help us get to those same objectives.
Ross Kenyon: Yeah, I have a friend who works in ecosystem services banks and endangered species banks and that sort of thing, trading those types of assets. And I was talking to another friend of mine. She was being very critical of that approach. I think it’s a fair criticism of financializing ecosystem services because there’s this holistic system, right? And you’ve isolated one single variable and you’re saying, let’s maximize this variable and for every increase we’re able to... I think you can end up with too much of a certain variable inside of a complex system and sometimes those incentives don’t actually make sense.
There’s a point at which markets being introduced to this space may actually confuse matters inside of a complex system. This is a classic criticism. Yes.
Christophe Jospe: All that’s to say, we’re building a market and we think about these things. I think what we’re doing is different. Yeah, absolutely. And it’s kind of markets are an incredible way for humans to cooperate. And you mentioned Chicago and the Chicago Climate Exchange and the influence that Chicago has. As a New Yorker, I have to push back and still say New York is still the capital of the world and the best in everything. Yeah.
Ross Kenyon: Why punch down like that? I love Chicago a lot too, but Chicago always strikes me as well. You live in Seattle now, right?
Christophe Jospe: Yeah, we live in Seattle. Hey now, I was building it up to beat it down, but okay, New York, I still love you, but you’re bringing me down. Where was I going with that? Well, okay, so here’s where I was going. Let’s define some terms. You talked about derivatives, futures, commodities, sort of rapid fire, define what those even mean.
Ryan Anderson: Boy, I have to say my finance, my undergrad textbooks have been collecting a little bit of dust lately that hasn’t been at the top of my reading queue. We’re just throwing words around to sound smart, are we Ryan?
Ross Kenyon: You sound very smart, so I will confirm.
Ryan Anderson: I know my limits too, but essentially a derivative is just that. If you have an asset or something that you can put on a balance sheet, like a mortgage, a derivative would be a contract that... Exchanges some value or assigns, let’s say it puts it in a risk pool or something. So that’s a derivative of a mortgage would be something like a mortgage backed security, which in the Great Recession 10 years ago, they obviously got a very bad rap, their credit default swaps. So those are sort of... What I think a lot of people would argue are bad or questionable derivatives, but actually none other than Richard Sander, who co-founded the Chicago Climate Exchange, wrote a book a few years ago called Good Derivatives.
And so what he tried to do was essentially set the record straight and say, there are several kinds, so don’t just throw all derivatives out with the ones that you’ve heard about in mainstream media. That’s a roundabout way of getting to your answer, but essentially there are different classes, but derivatives include their futures contracts, their options contracts. And what I understand of what Nori is trying to do, we were talking at the conference earlier about sort of having that future, you and Alden can explain that much better than I can, so maybe we can go into that.
But that’s essentially a futures contract. If you have a specific contract, Quantity and a specific price that you negotiate between two or more parties in the future, that literally is a futures contract.
Ross Kenyon: Well, there’s some key differences that we’re persnickety about because it’s a forward and not a future. Right.
Ryan Anderson: Forward purchase.
Ross Kenyon: Yeah. They’re related. And I wonder if it goes beyond the bounds of the podcast. Are you bored, listeners? Do you want to hear more about this? Also, we should break down exactly what a derivative is. I think a little bit more. So if you’re trading a derivative of a mortgage, you’re not actually trading the mortgage. Right. It derives from the mortgage. It’s like on top of it.
Ryan Anderson: That’s why in the financial economy, you see that the notional value, as it’s called, of what’s transacted is several times greater. It’s in the trillions that’s exchanged. That’s a number that there literally are not enough assets or even currency in the world. For all of that to be accounted for. And so there’s a lot of notional value and speculation related to those things. But I mean, I’d recommend folks who are interested in the subject to check out Sanders’ book so that you can get that from a financial economist from his perspective.
Because that’s not my background, but it’s something that, again, I said I was kind of steeped in that world growing up, but I wasn’t actually really in it.
Ross Kenyon: And then also we should do this too. For commodities, you’re talking about assets that are fungible with one another. Like one bushel of corn is given a certain grade, is interchangeable with any other.
Ryan Anderson: Right. So like the Chicago Board of Trade, they helped standardize the contract. I think it did happen in Chicago in the late 1800s, early 1900s for like yellow number two. So it’s so many pounds per bushel, it meets, or like for oats, it meets a certain test weight. And so it standardized it so that A farmer who would show up with a grain wagon for delivery, it’s like, well, if you don’t meet these criteria for how many pounds of grain are in what we standardize as a unit of measurement of a bushel, then you’re not going to get the price that you’re expecting.
Or maybe if it’s superior quality, then that’s a different tier. So it’s kind of a grading scheme.
Christophe Jospe: This is all really helpful. And I think one of the persnickety distinctions that we think about, correct me if I’m wrong, Ross, when it comes to forwards and futures, is that a future contract can be flipped multiple times to that future date. So I might own a future, I sell my future to Ross, and it gets flipped, flipped, flipped. Whereas a forwards contract bilaterally contractually obliges to parties that must settle at that date in the future.
Ross Kenyon: I think it typically settles in the underlying asset too. You can’t just buy another contract to offset a forward. You have to accept delivery and provide delivery.
Christophe Jospe: So listeners, you’ve now got the foundation you need so we can start talking about the Chicago Climate Exchange. And I do admit that Chicago does deserve this credit. And it is quite interesting to think about the Chicago Border Exchange. But Ryan, you were kind of there at the beginning with the Chicago Climate Exchange. You also talked about how this was a cap and trade market. Which is slightly different to what Nori is doing. We’ve seen existing cap and trade markets, but we’ve talked about those in previous podcasts. We can link to some where we brought those up.
But that effectively has a cap which gets squeezed over time where by... The emitters need to reduce their emissions. But it’s quite interesting even to be talking to people here at this conference. They were like, oh, you guys are the carbon guys. There’s some people who are trying to do that, I think, around 10 or 15 years ago. It’s like, yep, those are the Chicago Climate Exchange. So it’s nice to be back at... Ryan, so you were in this amazing spot where you were the only American at a British university getting a really cool degree that was kind of like exactly about what this market was setting up.
And you brought up the Delta Institute. We didn’t entirely go into the Delta Institute and what they do and their role. So can you paint a little picture about how the Chicago Climate Exchange got set up and Delta’s role in incubating and driving this market and how it all worked?
Ryan Anderson: Yeah. Again, a lot to unpack there. So I wasn’t quite there in the beginning. The Chicago Climate Exchange, or CCX for short, was started in late 2003 on the idea that the co-founders Richard Sander and Michael Walsh had as two economists who had a lot of experience in financial exchanges and creating innovative products and commodity markets and so forth. They saw what was coming in terms of a regulated future for carbon emissions, for greenhouse gas emissions. And they said, we believe that there’s a role for financial markets to play. And we also believe that we can get sort of a voluntary yet regulatory, meaning that there were compliance measures once a company or a member opted into their Voluntary System, they were actually obligated to fall within the capped emissions and the declining baseline for the membership overall.
And so on that premise, they went out much like you’re doing now to talk with potential buyers and said, we think that this is the future. Would you join us in this program so that we can learn together And create something of a policy laboratory without policy itself. So it was a purely voluntary effort, but it was unique in the world at the time, and I think still is, as a model for how people can voluntarily And what ended up happening is in terms of Delta getting involved and me getting involved is within about two years of the program launching in 2003, There were a class of members within the exchange, the CCX, called aggregators.
Offsets were part of the cap and trade program to help member companies like Ford and DuPont and IBM. There were over 400 members in the exchange at its peak. The baseline of their emissions was Equivalent or surpassing many large countries. They had many millions of tonnes that were obligated or accounted for from a mixture of states and corporations and universities and startups and food processors and so forth. It was a very diverse membership. There were a number of large emitters or industrial emitters and utility power companies in particular We said, you know, we want to make sure that we have mechanisms available to us to contain costs.
So part of designing the cap and trade program is trying to figure out how you can bring in supplemental reductions that are outside the cap, such as from agriculture and forestry. And bring them in to potentially contain costs for members. Brought into a room in late 2005, two years into the exchange’s history or their development. And it was a group of Illinois stakeholders that include major farm and commodity groups, state environmental agency. And they said, we think that there’s a role for Illinois agriculture to benefit from participating in this homegrown program.
So the long story short is that Delta essentially became the aggregator for the state of Illinois. And so we piloted this. And within, I’d say, nine months to a year, we had contacts and contracts for continuous no-till, grass plantings and tree plantings in almost every county of Illinois. We had relationships with local county staff. Soil and Water Conservation Districts. And they were our eyes and ears on the ground because Delta is a small nonprofit based in Chicago. We currently have about 20 staff. And at the time, we really didn’t have a presence in rural America.
And so the conservation districts really helped us get out there and get our message across. And then we started attending conferences about no-till. About different conservation practices and systems and started doing outreach really organically, much in the same way that, you know, Nori is doing now. So that’s, I think, why you’re hearing kind of echoes of what, you know, we were doing 10 or so years ago. Because it’s like now there’s a new opportunity. It’s a different context. It’s still voluntary from the farmer’s perspective, but they see upside potential and they’re very curious about what it might mean in their operation and what they have to do to qualify and potentially get paid.
Ross Kenyon: Everyone’s been very curious and excited here about what we’re doing. The main hurdle that we’ve run into is the quality of data. A lot of farmers have said things like, I wish I’d kept better track of that stuff, or a lot of it’s in my head. But in general, I think it’s a pretty warm reception. They’re excited about it. I know the Chicago Climate Exchange didn’t work out as planned necessarily, but they don’t seem to have lingering beef over it.
Ryan Anderson: Yeah. And I can speak to that briefly. I think the challenge that the exchange faced was that it was mostly a political one where they had strong support from membership. They had several rounds of verification through And Delta wasn’t the only aggregator. So the largest one in terms of acreage was the North Dakota Farmers Union, supported by the National Farmers Union. And they actually, they still run to this day, they have a climate leaders program, and they speak about that experience, about... How they offered something to their farmer members. The Iowa Farm Bureau working on behalf of the American Farm Bureau Federation had a similar program as well.
And so Delta was kind of like a distant third in terms of our acreage because each of those programs had over a thousand farmers each, I believe. A million acres or so each. Delta’s program, we had about 1,300 contracts in 18 states. A lot of it was forestry, but total acreage around 400,000. That’s also why I look back on that and say it was anything but a failure because we were able to get Mass involvement and engagement from a sector, a community of entrepreneurs, farmers that are normally very difficult to reach and to bring into new programs, especially run by people in major city or financial centers who are trying to create markets.
Because I think a lot of farmers- Environmental markets.
Ross Kenyon: Right. Even worse. There’s a lot of conflict between those groups.
Ryan Anderson: Right. So I think that there’s still a lot of kind of fondness or like Hey, if that’s coming back, I want to be part of that. So I don’t think that we actually really burned any bridges. I mean, I will tell you as the person who was running the program, the Delta Carbon program at the time, it was a very sad day when I had to send over a thousand letters out with my signature to all those farmers and forest owners in mid 2011 saying- Oh, you were the messenger. I was the messenger.
But I didn’t get, you know, shot down as they say. Still alive. Right. And actually, I mean, a testament, I think, to the success of the program is that I’ve been able to maintain relationships with, I don’t want to say all or even a majority of them. And of course, there were some people who came back and like, you know, had not choice words, but, you know, it was blunt. Like, I knew this was going to happen or something, you know, and it wasn’t the fault of anybody in Chicago or whatever.
So when I said it was sort of a political failure or that was the ultimate reason, it was because at the time there was a massive climate and energy bill that had passed the House, Waxman and Markey, and CCX and other partners and members were doing some lobbying and they were pushing to have offsets and a strong cap and all of that in there because CCX Mostly existed to say, we can do this. We can come together to solve this problem from multiple sectors, including farmers coming into this. And so we have experience and lessons learned to share with people in Congress.
And then when it went to the Senate, it didn’t go anywhere. I don’t think the bill was introduced, but it was never brought to the floor.
Ross Kenyon: Was this for these assets that were being traded to be treated as alternate compliance mechanisms under cap and trade, something like that?
Ryan Anderson: It wasn’t even so much about the early action and if CCX credits would be fungible in a national, like a federal program. It was more that just all the wind was taken out of the sails. And so what happened, this was in late 2010, 2009 and 10, a lot of the members of CCX started kind of pulling back and saying, well, if Congress isn’t going to take action, then we can’t continue this indefinitely. And I don’t blame any of them for that. And so that’s why I think there’s still kind of some pent up demand because that was 10 years ago.
Waxman-Markey passed in 2008, 2009. And, you know, now it feels like there’s momentum building again, after the Paris Agreement, after you see the US Climate Alliance forming, and more governors that are doing things around the country, acknowledging the role of like the 4 per 1000 initiative and related things that are happening in the US, there’s more momentum building again. And so I think that’s why now is a really good time For Nori to launch, enter into that conversation and while you’re hearing things like at this conference, that people are still interested because that opportunity was there for them and it was sort of taken away from their perspective.
But they’re still on their land trying to do the right thing and believe that incentives will help them improve their system over time.
Ross Kenyon: What should we learn from the Chicago Climate Exchange’s experience? And I hope it’s not the danger of political risk, like regulatory uncertainty is one of those things that, I don’t know, keeps some people up at Nori up late at night. Do you agree with that? I mean, there are things that we can’t predict in the way that digital assets might be treated or new legislation that could come out that could front run some of what we’re trying to do or establish a policy that sort of ossifies the way that carbon removal happens in the future that disadvantages us.
Those are real concerns.
Christophe Jospe: Yeah, I think that there’s a lot that we can learn. And of course, we don’t want to reinvent the wheel. And it’s very wise for us to look about at all of the various pieces. I mean, to get very business school speaky. I think one of the challenges that I understood also about the Chicago And the Chicago Climate Exchange, which we’re extremely dogmatic about at Nori, is that a ton of CO2 removed is not the same as a ton of CO2 avoided. And the Chicago Climate Exchange treated in very much the same way the offsets kind of look at avoiding a ton of CO2 and removing a ton of CO2 is the same, is that you had these things trading locally.
All in the market. And so potentially, we’re able to avoid that by saying we’re only focused on removal, because guess what, you know, while humans quibble about ways to address climate change, the atmosphere is doing a really good job just taking in Morsi. Right, right.
Ryan Anderson: Yeah. I mean, first, I guess, to quickly respond to the avoided versus removed emission- Be careful. You can get excommunicated for this. They do that in Chicago, right? No, no. It’s a friendly town, I think. It’s not quite the New York, get out of my way sort of mentality, right? That’s a myth. I know, I know, right? Anyway, I think within the CCX system, you’re right about the counterfactuals and the tricky language you can get into when you’re talking about avoided emissions in the future. What CCX was doing... With sequestration, those were removals.
It’s just what happened on the other side of the transaction is that it was used in lieu of an emission reduction from a member company that was obligated to meet their emissions allowance, their cap. So it was still a reduction. It’s just what happened is that the net effect was neutral. Whereas what Nori is doing is... Trying to pay farmers purely for removal. And then on the other side of the transaction, it’s not like surrendered for compliance. And I know that there’s more semantic differences. You could talk about negating versus offsetting and so forth.
Christophe Jospe: Just to be semantic, and I had to yell at Ross, I think yesterday, Nori does not pay farmers. Nori enables payment to farmers. We’re just building market infrastructure.
Ross Kenyon: I think Chris is imagining this differently than I remember it. But okay.
Ryan Anderson: Yeah, so what we can learn from the Chicago Climate Exchange, I think, is that you have to get started. You can’t just write a complex methodology and hope that the supply will show up or the buyers will show up. You have to test these things. You have to make them accessible to farmers. The user experience, which I think you guys are doing very well from what I’ve seen, is very important to making it simple and streamlined and minimize the transaction cost and the barriers to participation as much as possible. And CCX, much to their credit, did figure that out.
They also took some heat for how they handled baseline creation and additionality and permanence with length of contract and so forth. It was five years for no-till instead of 100 years like it is in California. And people would say, well, that’s not permanence. We’re not going to get into that today. But I think CCX still stands as one of the most effective models of showing us how you can get participation in the farming and forestry communities at a significant scale relatively quickly.
Christophe Jospe: Yeah, that’s great. So moving us along, you had this great experience at Delta with the Chicago Climate Exchange. You definitely got payment for ecosystem services in the head and thinking about different models that basically enable environmental benefits.
Ross Kenyon: Yeah, I saw you last night hanging, talking about managing nutrients in Chesapeake Bay. Seemingly, you can hang in that too. Yeah, that’s why we call them a mini Alden. Yeah, very mini Alden.
Christophe Jospe: Yeah, seemingly knows everything about that. Yeah. There’s some interesting papers that have come out recently that Delta has published. Let’s see, what should we talk about first?
Ryan Anderson: Well, I think I should say something for a second about who Delta Institute is and what our work is. Oh, yeah. Because I’ve kind of skirted around it, right? It’s not the airline? No, no. That’s why I should say Delta Institute so that if I just say Delta, you might be thinking... So our mission as an organization is to collaborate with communities across the Midwest and help them solve complex environmental challenges and doing that in tandem with economic development and social equity. We take an integrated approach to challenges ranging from, we have six programmatic initiatives, waste reduction, sustainable buildings, resilient communities, land stewardship, where most of our carbon work and water quality trading and modeling work has been housed, regenerative food systems, and green infrastructure.
So those six initiatives, for 20 some people, That’s a big portfolio. And the Midwest is a large geography. So we really have our work cut out for us. And so the way that we get it done is through partnership. So we’re always looking for people to collaborate with, even if they’re outside of the region. So one example, which you’ve alluded to, is the report that we released with USDA conservation innovation grant funding, working with Farmland LP, which is based out in California and Oregon, an impact investment fund for farmland and converting it from conventional to organic and regenerative practices and systems.
And Earth Economics, which is based in Washington state. So that was outside the Midwest geography, but we found that to be strategically important because we were trying to figure out how do you value this on sort of a self-contained, a microcosm, if you will, of farmland where you have lots of data over the years and a motivation by the farm management staff to figure out What the balance sheet looks like from an ecosystem service perspective. And so we were able to quantify that and show that in addition to the financial returns of the fund There were also all these ecological returns that had dollar equivalent values, but we also noted things about improvements in biodiversity, pollinator habitat, and so forth that are more of the aesthetic and other values that I was talking about earlier with ecosystem services.
So that’s really part and parcel of what we’re trying to do at Delta Institute is to figure out those ways to pilot innovative ideas and help with partnerships, take them to scale. And potentially even turn them into social enterprises or businesses so that they can reach the mainstream.
Christophe Jospe: That is a tall order. And we always love small committed organizations that punch way above their weight. It certainly sounds like Delta is one of them. Are you ever in board meetings and they’re like, what’s the Delta here? Does that ever happen? You guys get meta on that level? Yeah, maybe.
Ryan Anderson: Maybe not meta like you did at the outset of this conversation, but yeah, we’ve heard that.
Christophe Jospe: So to go back to this report, I think it’s a very hot button topic for impact investors to say, all right, I want to put my money to doing the right thing. I want to see the returns. How do I estimate? I thought it was quite interesting that the comet model is involved some So it’s really nice to say, hey guys, like we’re all on the same team and want to improve this model by feeding it more data. And the more that the world can kind of beat to the same I want to take this a little bit if you were to put yourself in the shoes of an impact investor or think about an impact investor listening to this who is trying to say, hey, I’ve got this money.
I want to put it to making the world a better place. I want to see a return on it. How might you advise them to go about thinking to even start addressing this problem?
Ross Kenyon: Well, let me let me add in here real quick as an addendum to this. I’ve had friends that worked for a long time at nonprofits. And the problem of measuring your outcomes is one of the hardest things as far as I’m aware. And there’s a thing called I believe it’s called Goodhart’s Law. And it’s like basically when you start measuring something, people start maximizing that thing alone is So like it isn’t like how many student leaders you get involved. It’s how many people you can pack into a conference independently of whether or not those actually convert into people that you need to be in the organization for a long time.
I’m sure you see stuff like that and impact investing too. It works through proxies now like ESG. Right. It’s like, I don’t know. Environmental social governance. There we go.
Ryan Anderson: That’s right. I deserve that. Yeah. And, and I normally speak in acronyms. So this has been a little bit of a challenge for me today. You’ve been well behaved. Yeah. Thank you.
Christophe Jospe: Yeah.
Ryan Anderson: I, you know, I’ve, I’ve been able to practice and internalize it from listening to, you know, I almost don’t like it.
Ross Kenyon: You already, you already know where we’re going to go.
Ryan Anderson: No, I don’t. This is not like inception here or anything like that. Anyway, so on the impact investor question, we’ve worked with a number of them and including advisory firms. And actually out of the Farmland LP report, they did start getting some requests from family offices and others. You’d have to have Craig Wishner, the co-founder and director of Farmland LP on to speak to the details of that. But suffice it to say, I think that there’s interest in investing in Something real. In farmland, forestland, natural systems, ecosystems, landscapes, that’s a real asset to invest in.
And for a long time, I think the relationship has started to break down a little bit lately. With drops in commodity prices and so forth, there are longer term trends, but farmland has been something of a hedge against the rest of the market. Meaning that if stocks, equities, bonds are up, farmland might return lower, but then it could flip so that when stocks and equities and other asset classes are down, Farmland stays stable because the old adage is we’re not making any more of it. It’s a fundamentally scarce and I would argue invaluable resource.
It’s so valuable you can’t put a price on it. I think there’s a role for impact investors to support people, especially when we’re talking about regenerative agriculture and soil health management systems, to deploy their capital in ways that create real value on the landscape and also a financial return. Now, sometimes that’s in exchange for a longer ROI, return on investment horizon, or maybe a below market or slightly lower return. Return, financial return on your investment, but it’s a way of diversifying your portfolio as well. So I think that the argument to make to impact investors or advisors is that this is a space that has a lot of potential, but there’s not currently enough capital deployed in it and focused on how do we make these continuous improvements in soil health, which is a real asset.
And that’s actually the foundation of our entire economy is the health of our land.
Ross Kenyon: You sound like a physiocrat now.
Ryan Anderson: Yeah. I mean, let’s get into it. Henry George and Kessnay. No.
Ross Kenyon: Farther back. We’re going to France. Yeah. 18th century. Yeah. Okay. What else? We’re kind of running up near the border of how long we like to keep it, though. I’m sure we’re going to speak many more hours today. Is there anything we should close with? Anything else that you guys want to say?
Christophe Jospe: Let me rephrase that question. Ryan, take us home. What excites you about where you see this place going? Put a crystal ball in your hands. What do you want to see? What’s the future that you want to manifest here?
Ryan Anderson: I would like to see with the pilot Nuri is launching for there to be networks or nodes across the country and North America and eventually the world, give this some consideration and to realize that no matter where they are on the spectrum of their conservation systems, There’s a place for them to join and potentially to benefit. If you have a little patience and can think out beyond your next harvest, because we’re talking about some multi-year commitments, it’s not forever. But the upside, I think, is potentially significant. And there’s not a lot that farmers have to lose, especially in these times where their margins are very thin.
There are a lot of challenges out in the rural landscape. I think that this isn’t the only way out by any means, but it’s a helping hand or a boost that can maybe help make the difference to keep somebody on the land and continue farming the way they see fit and that benefits the land. I think that there’s a lot of potential for Nori to be part of that conversation. It won’t be the only one out there. And there’s a lot of work that’s been done by other groups over time to also account for.
But I think now is the time to go back out there into the community and introduce this concept and see what kind of traction you get and uptake. And hopefully that makes a difference in terms of bending the curve on emissions.
Ross Kenyon: Great. Well, thanks for being here and for listening to the entire show. You’re like a scholar of Christoph and I’s inane comments now. Yeah, referencing things that we once said offhand like a year ago. No, it’s been fun. Thanks for being here and being a Norway supporter. If you’re listening, you like what we do, please give us a good review in your app, share our content, get this podcast out there into the hands of people. And thanks for being here.
Christophe Jospe: And if you’re a first-time listener, welcome on board. It’s nice to have you. Please subscribe.
Ross Kenyon: Yes, also that.
Christophe Jospe: Okay, bye-bye for now.
