In the last five years, an enormous amount of effort has been put into technical and scientific innovation around carbon removal.
But what about financial innovation?
How can we create more opportunities to finance carbon removal at scale? And what does innovation look like in carbon removal markets?
Peter Olivier is Head of New Markets at UNDO, a company that uses enhanced rock weathering to achieve carbon removal at scale.
On this bonus episode of Reversing Climate Change, Peter joins Ross and Siobhan to describe the UNDO process, discussing the source of the rock UNDO uses, and why they partner with farmers to spread crushed rock on cropland.
Peter shares his take on the forward contract basis of the CDR market, exploring ‘the uncomfortably large amounts of money’ we need to scale and how we might make CDR forwards contracts more fungible.
Listen in for Peter’s insight on innovating CDR markets through donor-advised funds and find out how we might be able to influence the future by creating opportunities to finance carbon removal at scale!
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Carbon Removal Newsroom, the news show that ran alongside this one, is over. Its episodes are still up, on the feed Climate Workers Anonymous now uses.
Carbon Removal Memes is still going.
Resources
Neesha Mirchandani on Reversing Climate Change S3EP35BONUS
Full Transcript
Alexsandra Guerra: 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.
Ross Kenyon: Hello and welcome to listening to the Reversing Climate Change podcast with Nori. I’m Ross Kenyon. I’m the, I almost said lead strategist, which was my ambiguous title several years ago. I’m the creative editor here now. I’m also one of the co-founders. Nori is a carbon removal marketplace in Seattle and with me as she often is Siobhan Montoya Lavender. Hey Siobhan.
Siobhan Montoya-Lavender: Hey Ross, how’s it going?
Ross Kenyon: It’s going well. You might know Siobhan’s work from Thanks a Ton, where she’s also engaged in very interesting, creative communications work within the world of carbon removal. Thanks for...
Siobhan Montoya-Lavender: I feel like you just elevated my work there. I like that. It is creative communications work.
Ross Kenyon: I mean, what else could you say? It’s a way of... I also say with like some e-cards and like e-cards... Yeah.
Siobhan Montoya-Lavender: I feel like when I want to downgrade myself, I’m like, well, I’m like a retailer of carbon removal in the e-card genre. But then you’re right. I do believe that there’s something more potent about communicating and making it personal for people.
Ross Kenyon: As someone who works in communications, you have to constantly pat yourself on the back because other people forget to. They think what we do is invisible and not important, and they’re secretly right, but we can’t allow them.
Siobhan Montoya-Lavender: False, Ross. They don’t know what they’re talking about. We are the glue. We are very lucky today. We have Peter Olivier, brother to Laurence Olivier. Horrible joke. His name is Peter Olivier. That’s actually right. It’s spelled Olivier.
Ross Kenyon: It’s like physically impossible for them.
Peter Olivier: I’m 90 some odd years old, but it’s lovely to join you from what was almost certainly the past.
Siobhan Montoya-Lavender: And Peter Olivier is the head of new markets at Undo, which if you haven’t heard of, is a pretty rad enhanced rock weathering product developer at CDR. So we’re very happy to have you with us today, Peter. How are you doing?
Peter Olivier: I’m doing great. Thank you, Siobhan, Ross. Pleasure to be here. I’m a longtime fan of your show. It’s... You know, just remember to kind of snap your fingers if I get stage fright here.
Siobhan Montoya-Lavender: Do you go by Peter or Peter, by the way? I feel like people I’ve heard have called you Peter. Is that great? Yes, people do call me Peter.
Peter Olivier: I don’t care. That I think is, I think, unnerving, but I actually don’t care what you call me. Just feel free, just kind of whatever you got.
Siobhan Montoya-Lavender: Peter Olivier, it is.
Ross Kenyon: Peter Olivier. Peter Olivier. It’s like such an American, shortened, and then we’re back to the problems of being a Franco-American again. Yeah. Your quip, I wish I made it on. He said, ah, since the times of Lafayette, it’s been so challenging.
Peter Olivier: Great. Yeah, a legacy. A legacy we won’t soon live down. Such a great quip.
Ross Kenyon: Why don’t you start by telling us about what you’re doing? What does Undo do? What does Undo do? Assume someone doesn’t know anything. What even is enhanced rock weathering?
Peter Olivier: Sure. All right. So enhanced rock weathering, we’ll start there, is the acceleration of a natural process of rock weathering, right? It’s one of the primary geophysical levers that we have on the atmospheric carbon. So what I mean by that is when it rains anywhere in the world, a little bit of carbon dioxide dissolves in the water that falls. And when it falls, that rain falls on rock. The little bit of dissolved carbon dioxide is acidic. In many places in the world, especially places where there is volcanic rock, the rock that is exposed to the air is basic.
Without going into full Chem 101 here, an acid and a base They often generate a chemical reaction, and that generates, in the case of this process, carbonates, which then capture the dissolved carbon dioxide and take them from the atmosphere and move them down into the hydrological cycle and then out into the ocean. That’s the standard process by which natural rock weathering helps capture carbon from the atmosphere. Enhanced rock weathering is obviously the acceleration of that natural process. We buy crushed up rock from aggregate companies We spread that rock, which we both choose quite specifically for its weathering potential, but also to make sure that it doesn’t have lots of toxic metals or things that we don’t want in our soil in it.
We work with farmers and members of the communities that we operate in to drive the rock around, spread it on fields, and capture the carbon faster than it would otherwise happen. So that’s kind of very quickly what Enhanced Track Weathering is. And Undo is a UK-based company that focuses on Enhanced Track Weathering. We’ve been around for a couple of years now. And my role in the company has been a lot of different, a bunch of different things. But at this point, I’m helping work to scale up our work from a financing perspective.
How do we, if we’re going to reach gigatonscale, we’re going to need new tools and better tools for scaling the market and scaling our work. So that’s kind of the locus of my work.
Siobhan Montoya-Lavender: Can I just say I really like the way you just described Enhanced Rock Weathering because I actually started a mineralization learning group in Air Miners because I wanted to become more savvy about this topic and we spent so much time kind of digging into the nitty gritty and I So when everybody asks me what is enhanced rock weathering, I’m like, well, the carbonic acid. And I break it into all these obscure, irrelevant parts. And I feel like I just got a little lesson in how to be more clear and communicative about what enhanced rock weathering is.
Because it is kind of odd and complex. And most people don’t fully understand it. But I feel like the way you described it there, had I been a layperson about this, I would have been like, okay, I see the general flow here.
Peter Olivier: I think you’re right that it is both quite simple and quite complicated. Like most open ecosystem forms of carbon dioxide removal, there are aspects of it that really just make sense. This is a process that happens over millennia to big rocks, and they slowly break down into small rocks, and that captures on the order of half a gigaton every year. And that’s part of why it’s like, oh yeah, lots of different complicated things happen. There are interactions with plants and fungi and the temperatures and all these kinds of things really do matter.
And at the same time, the basic core concept is like it’s raining and there’s a little bit of dissolved carbon dioxide in the rain. That’s kind of it.
Siobhan Montoya-Lavender: Asa Kamer, who unfortunately couldn’t be here with us today, but actually just yesterday dropped a really great meme kind of on this topic. Which we should share for you at some point. It could be now or later, but it made me chuckle. No, this is the one with the beach with the guy that says he’s... Here, let me just share a screen really quickly and we can get your feedback on this.
Peter Olivier: Amazing. I like that we’re fact-checking memes now.
Siobhan Montoya-Lavender: So this is me making rocks out of air and it’s a guy falling on a sandboard. My friends working on established climate solutions. And I feel like enhanced rock weathering kind of falls. This is a little jovial poking fun at enhanced rock weathering.
Peter Olivier: Yeah. I mean, at the same time, this is totally how I feel. I’m like, this is something we are capable of doing, y’all. I think one of the fun facts about enhanced rock weathering that I don’t think people pay a lot of attention to is that people get really excited when you’re like, oh, gigaton scale, we’re going to do all this stuff. And It’s almost like we ignore the fact that none of the things, or at least most kind of CDR methods are not at gigaton scale. And crushing rocks is totally a gigaton scale.
If you look at what humans are, if you were like an alien descending from... I’m going to reveal the locations. No, I can’t do that.
Ross Kenyon: Oh.
Peter Olivier: If the aliens coming down to Earth and they were to look at just on a volume level, like on a mass level, what do humans do? The answer would almost certainly be like push rocks around and cut down trees. That would be like, that’s kind of like how we roll. The global aggregates market, which is like crushed rock market, is a 40 gigaton a year market.
Unknown speaker: Oh, 40?
Peter Olivier: Yeah, totally. 40. And like for an idea of scale, and obviously it’s, you know, what we’re talking about is not dollars, but tonnes. But the global oil and gas market is something like four gigatons a year. So we’re talking like 10 times the weight of what everyone thinks is iconically the largest thing we do. It’s just this huge, huge market. When we talk about, oh, we want to scale these things up and gigaton scale is actually maybe a reasonable thing to think about. It’s like, yeah, in an aggregate market, if you were to produce four gigatons of crushed rock and spread them around, that would be a big year for the aggregate industry.
But it wouldn’t be, it would just be like, oh, an extra 10%, which is just a wild way to consider the kind of maybe Sisyphusian task of pulling down 10 gigatons a year of carbon dioxide.
Ross Kenyon: Does this rock already exist? Does this aggregate, is this a waste product from something that already exists? Or do you have to send out miners or diggers looking for something else here? I’ve heard people say the term ultramafic rocks.
Peter Olivier: Yeah, ultramafic rock is a thing. There are lots of different aspects to that question. I guess the first part is like, is it all there? Yeah, it’s all there. When we talk about aggregate industry, one of the key, I think, really interesting ways to think about aggregate versus, say, mining is that with aggregates, your goal is to get a good enough substrate for doing things like construction. So therefore, it’s really important that you don’t drive it really far because you’re looking... To get a large amount of something relatively close to where you need it.
So the aggregate industry is an extremely distributed industry. For example, you don’t have massive pit mines the size of the iconic copper or whatever mines that you see. Because the point isn’t to try to get the perfect rock that has this specific attribute. It’s to get it, relatively speaking, near where you need it. So the world is covered in quarries. And I grew up swimming in quarries. There are quarries all over the place. They represent quite a different thing.
Ross Kenyon: It might be Laurence Olivier’s brother. Did you grow up 70 years ago?
Peter Olivier: Back when I was a child in 1925.
Unknown speaker: Were you in The Outsiders by the chance?
Peter Olivier: No.
Siobhan Montoya-Lavender: Wait, what are you doing swimming? Why are there swimming holes in quarries? Are you swimming in dust here?
Peter Olivier: So far, I’ve made allusions to being both an alien and a famous dead person’s brother. It’s good. It’s going well. So there’s just an aspect of the sourcing of rock, which is hyper-complicated in that all rock is slightly different. It’s not a homogenous thing. But it’s also quite simple in that this is something we very much do. And we look for the best kind of rock that’s best suited to our needs. So weathering rock, rock that weathers quickly, rock that weathers the right kind of minerals so that we’re making sure that we don’t hurt farmers’ land and so on.
But also, we’re not trying to do a new thing, right? This is one of our core competencies as a species. And so, yeah, the rock is out there. And if you wanted to operate, if you wanted to dial up billions of tonnes of removals, like, yeah, you’d absolutely have to crush net new rock to do that. Right. And I think people can get scared about that. But I think it’s, you know, I think there are tradeoffs in our work in climate. And I think that this is a reasonable tradeoff to make because we’re the goal is not Extract a specific mineral from a specific place and create all these kind of wild externalities that we don’t intend.
It’s can we do this in a really distributed fashion in which the people that own the quarries are local people in small towns. The people that do the quarrying work are part of rural communities. The people that spread the rock in their fields are local farmers that are going to benefit from the work that we’re doing. And so there’s an aspect of this in which it’s kind of what I’m hoping is that this provides a way to get to a more decentralized, achievable CDR pathway that allows scale, but also for it to operate in places that are traditionally rural environments.
Ross Kenyon: Why farmland?
Peter Olivier: So if you have to spread rock someplace, and you could theoretically spread it anywhere, as you get back Better at doing things theoretically, you could move to harder environments, maybe hilly, rocky locations, smaller, more distributed fields, et cetera. But the easiest thing to do, and the thing that is easiest for us to leverage existing relationships and partners, So we don’t have to invent a lot of tools and toys and explain things to people. We say we can go to people who know how to do this stuff and ask them to do it, which is great.
That means that we have a lot of leverage on the existing infrastructure that the world has built.
Siobhan Montoya-Lavender: It seems very high functioning and very anticlimactic. Like I’ve seen some of those videos of rock dust being spread on agricultural lands. And it, you know, it just looks like there’s some guy with a tractor and there’s some, some dust behind him. Like, you know, and you’re like, there it is. There’s, you know, there’s the future, you know?
Peter Olivier: Yeah, it is. It’s hard to generate the kind of equivalent to like a super sexy thing. Science scene in a lab and there’s injection things happening and cool compressors and all kinds of awesome equipment, stainless steel. That’s really fun to look at. At the same time, it is really fun to have the people that are in our network that we get excited about be like a random farmer in Washington State. Yeah. Or like a guy who drives trucks around. You’re like, hey, you’re like participating in the carpet economy. That’s kind of cool.
Ross Kenyon: Yeah, counterpoint. She thinks my tractor’s sexy.
Peter Olivier: Oh, this is true. Wow. You said you did communications, Ross, because I think that there’s an opportunity here.
Ross Kenyon: I was made for this show. Is there anywhere else that would have me in the entire world?
Peter Olivier: I think, gosh, I really feel like there’s an almost inevitable, she thinks my tractor’s sexy, like holiday video coming from Undo.
Ross Kenyon: Let us know. I’d be happy to view such a thing. Yeah, star maybe.
Peter Olivier: Yeah.
Ross Kenyon: Is it good for the soil? Is it neutral for the soil? Is it in some cases one or the other?
Peter Olivier: I’m not a soil scientist here, so I want to plead... So it’s hard to answer specifically because soils are heterogeneous. And the rock that we use is heterogeneous. And the crops that are planted on those soils are heterogeneous. And the interactions between the microbiome and those crops and the weather and the temperature and all these things, it’s going to be different in every place. So I don’t want to make a promise from where I say, in every field where we do enhanced rock weathering, X thing is going to happen. You’re going to have a distribution of outcomes, and it’s almost assuredly we’re going to find some places where like, oh my God, we got these crazy, amazing yield increases, so great, and also places in which people say, well, I really didn’t see much of an effect, or actually maybe it hurt yield a couple percent.
I don’t think either of those outcomes are likely. The kind of median outcomes that we see are slight increases in yield proportionally to the level of degradation of the field. By degradation, I just mean, does it have a lot of nutrients? Does it have a lot of micronutrients? Are those things plant available in environments where the soil is in pretty rough shape? Putting down enhanced rock weathering, specifically the kind of rock that we look for, can have a really significant improvement in the quality of the soil microbiome and the availability of certain micro and macronutrients.
That can result in yield increases. That’s part of what we talk about when we go talk to farmers. I would say this isn’t necessarily a thing we’re coming up with. There have been people doing remineralization or putting rock dust down on farmland probably since the 70s, but it’s expensive. If you can’t sell carbon credits, you’re grinding and transporting rock just to put it down in your field. It’s probably easier and cheaper to use DTAP or some of the other standard fertilizers on the market. The opportunity, I think, is if you were to look at how the fertilizers that are delivering nitrogen, phosphorus, and potassium, those are your main macronutrients, the work that we do does not deliver any additional nitrogen.
There’s no nitrogen in rock. You can argue that the soil microbiome improves and helps the plants capture nitrogen, but We can’t make claims in front of farmers that we want to say, okay, this is exactly what’s going to happen. That’s going to take time before we have those ideas. If you look at the way chemical fertilizers put down, it dissolves relatively quickly. It’s intended to be water soluble so that it can be plant available. And so it happens, you know, all these, and the same thing with lime, these kind of, you get a lot of output of whatever those things are, right?
When quote, the plants need it. But you also get a lot of runoff. So this is why we have a lot of phosphorus and potassium and extra nitrates in our water sources. And why when people spread Lyme, you see a big change in pH in local water systems if it rains right after. If you were to imagine, the rock that we’re putting down breaks down much, much more slowly. So while you can put down a lot of really amazing fertilizer benefits and all these kinds of things, it’s just on a time release.
So you’re much less likely to see a huge impact on the soil over a really short period of time, like intra-season. But it allows you to build up the stores of micro and micronutrients in soil over time. And so you can end up with healthier soil and more productive crops. And hopefully in time, we’ll be able to prove in a rigorous way, in a way that a farmer can trust, this is how you can then adjust the mix of fertilizer that you’re putting down in your soil. So I would say, yeah, roughly it’s good.
Otherwise we wouldn’t do it, but it’s good for roughly good for soil. At the same time, it’s an open ecosystem. And so I’m sure there will be one scenario in which it didn’t benefit the soil. And obviously what we’re trying to do is minimize those types.
Siobhan Montoya-Lavender: Listening to you talk about the heterogeneity of all the various components, whether it’s the microbes and the soil and the weather and the location, gave me a little MRV monitoring, reporting, and verification, like nausea. How are you guys tackling MRV? And has it been really challenging in different ecosystems? Yeah.
Peter Olivier: Yeah, so we have a whole team that’s focused on this. And so I don’t want to misconstrue their work because it’s really interesting and I think important work. So I think part of me wants to say, go talk to our science team because they’re really legit. Part of me wants to just be like, we’re basing our MRV on mesocosms. You take soil samples in a field, you control the environment that they’re in, and then we measure the inputs and outputs of that soil column, that mesocosm. That allows us to generate an expectation around What we think we’re going to see given our model of this is the soil and pipe and temperature and amount of rock we put down and the geochemistry of the rock and so on and so forth.
Here’s alkaline byproducts that we expect to see in the soil column. Here’s how we’re going to measure it. Here’s what the model says and here’s what our mesocosms say. We’re standing up a whole bunch of that work. Those results are ongoing. I don’t want to speak to the preliminary results, but that’s the process by which we’re going through to do MRV. We’re also doing how much we credit is going to be related to the results we actually see in the MRV process. Also, the modeled result, which is a Monte Carlo simulation that says, given these circumstances, what do we expect the carbon capture to be, total net carbon capture to be?
Obviously, we’re using an LCA and all those things to make sure that we’re only issuing credits for the net change. That process is, okay, can we draw a line based on a set of field circumstances, expectations of the kind of weathering that we’ll see under those conditions, and then can we discount so that we’re being conservative on the timeline that happens under? Then we credit against that. I would say MRV and enhanced rock weathering, and as with all open ecosystems, is something that we’re seeing a ton of progress on, but I do think is one of the core challenges of the field.
Unfortunately, I don’t think we solve this by just waiting. I think we go do this work and we keep our business model and our evaluative structures open enough that we can adapt as we get more feedback on, okay, this is exactly what it looks like in this environment with this field. This is what it looks like in irrigation in this type of environment. This is what happens when a farmer plants this kind of crop or treats their field in this kind of way. So I expect that kind of the driving down of variables over time is the goal here.
And there will be a balance there between, you know, getting more certainty of the places that we operate in and expanding to new places and dealing with uncertainty around, you know, okay, what’s it going to be like in a new country or a new type of climate? And, okay, you got to work your way up the level of certainty there. And I think that’s natural. You know, I wish we could say this is exactly what is going to happen 100% of the time. We’re 100% sure. I think the real answer is, yeah, we’re going to find out and we’re going to be reasonable about what we’re selling and the promises we’re making to our customers.
Siobhan Montoya-Lavender: That sounds like a mantra for the industry in general.
Peter Olivier: It’s like a really milquetoast take. It’s like, hey, you guys got to be really careful. We got to keep doing good science. I don’t know. That’s the truth.
Ross Kenyon: We’re clearly torturing you, Peter. Let’s get you into this marketplace analysis, financial opportunities, funding mechanisms, because everyone’s obsessed with this. Nori, in fact, you and I should probably just talk offline because I’ve been thinking a lot about this too. What is happening in this space where seemingly there’s no immediate supply, everyone is looking towards the future and financial instruments to enable carbon removal purchases to happen, given that there is no supply available? Why don’t you introduce this topic a little bit and how you’re thinking about how to position a company within this landscape?
Peter Olivier: Yeah. Okay. So I think there’s, I don’t know, I’m curious how you guys think about it too, but I guess I like some of the scaffolding I use for my thinking around this is basically, first of all, a lot of people are thinking about the market in a way that I don’t think corresponds with reality. So the first thing is that there is like a carbon market, a CDR carbon market where what you’re trading is carbon and I just don’t think that really exists. Maybe there are very small tonnages that are actually being delivered and traded and bought, but basically the entire market operates on a forward contract basis.
Companies are selling forward carbon or they’re selling over-the-counter forward contracts for carbon.
Siobhan Montoya-Lavender: Particularly for our listeners to outline, particularly for carbon removal specifically. Yeah, sorry.
Peter Olivier: I’m talking exclusively about carbon removal.
Siobhan Montoya-Lavender: Yeah, a lot of what you hear about these credits that you’re buying, those are oftentimes avoidance credits. Those are oftentimes not the type of credits that are actually actively removing existing molecules from the atmosphere and storing them in the biosphere or lithosphere in a new additional way. Yeah.
Unknown speaker: Go ahead, Peter.
Peter Olivier: Yeah. Well put. The thing that you see in the CDR market is that when people say, oh, they bought 100 tonnes or 1,000 tonnes or 10,000 tonnes, that is very rarely the case. It’s almost always true that they bought a promise of delivery of those tonnes at some point in the future. So if you look at some of the major sellers in the market, in their terms of delivery, they’ll say, we’ll get this to you by 2028 or 2026 or whatever. Yeah. And so I think there needs to be coming to terms with the idea that the CDR market is a forward contracts market.
And so we need to build the tools and infrastructure to scale, not a spot market where people can trade carbon that already exists, but we need to build out a way of scaling the forward contract market. We need to figure out ways to do that reliably. We need to figure out ways to do that at scale. And we need to, if we’re going to keep our eye on the 10 gigaton annually goal, we’re going to need ways to do this at really, really, really huge ticket sizes. Uncomfortably large amounts of money, effort, and time, and so on.
Our company, we’re doing all kinds of great stuff and we’re scaling up and we got some new announcements of sales that will come out. It’s really exciting numbers. At the same time, in the context of actually achieving our climate goals, they’re just tiny. They’re just tiny volumes. And if we’re going to mobilize the amount of money, it can’t just be an equity rounds of cool CDR startups.
Siobhan Montoya-Lavender: Wait, that’s not enough? The problem isn’t solved?
Peter Olivier: Sorry to blow your minds here. Please sit down for the rest of this.
Siobhan Montoya-Lavender: My goal for life should not just be to get frontiers interest.
Peter Olivier: Yeah, but really, I mean, I think we’re going to need a whole different level of financing because there’s not an open market where you can see how much carbon costs and particularly all the different types of carbon costs. It’s really hard to go out and get project financing at big scale because people want to know, okay, this thing that I’m going to get, if you go get project finance as opposed to selling to a corporate and a forward contract, the financier is going to say, okay, is this going to make me money?
And right now, the market can say, okay, well, we think the price of carbon in the future is going to be X. But really, we have very, very little data about what that’s going to look like, and especially very little data of the type that is convincing to, I would say, investment bankers and typical project financiers. And so while scaling the over-the-counter forward contract market is kind of the first priority on any CDR company’s list right now, it also doesn’t kind of give us the infrastructure that will allow us to bridge to gigaton scale financing.
That’s the framework of the problem as I find it. I’m curious how you guys think about it.
Ross Kenyon: Nori started and we very much wanted to create a spot market that the price at which carbon removal was trading within a certain time increment would become a reference price globally for carbon removal. Turns out that there’s enough liquidity or supply to even make this a possibility right now. And many of the benefits of having commodity market and derivative market scale are unavailable. Like the difference between futures and forwards, for instance, here are important, right? Because forwards have a specific product being delivered to a specific customer. Futures are not like that.
They’re much more abstract and removed from that process. And most, most futures do not result in delivery being undertaken anyways.
Siobhan Montoya-Lavender: Why don’t you talk about the difference between futures and forwards for the people who might not know.
Ross Kenyon: Peter’s probably better at doing it than I am. Why don’t you give it a crack?
Siobhan Montoya-Lavender: Because that concept, I feel like when I first came up against that, that really threw me for a loop. And so I’m sure some listeners are confused about this as well.
Peter Olivier: Yeah. So I’m not going to do as good a job here as someone who has been to business school would. So I don’t know, you know, volunteer yourselves if you’ve got that MBA.
Ross Kenyon: I thought I was setting you up to like smack one out of the park. Is this not actually who you are?
Peter Olivier: So I think that the easiest way to think about it is a promise of a commodity product at a future date. And so futures are used frequently when thinking about things like Brent oil or wheat or a commodity product. A forward contract is much less of a financial vehicle for our intention and it’s quite specific. It’s almost exclusively bespoke. And it references a specific subset. So it’s not just wheat. It’s wheat from a specific farm in a specific tonnage sold to a specific buyer at a specific price. And there are often other conditions that are laid on top of that contract.
Who’s going to pay when, what happens if you don’t deliver, etc. Whereas futures depend on spot markets. For example, buy a future of $1,000. Tonnes of weed on a futures market and someone doesn’t have it, they have to buy it on the stock market and deliver it to you immediately. It’s all structured as much more in the realm of stock markets than it is a representation of a contractual agreement. So that is how I think about it. There’s probably some traders right now with their hair on fire, but that is how I see it.
Ross Kenyon: At your or my comments, it’s unclear which, but yeah, obviously if you want to get to something like carbon removal at scale, I think the original vision of what Nori was trying to do was trying to serve that where you basically need something like pork bellies moving huge. And obviously anything being a bespoke is a huge burden. Custom anything like this takes more time for any field. It’s difficult. It’s opaque. Things like that would probably trade over the counter, which means it’s not actually in many cases visible to people trading.
It’s not like you go to the stock market, you can see buy and sell orders over the counter is usually a special area of a trading office. I’ve never personally interacted with it. I’ve only studied it. Do you even agree with that characterization? Clearly, we’re in over our heads. Help us, Peter.
Peter Olivier: I think that’s right. I also think that some of the key pieces of what you’d want in a market, especially a market that you want to build confidence in, are missing. When you see a CDR company announce a new deal, it’s an OTC contract they’re announcing and a forward contract they’re announcing. They’ll give you volume, sure, but they will not give you price. What is this stuff worth? That becomes a continually difficult question to answer, especially as the markets grow and move around. I think that generates uncertainty for people who would be happy to do financing if they were able to understand what the actual economics were.
It’s opaque. It’s opaque. Can you make this deal? Who knows?
Ross Kenyon: Not only is it opaque, but also the terms of each deal because they’re bespoke are not fungible against each other. So you couldn’t, you have to say like, well, this is good for, this is 100,000 tonnes at this amount of permanence, this amount of risk, whatever, but you can’t just like You can easily compare that against another forward contract in some way that is as simple as buying pork bellies, where you don’t really care too much about anything else, except that it’s a pork belly within these really simple characteristics. So it’s not like you can say that there’s a huge amount of volume that is at a certain quality, ready to be bought or sold or has been sold.
You can’t make future plans around it. And even if you knew all the details, it’s still hard to compare these contracts against each other, I think. I think it would be that way.
Peter Olivier: Yes. Yeah. And I think part of the work that I’m doing now is I’m Co-organizing a group of people that are interested in implementing forward contracts for carbon and trying to get to a place in which you can start generating templatized versions of these things. How do you account for whatever the next generation of these things is going to look like so that we can have more transparency and we can have more fungibility, we can have more opportunities for people to do financing? Because I think one of the major piece of the market that I think Sticks out as very kind of odd is that we as a CDR company and all CDR companies are doing this are effectively going to corporate buyers and asking them to do project finance in addition to being the off taker.
And that isn’t necessarily a very natural place for the market to rest, at least in my mind. Most developed markets, if you look at the solar market, they’re setting up PPAs or power purchase agreements. There’s a buyer for the product and then they’re taking that PPA and they’re getting financing. There’s a financier that’s actually putting up the money for this. They’re not going to the end buyer and having them finance the solar project. I think that we’re still some ways away from seeing that in carbon and particularly in CDR, but that strikes me as the sooner we can make that happen, the sooner we can get into tens of billions of dollars put to work.
Ross Kenyon: I think that’s coming though. And that’s the point of a lot of these offtake agreements too, is that you can go to the bank with them or go to a financier and say, look, we’re going to have a customer. We have them lined up contractually obligated to buy at this price at this date. Like, can you get the, can we get some money please? So I think that’s probably going to be more and more expected and moving forward. Maybe, maybe you agree with that. Maybe you just said the exact same thing.
Peter Olivier: I do. Yeah.
Siobhan Montoya-Lavender: I mean, I think, I think that’s what we’ll see. Is it sufficient? Is that the question?
Peter Olivier: How quickly is it arriving? And to what level is it actually going to... What dollar figures are we actually talking about? Because those things are really happening and have been happening in nature-based solutions work for quite some time. But CDR, I think, is another beast.
Ross Kenyon: It’s fascinating to me that you’re going the other direction because I think... My understanding, I haven’t worked directly with any of these groups, but that they’ve developed the template on their end or the process by which they will give suppliers funding. The idea of a supplier developing their own templatized agreement and going, are you even allowed to do that, Peter? No, no, no, no, no, no, no. Who do you think you are? Yeah, seriously.
Peter Olivier: Yeah, yeah. I just dress up as like a, you know, a buyer and then I just, you know. The people that I’m working with are primarily people in the innovative areas around regenerative finance. So there are people that want to do this because they want to help create that infrastructure for their own benefit. And my goal in helping coordinate that group is to make sure that us as project developers have a voice in that process. So the templates that are created and the infrastructure that’s created can both work for us and work for the rest of the CDR community.
Ross Kenyon: How are you going to work once you’re blacklisted as a communist? That’s tough. It’s really tough to ask, actually.
Peter Olivier: It’s tough. I mean, I think the people that know me well, I think, you know, I think this stuff is, I don’t know. Another meta-thought that I have about financial innovation in CDR markets is that we’ve spent the last, I don’t know, some people have spent the last 30 years, but it really seems like the last five, and particularly the last three years, just an enormous amount of effort has been put into technical and scientific innovation around CDR. That’s super exciting and has resulted in what to me looks like quite a healthy batch of really interesting and promising technologies and companies that are, I don’t know, look to maybe take on the mantle of gigaton scale removal with some credibility.
It just seems cool. I’m very optimistic about our ability to practically execute from a science and technology perspective. I think that People feel less comfortable with trying to change the way that we finance things in any sort of similar degree of innovation. And I think there’s a huge amount of innovation that needs to take place if we’re able to go from CDR as a cottage industry to CDR as a gigaton scale solution that is used by governments and all these kinds of next-gen players that we need.
Siobhan Montoya-Lavender: Yeah. And I know you have some thoughts about donor-advised funds as potentially a solution that could take us there. So do you want to talk to us a little bit about where you see that conceptually playing a role for CDR?
Peter Olivier: Yeah, so this is kind of a whatever hobby horse of mine, like intellectual hobby horse of mine. So I come back to this and I’m like, oh, look at this lovely little thing. Maybe this will work someday. But the core of the idea is basically there are a lot of players in the market right now that are... Doing this really interesting high leverage behavior of buying CDR from really early technology companies and helping co-found and fund this innovative space. And in return, they’re taking on risk and what they get back is carbon.
That’s really exciting because it leads out this new field. But they don’t get any leverage on their financial commitment. If I buy a million dollars worth of carbon and everything goes perfectly well, I get a million tonnes of carbon back. And that’s great. It’s 1x over the period of time that I’m investing. And in many cases, they’ll see depreciation over that time, or maybe there’s lots of opportunity costs they could have done with that money. So it’s just challenging to get people to put up lots of money to do this stuff and end up in a low leverage environment.
So if you were to look at what Stripe is doing, it’s absolutely transformational with the space. But their maximum amount that they will have generated in terms of new purchases is a billion dollars worth of new CDR. So a DAF or a donor advised fund is a potential mechanism for... Having a higher leverage way of interacting with the carbon market. It’s a combination of this focus on forward contracts, which is near and dear to my heart, and also this view of this money as a tool of creating change. A donor-advised fund is basically a philanthropic vehicle that is controlled by a donor.
I don’t want to get into the merits of whether donor-advised funds are good. I think they are a tool that could potentially be used to do good things. So what you do is you as a donor say, I want to make a million dollar donation this year. I put it in my donor advice fund. I get a million dollar tax write-off or whatever. I get to adjust my tax advantage for that million dollars. Then I can use that million dollars at any point in the future to make philanthropic donations. Alternatively, I could invest that money in my donor-advised fund, and any returns that accrue to me because of those investments are fully tax-advantaged, so I don’t pay any taxes on any of those gains.
Now, I can do that as many times as I want, and I could theoretically turn my donor-advised fund into a huge, powerful investment vehicle. Now, I can’t get the money back out because I’ve already donated it to this philanthropy. But it allows for the transactions to happen in an environment in which you’re not paying taxes and potentially you’re generating some momentum. So in this case, you know, just kind of imagine an alternate universe in which Stripe or another AMC, right? So whatever, no name, billion dollar AMC. Instead of just buying and returning the carbon, and then those companies, the people, I can then say, I can take the carbon and attribute it to my carbon commitment.
Instead of doing that, I donate it into a donor advice fund that does the identical thing, except I buy the forward contract. And then as soon as they have appreciated it all, or even if I want to lose money, I can also do that too. I just sell them on to another client and I use the earnings from that sale to buy more carbon. And so you generate a situation in which you’re bringing forward demand In time, towards the present. And you’re using this vehicle to do that. And in the case that you’re also a savvy investor and some of your carbon appreciates during that period, you’re also generating money that creates a flywheel that could potentially increase the leverage of the money that you’ve put into that fund.
So that would be one argument. Another argument would be something like, because you’re paying upfront and getting long-term contracts from early stage companies, you can negotiate a discount relative to the future spot.
Ross Kenyon: And this would clearly be on the OTC market, right? This is like rich people who know each other or they have some sort of desk they’re coordinating through.
Peter Olivier: Yeah. So part of what I would really like to see develop is the infrastructure so that those trades can be made in the open. And so you can get pricing data that will feed the rest of the market.
Ross Kenyon: Does anyone do these sorts of OTC kinds of arrangements that right now I just don’t know about it? Inside of a DAF? Inside of a DAF? Are there sort of these passing around forward contracts that happen with inside of carbon removal right now? Does that even happen?
Peter Olivier: Inside of CDR? I don’t think there’s much of any. Now, I think that’s something like, I don’t know. I think there’s a lot of hand wringing about whether or not we should do that. But my perspective is we should as long as we end up with more money and capital to do the work.
Siobhan Montoya-Lavender: Where do you think the hand wringing comes from?
Peter Olivier: People are concerned that if you... I mean, the whole field attracts a certain type of investor and person, which is quite altruistic. And the idea of making money on carbon is something people, I think, broadly feel kind of uncomfortable about. If I told you that I started a CDR company and we were making money hand over fist, we were printing 300% margins every time we sold carbon, I think people would feel pretty uncomfortable about that. Now, it’s certainly not what’s happening now in the field, but any sort of kind of the idea of like, how much do we allow avarice and some of the things that led people’s concerns around, you know, oil and gas industries and extractive industries.
And there’s like, can we move towards a better way of dealing with money and carbon? Like, yeah, hopefully. And also, if we’re going to hit billion dollar removals, we’re going to need people who are allowed to make a little bit of money on this. Otherwise, it’s going to be really hard to come up with all this money.
Siobhan Montoya-Lavender: But within a DAF, it stays within the DAF, right? You can’t then just take it out. So you’d have to reinitiate a purchase or something.
Peter Olivier: Yeah, exactly. So then you buy again. And theoretically, you could use this as a vehicle that could help scale the market. I refer to it as a flywheel. If you were able to put enough money to work and have that money grow and prove yourself well, And more people working in it and more interest. Exactly. Yeah.
Siobhan Montoya-Lavender: Ross, do you remember Nisha Merchandani was on the show recently and she was talking about... Fabulous. But did you remember how much she talked about is sitting right now in philanthropic accounts? It’s like, I don’t know, 300 billion? It was like trillions. It was like trillions of dollars that are just sitting... In these like philanthropic accounts, is that kind of the dollars that would be applied to these DAFs? Is that where you would want them? Yeah.
Peter Olivier: So, I mean, the alternative, right, is you could use it, you know, say you’re a family and you have a huge carbon footprint and you have a lot of money and you want to make a difference. Theoretically, you could go to, say you come to Undo, you buy, you know, 10 million tonnes of carbon. It’s amazing. Everyone’s like, wow, what a big deal. And you say, okay, great. We’re going to offset our entire historical emissions of this family. Great. I don’t know that changes the shape of Undo’s growth, but I don’t know that it changes the shape of the future.
And given how small the market is right now, relative to where we need to go, I would say basically the only thing that matters is changing the shape of the growth curve that gets us there. I get that there’s a lot of focus on attribution right now.
Unknown speaker: Yes, I like that attitude. I like that reframing.
Ross Kenyon: Yeah, I wish we could get rid of the very, it’s simultaneously boring. And even if you get to where you’re going, it also is not impressive. It’s like at best is like a neutrality or like a canceling out of your sins. Yeah.
Peter Olivier: Well, and also it doesn’t really matter that much, right? So say like, say the biggest, most influential dogs in the market all... Pile in. They do amazing work. They offset whatever. They save 200 or 300 million tonnes. They buy the highest quality removals and they spend all this money. It’s great. But if the rest of the world doesn’t change, Like, it’s not, it doesn’t actually, it’s great, it’s really cool, but it’s just about how you influence that future. So if they don’t change the way people behave, if they don’t change expectations around, you know, what good is, then we’re not going to get to where we need to go.
Ross Kenyon: Yeah, DuPont goes carbon neutral. Right. Yeah, you’re like, okay. Yeah.
Peter Olivier: I mean, it’s awesome for them, right? Like, that would be incredible. It was not poo-poo it, guys. Come on. Right.
Siobhan Montoya-Lavender: And also like- It would be great if DuPont went carbon neutral. Right.
Peter Olivier: That would be incredible. Right. And maybe it would be transformational on the market. But in retrospect, looking back from 2050, what are people going to look at as the catalytic pieces that changed how we got there?
Unknown speaker: I hate this podcast. I totally agree. This is the moment.
Ross Kenyon: Market calendars. The most important thing that we’ve got. Yeah. Well, thanks so much for being here with us, Peter. Peter Olivier.
Peter Olivier: Thanks so much for having me. This is really fun.
Ross Kenyon: I love that it’s like, it’s like the most informal name and then the most like highfalutin name combined. It’s like the incongruence that is perfection.
Peter Olivier: Yeah.
Ross Kenyon: Yeah.
Peter Olivier: Yeah. I’m like in a t-shirt in Saint-Tropez.
Ross Kenyon: Wow. That was very quick and a very good image here. No, you should not. You should be unbuttoned, boat shoes, Gucci shoes.
Peter Olivier: Yeah. That’s what it is. Who’s to say I’m not right now, really?
Ross Kenyon: Who’s to say you’re not? Yeah. On a podcast, no one knows you’re wearing Gucci boat shoes. Thanks so much for listening, everyone. I hope you had fun. We had a lot of fun. Give us a great rating on Apple Podcasts and Spotify. It helps us get this content out to more people. Thanks for hanging with us. Thanks for willing to have some laughs and have a lovely day. Thanks. Goodbye. 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.
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