Reforestation (and afforestation) projects can take carbon out of the atmosphere. And yet, in our current system, sometimes only the largest, most well-connected projects can afford the verification process.
But what if there was a way to maintain the integrity of the MRV (Measurement, Reporting, and Verification) process, while making it accessible to anyone who wants to plant trees?
Jeremy Epstein is Head of Growth at Open Forest Protocol, a Web3 platform working to transparently measure, verify, and fund forestation projects.
On this CDR Happy Hour bonus episode of Reversing Climate Change, Jeremy joins Ross and Siobhan to share his definition of regenerative finance and discuss the benefits of putting carbon markets on the blockchain.
Jeremy explains what differentiates OFP from other ReFi projects and explores whether or not derivatives can be good for carbon removal.
Listen in for insight on balancing accuracy with accessibility in carbon markets and learn how to help OFP build the future of distributed MRV.
More from the show
Ad-free episodes and other benefits come with a paid subscription.
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
John Oliver’s Piece on Carbon Offsets
The Network State: How to Start a Country by Balaji Srinivasan
Reminiscences of a Stock Operator by Edwin Lefevre
Jason Hochman on Reversing Climate Change S3EP20
Siobhan’s TikTok on Photosynthesis
Full Transcript
Ross Kenyon: You’re listening to the Reversing Climate Change podcast by the team at Nori, the carbon removal marketplace. This is a show about the innovators and entrepreneurs developing solutions to climate change. Now, I keep forgetting to start these things introducing ourselves, Siobhan, so I’m going to cool it on the warm intro again — warm open — and just say hi. I’m Ross Kenyon and I’m the creative editor of Nori — I can’t even say my own title — one of the co-founders of Nori, the carbon removal marketplace. With me is Siobhan Montoya Lavender, who is a co-founder of Thanks a Ton and also works on memes, podcasting and other things with Nori. I should—
Siobhan Montoya Lavender: Hey, hello.
Ross Kenyon: Hey. And Jeremy Epstein, Head of Growth at Open Forest Protocol, coming to you live from Portugal. And Jeremy—
Jeremy Epstein: Hey guys, thanks for having me. Great to be here.
Ross Kenyon: Thank you for making it work, even with the jet lag and everything.
Jeremy Epstein: Like I was saying earlier, this will be my last act of the day and then I’m turning in.
Ross Kenyon: Like I was saying, we get him — we get him nice and groggy, so it is like a happy hour podcast. Have you got some like Vinho Verde and bacalhau over there? What have you got handy?
Jeremy Epstein: All that. Pistachios, whatever they are. I’m going to eat it all for dinner.
Ross Kenyon: That’s cool. Yeah, we haven’t done too many blockchain shows recently, and — or just ReFi in general, regenerative finance, if you’re not hip to that term. Erm, and why not? Feel like we should have. And even before introducing blockchain stuff, even covering carbon removal itself is quite difficult. So introducing something additional like this is maybe, maybe tough for us, or tougher for others, to cover in depth. Or maybe, as Siobhan says, can you really cover one without the other? I don’t know. Why don’t you tell us what you’re working on, though?
Jeremy Epstein: Sure. So Open Forest Protocol is using a tech stack to solve what we see to be the key bottleneck in delivering enough high-quality nature-based solutions to the voluntary market. And that bottleneck is MRV, the current process to measure, report and verify claims of what’s happening on the ground. Of course, with CDR, right, you’re trying to create a commodity, and that commodity is not like something that you actually deliver over to the end customer. You’re not making — you’re not growing corn to bring corn to the end customer to make corn flakes. You’re actually trying to deliver proof that that commodity has been stored somewhere, right? And to do that you need this MRV piece: measurement, reporting and verification.
It’s different for whatever methodology of carbon removal you’re undertaking. In nature-based solutions there’s a number of bottlenecks and just a number of difficulties in sort of scaling and creating a trusted proof of impact that this tonne of carbon, or ultimately this unit of biodiversity, if we’re going to go there — these things have actually happened, and we are creating the digital asset record to represent that thing so that people can then transact with that record and trust it. So you need that connection between the credit, which is the asset record which I am referring to, and the actual thing in the real world. And to deliver between those two things, that’s the MRV, that’s the piece where we are bringing a web3 tech stack to make it decentralized, accessible to all, and very, very data-backed, to create that trust — or to go one step further, that trustlessness, as we say in the web3 world.
Ross Kenyon: Can I make one small observation, which is the idea of a unit of biodiversity is very funny, and I imagine would make some people just howl. But okay, I will cede the floor there.
Jeremy Epstein: I’ll go ahead — and I don’t know what that unit is. It’s a lizard, or several monkeys, or something. But we’re aware that biodiversity is, like, that’s the hot topic at the coming COP. I mean, that’s everyone sort of talking about it. I have yet to wrap my arms around exactly how do you measure biodiversity, right? Like, what is that thing?
Siobhan Montoya Lavender: Let’s break it down a little bit, because I feel like when you say, like, the web3 tech component, I feel like there’s so much talk about web3 going on, and what’s really — as pertains to the climate and specifically — and even though I’ve delved into a lot of this, I don’t know that we’re doing a good job as a community communicating this accurately to, like, the average person. Like, that person is like, okay, I’ve heard of, like, Bitcoin. It’s like, what do you tell them? Like, how do you pitch this? Like, what is the virtue? What is the value add of putting carbon into this, like, web3 platform?
Jeremy Epstein: Yeah, that is oftentimes the jumping-off point: is, well, is this Bitcoin?
Ross Kenyon: Okay, I think we’re both so traumatized, Shiv.
Siobhan Montoya Lavender: Like, I never hesitate to— I didn’t— you should have. You should give me a trigger warning for this one. Okay, good luck, Jeremy. Good luck.
Jeremy Epstein: All right. Bitcoin is a digital currency, and one of the things that makes it super cool and has all this uptake and people love it is the fact that it is based on the blockchain, which essentially is a digital ledger. It’s just a more perfect system of accounting, if you will. If you really want to break it down, that’s how I think about it: it’s like, okay, this is a way to do accounting on a global, distributed level, so that we don’t lose records, we don’t have questions about what is where, which asset is where, particularly when you’re trying to transfer digital value multiple times through multiple jurisdictions all over the place.
It is nice to have a system that you feel like you can trust, because the data can’t be destroyed. It can’t go anywhere, and it always gets added to this blockchain. Now, that’s like probably a terrible oversimplification of what that is, and how do you—
Siobhan Montoya Lavender: We want oversimplifications. We want to make— this is blockchain for dummies, people.
Jeremy Epstein: Okay. So there’s that. You have a great system of accounting. Now let’s, like, turn the page and we’re going to go look at the voluntary carbon market and look at some of the headlines that have— All right, let’s talk about the John Oliver piece, right? There’s a timely and I think pretty on-topic critique of some of the issues going on in the system. Now, he has a few different critiques, I believe, but one of them being there’s double counting. There are companies that buy these credits, claim them as an offset, then go ahead and resell them. And we know that companies do this. We’ve had CEOs or former CEOs come forward and say this kind of monkey business has happened, and likely it is still happening, right?
Anytime you have an opaque system or process with sort of self-interest, with the ability for people to self-enrich to some extent — this is my cynical worldview on humanity, but I think it holds up — there will be monkey business. If given the opportunity, people will act in a self-interested way. I’m sure there’s some famous economist who agrees with me. And so that has happened in the voluntary carbon market, because it’s fragmented. You can buy a credit from here, from there, hold it, sell it, claim that you’ve offset with it, sort of whatever you want to do. I speak with investors regularly, and the last one I spoke to at the end of— one of our colleagues said, well, now all this has to go through some sort of regulatory body or a government, right? No, no. Really, anybody can create these things, and it is voluntary. And I will not say Wild West — that’s been stricken from my vocabulary — but it would have been applied here.
Ross Kenyon: Also, helpful to define: defecting from the prisoner’s dilemma is now known as monkey business. Just a heads up.
Jeremy Epstein: Yeah. So yeah, so you take this sort of perfect system of accounting and you apply it to the voluntary carbon market, and I think that’s a lot of what has been done in ReFi with projects that have been able to spin up, get off the ground and do things around credits on a blockchain so far. And many of those — but most of those projects, pretty much all of them to date, perhaps Nori being one exception, have been bridging tokens. Have been taking tokens that were created through the machinery of a legacy system, through sort of legacy actors such as Verra, such as Gold Standard, putting them on a blockchain and accounting for them in that way, with that blockchain-based accounting system.
So that there isn’t a question of who owns the credit, who bought it, who sold it, at what price, was it retired, was it not retired. Those questions do get solved when you bridge carbon onto a blockchain, and I think that that’s fantastic, and to me that is solving sort of the second half of the problem. It doesn’t fix the supply problem, but it fixes what do you do when the supply exists and no one has a clue where it’s going or who owns it. And you know, if we miscount carbon, the result is terrible. The result is we end up essentially with more emissions in the air rather than less.
So you’ve got to fix the accounting thing first. I think the blockchain is a great place to do that. That’s kind of how a lot of ReFi projects to date have tackled the game. We’re doing something different, so I like to sort of create that separation. And I can tell you more about sort of how we solve a problem that starts earlier in that process. But I’ll stop there for a moment.
Ross Kenyon: I always want to suss that out, especially with regard to supply. Me at my least charitable at Nori will see projects within the ReFi space and think things like, cool, you have found a new demand pipeline, and that’s great. But also, supply is the bottleneck in carbon removal, and much of the supply, not in carbon removal, is not that good. And if you’re funding it, aren’t you just going to get more low-quality projects, if you’re willing to buy anything without regard to the quality?
Jeremy Epstein: Yes.
Ross Kenyon: I’m not sure. We actually — I just passed my five-year anniversary since Nori was founded. That was exciting for the founders of Nori. So much of all that time has been on MRV methodology, just getting soil right. It’s still very difficult. There’s lots of conceptual challenges and trade-offs, and watching applications and token economics almost feels relatively trivial in comparison to just dealing with the carbon. And I’m not sure that that has fully sunk into a lot of the ReFi movement just yet, but you’re much closer to it than I am, so I very well could be mistaken on that. But that’s my superficial take on it.
Siobhan Montoya Lavender: That’s just how— Man, before we even talk about that, let’s define ReFi for our audience, for our listeners. Again, this is for the ReFi blockchain for dummies. So either one of you jump out with this one. If I was just like, hey, define ReFi in a sentence, what would you say?
Jeremy Epstein: You have to start with DeFi to even get to ReFi, right? Sure. It stands for regenerative finance. Has nothing to do with your mortgage, so we’ll get that out of the way. To me, ReFi is a system that creates value with positive externalities. In other words, something good happens with the climate, with the biosphere, and value is created. And so you’re sort of aligning incentives, you’re aligning value and positive outcomes.
Siobhan Montoya Lavender: Okay, I like that. Ross, you want to take a stab? So, make that DeFi connection.
Ross Kenyon: DeFi, which came together a couple years ago — decentralized finance. But basically a way of, one application of it, one might say, is loaning one’s crypto without some central intermediary. Like, you’re loaning it to an algorithm and people are borrowing it and using it and you’re being paid interest. And there are many other applications of staking tokens or other things that don’t require a bank, that you’re putting — leaving money in a bank in the same kind of way. So I feel like ReFi is kind of a little bit of, like, using the conventional— the naming convention, and kind of being like, hey, we’re even cooler, this is this other thing. There are also DeFi applications within ReFi. So that’s like a, I heard you like — we apply onion here.
Jeremy Epstein: Yeah, there’s definitely that component of access. I think, Ross, that you’re getting at, that’s important — that people can participate in things that perhaps they couldn’t otherwise, because there is a central regulatory authority standing between them and creating a— and getting that accredited, putting it on blockchain, or many other things that they could be doing.
Siobhan Montoya Lavender: There are a lot of hurdles right now, as we know — we’ve talked about this before, I think — to getting credits verified on various platforms. On the one hand, it’s like, yes, we want to really lean into verification and robust measurements and authenticity. You know, I talk to project developers who are like, I can’t afford to get my project on Gold Standard. Like, that’s, you know, thousands of dollars that I don’t have right now. You know, these are small projects, they’re trying to get off the ground. So I think there needs to be a space somewhere in the ecosystem for small projects to have some sort of verification that maybe isn’t yet at the super expensive industry standard level.
Jeremy Epstein: Sort of, the legacy system has been very much one per— like, the one percenters of carbon projects. Like, those that are big enough, connected enough and well-heeled enough to afford to get through that system, leaving the rest of the projects kind of out in the cold without access to MRV, which leads to accreditation, which ultimately is how you get results-based credit financing to scale, and rinse, lather, repeat the process.
Ross Kenyon: So there’s an internal debate that’s been going on at Nori for a super long time about DAOs and to what degree things can and should be decentralized. Because on the one hand you think— I’ve seen communities like — like OpenAir Collective is a great example. I think that community is so strong that I think they could probably write some methodologies that can and should be incorporated into some carbon removal marketplaces. But — and there are also communities that work despite the fact that you don’t— it’s like hard to imagine that they even would, like Linux. The fact that Linux works, and much of the world runs on Linux-based operating systems, is magical and hurts my brain to even think about.
And I wonder — like, we have full-timers devoted to thinking about the difficulties of MRV and soil and carbon markets and the dynamics that all have to play out to actually work. I have a hard time thinking someone with a stake in it, who’s sort of a part-time hobbyist, could solve it in a way that I could not, even if there were hundreds or thousands of people all decentralized and collaborating, and I sort of, like, GitHub repository for it. Am I mistaken? Should I trust that decentralized process more and trust myself less, or is there a part of me that is correct?
Jeremy Epstein: I wish I had the answers for you, [unclear]. Those are tough questions.
Siobhan Montoya Lavender: Yeah, I don’t know that— I don’t know that I would know the answer to that either. When I think of decentralized, I certainly think of, you know, peer-to-peer accountability, which I think of in a positive way. But then I also think race to the bottom sometimes, you know, like, as you were talking about — let’s bring back the monkey business, you know, the monkey business race to the bottom. So it’s like, where is that sweet spot between, like, having the authenticity and, you know, the backing of some of these major verifiers, and then having it on this peer-to-peer decentralization that is more accessible, is easy to validate, is easy to corroborate and check? But where is the sweet spot? And are you trying to find that at Open Forest Protocol? Are you trying to find that in Nori? Like, how do we get there?
Jeremy Epstein: Yeah, I think on the decentralization — and I mean, you can’t make the rapid-fire decisions and build quickly and all the things you need to do in a start-up environment with a decentralized, DAO-based governance process, right? So that’s where sort of this idea of progressive decentralization comes in, where you do start off centralized — and we, you know, OFP is definitely on this trajectory, right — and the goal being ultimately that myself, the co-founders, all of us could go away and the system lives on because it has sort of grown its wings and it’s flown out, it’s fully decentralized. But it takes a long time to get there.
And I think maybe what you’re getting at is a little bit of, like, that in that interim period you still have those same problems of centralization, which is, I think, somewhat counteracted by just transparency. I think that’s probably the best thing that we can do, is just try to be as transparent as possible at these early stages, until the point where sort of decentralized and transparent mechanisms take over. Because you can’t start from there. That has to be more of an endpoint.
Ross Kenyon: And I’d love to read — I’ve been reading Balaji Srinivasan’s The Network State recently, and I’m sure we’ll get deeper into this, and I bet there’s — I look at the bibliography, I could probably find a good thing to read about this. But which kinds of problems are best suited to a sort of decentralized, open source ethos, and which ones are not well served by that model? Because it looks like sometimes in the crypto space — and I get it — there’s an ideological pre-commitment to DAO-ing things, or making this a community-based kind of [unclear] model.
And I mean, like, Bitcoin at the start, right, is sort of like anti-centralization, anti-Federal Reserve, anti-fiat, centralized money. And so it’s sort of core to crypto, core to crypto’s culture. But I don’t want to do it just because that’s the default within the space. I want to make sure it’s a wise use of it. I’ve definitely been in groups before — like, I was in an Occupy group in college, and that was pretty decentralized and participatory, and I think the failure of my leadership and a failure of many people to participate— it didn’t work. It didn’t work, dang it.
So I don’t know. I think I’ve definitely been in groups where I’m like, okay, strong leader here and less of a consensus model might be nice. Anyways, I’m just rambling now. You were also in the middle of telling your Open Forest Protocol story. Like, we stopped and then digressed, and it was a fun digression, but maybe you want to steer us back to what problems you’re solving and what you’re thinking about right now.
Jeremy Epstein: Sure. Yeah, yeah. We got a fun tangent. I’d like to make this — I don’t know, I always feel like it’s a crap statement, but the ultimate goal for me with Open Forest Protocol is that anyone anywhere in the world has access to the following value proposition. Here’s where it gets crass and starts crossing over — actually, let’s just blunt it: plant trees, get paid. And that’s like an oversimplification, there’s like major caveats behind it, because you have to do it the right way, and it has to qualify, it has to be verified. But I do like a very simple statement. It’s like that.
Siobhan Montoya Lavender: That’s what I always imagined the utopian vision of, like, a functional voluntary global carbon market to be like. Like, oh yeah, I can just plant a beautiful forest and, you know, the market will provide, right? And it’s so far from the way that things operate right now.
Jeremy Epstein: It’s a strong— you know, you’ve got to pay tens to hundreds of thousands of dollars to accredit a forest project. If your project is less than, say, 3,000 acres or 1,200 hectares, forget about it. It doesn’t pencil, because you need — it’s high fixed transaction costs require large transactions to be profitable, and it’s the same thing with forest projects. There’s so much expense involved that you just need to develop a very large project to make it profitable, and there’s not a lot of land that’s owned in really large tracts like that.
And if you require 3,000 acres and above, you’re leaving out, I would say, 99% of potential projects from accessing value from the carbon market, which we know would value these potentially more bespoke, more homegrown forest practitioners that are looking to restore nature and simply receive value for something that they’re doing to provide, you know, for the common good and restore the global commons. That’s what I think we are trying to do. I think the answer may slightly vary from one OFP member to the next, but that’s how I think about it.
And you know, if we get to where I hope to get to, then suddenly it becomes the new oil and gas, if you will — where, right, when suddenly the world realized that fossil fuels had tons of value and they were always going to be purchased if they could be extracted. Then you have this global economy that sprung up, and you know, with folks prospecting and knocking on your door in West Texas and saying, you, sir, are sitting on a gold mine. Let us help you bring these assets to market, we’ll get you paid for it, right?
Like, those are the types of entrepreneurs that I want to see building forests, not pulling gas out of the ground, right? And putting their entrepreneurial firepower to finding all of the little pocket forests in and around the Atlantic coast of the Amazon, or wherever you are on planet Earth, and using our platform to essentially bring these assets to market. So that’s maybe another take on what it is that we’re building.
Siobhan Montoya Lavender: And an analogy which I like — kind of the analogy of the oil and gas company going out and saying, hey, we’re going to extract this and we’re going to get profit on this, we’re going to add value to life. How does that work, the analogy of a standing forest? I think about this in CDR all the time. I think about, how do you communicate to people the monetary value of an act of removing carbon from the atmosphere and storing it in the lithosphere or the biosphere, wherever you’re storing it? How do you communicate that as a value, in the sense that if I’m burning fossil fuels in my home I get an immediate value received, right? Like, I’m turning on my stove or my electricity, whatever it is. I’m immediately experiencing that value.
And with CDR the value is happening where I can’t see it, right? Like, an action that’s being taken that I’m paying for that I don’t see. And as you say, you know, sometimes it’s poorly documented, so we’re not even positive it happened. But let’s pretend we have the perfect robust system. We’ve confirmed it, we know what happened. Still, how do you communicate that value? Like, okay, this is going to help you, because — I mean, in my case, like, well, we need to solve climate change, right? Like, that’s the talking point. It’s like, well, it’s too hot in California right now. I don’t know how you’re doing, Ross, up north, but you know, all of my friends in L.A. are just scalding, you know?
So there’s that sense of immediacy as climate crises increase, as extreme weather increases. But still there’s not the same relationship to saying, I’m turning on my power now, as opposed to, like, I’m paying to remove carbon. Like, hey, where’s the selling point, do you think, for customers?
Jeremy Epstein: I want to hear Ross’s take on this, and then I’m happy to respond as well.
Ross Kenyon: What a — what a [unclear]. I think that’s a pretty huge problem. We got a piece of advice early on at Nori that no one wants to buy a barcode, which is a really important idea for us to think about, because so much of Nori is to build a commodity market that’s more like the Chicago Mercantile Exchange, more than Indiegogo or eBay or Airbnb, where you’re individually choosing. We want people to care about years of carbon stored, not choose what’s the warmest, fuzziest thing I can buy. That’s a nice-to-have, but not the main thing that we’re trying to maximize for.
So that’s one of the reasons why I think creative has long been such a big part of Nori: that given that this is an abstract, barcode kind of thing that one might be buying, how do you compensate with storytelling or other means to substitute for that? So people do the thing that we think matters most, but also don’t deny them the warm fuzzies that they often are motivated by.
Jeremy Epstein: I would say yeah, and I think I’m trying to probably walk the same razor’s edge. I’m glad to hear you kind of talk about that. It’s sort of a tension between an efficient commodity-style market and something that tells a story at the same time, right? How do you digitize that? How do you program that into a fungible or non-fungible asset and have that data backing the credit, so that you can mix this credit up with 10 million of its brothers and sisters, and yet the purchaser who pulls that credit out of the pile and goes home with it can look at it and say, oh, this came from this project with these lovely people who planted these trees, and there’s these wonderful SDG goals that were also met?
And that is a challenge, and that is how we’re looking at things, and we want to sort of tread that fine line between — I mean, I think it probably gets a little technical, like, if it is fungible or non-fungible. Essentially, if it is a completely unique digital asset that is unlike any others, or if it’s a commodity, right, if it’s just like all the other ones that we create. And I think that there’s a technical pathway to do both. That does go back to, like, what are you trying to deliver? It kind of depends on who’s buying it.
You know, I think corporates are trying to — it’s like PR to some extent, and maybe more and more reactive PR, which we’re seeing now. Over 40% of the S&P 500 has made net zero goals. I mean, goals are different than action, but it’s a step in the right direction. And why are they doing that? Part of it is probably to appease shareholders or appease customers. So it’s a bit of an [unclear], I think, to people. Yeah. So there’s that, there’s that reason why they buy.
And then ultimately, I like to think of a carbon credit essentially as a currency, right? It’s just a thing that has value and can be exchanged. And because of that it’s not always so much about the end user, like, oh okay, we’re going to make this so that someone can buy it and then retire it. I do think there is value — kind of going back to the beginning of the conversation with the marketplaces — and some of these marketplaces that, without naming names, I think are looking to create sort of derivative and sort of secondary products out of these credits, to appease sort of niche investors who want to invest in this space and essentially play the space as an investment opportunity.
Yeah, I used to cringe at this, like, no, that’s not what you do with these, because — I don’t know, it just didn’t feel right to me. But I’ve come around on that, and I do think ultimately— think about what happens if you can just create something from a carbon credit that people want to throw money at. The net result, if all goes well, is that you get more investment flowing down to projects to begin with, and you create a virtuous cycle of more capital flowing into developing more carbon removal projects. And if that is the end result, then I’m all for it. Create whatever kind of financial wizardry you want to bring to the game.
Bringing it back, this is assuming that one, it doesn’t get retired, or it does. This is the tradable sector, it’s sort of a non-retirement situation. So I mean, there’s a lot of people who are like, no, credits should be retired, that’s all that should happen. And I used to be in that camp, but I think I’ve switched to saying, no, if we want to create new products out of that, new financial-type products, as we’ve done with mortgages and other securities and things like that — great, with the caveat that the net result is that more capital flows ultimately back to projects, because now we’ve seen that there’s a market for this stuff and there’s an appetite. And you know, we need — we need more projects to be developed so we can put more of these credits on the market, so that more people can play in this silly—
Siobhan Montoya Lavender: You’re going to have to convince me, Jeremy. I think I’m still in the camp of let’s just retire the damn credits already. But I know that there’s lots of people who talk about using carbon credits as a financial tool, as something interchangeable. I don’t fully get that. Maybe it’s because I’m not part of, like, the whole DeFi, ReFi movement yet. I’m not integrated in that, exposed enough perhaps. But if we don’t retire the credit and the credit keeps getting traded, isn’t there the risk then that there isn’t a new carbon credit then being purchased? Because isn’t the whole problem that if we don’t retire them, then another one won’t be purchased, and so another tonne of CO2 won’t be removed? Am I oversimplifying this?
Ross Kenyon: In my mind, that’s basically Nori’s position, and it’s why we have a Nori token and then NRTs that are separated. So one thing is retired immediately and the other is the tradable asset. But yeah, feel free, Jeremy. Siobhan, you’re doing my job for me. Thank you.
Jeremy Epstein: Yeah. Listen, again, I think I was in your guys’ camp and I’ve come around, because the way I think about it is you take a bunch of these credits and you spin something up. Ultimately, if they’re in certain vehicles that are not being retired, like, you guys would say that that’s bad. But if those vehicles are sort of creating value flow from financial markets into creating more projects, I do feel like that could have a net positive effect. Ultimately that’s the same goal as, you know, let’s just retire them. We’re just trying to get more money into the system to get more projects, to scale CDR to, you know, 10 gigatonnes per year by the end of the decade that we know we need.
Siobhan Montoya Lavender: Very recently I had some friends ask me — because I explained, like, this is how it works, like the credit gets retired — and they’re like, says who? And I was like, really good point, dude. Like, says who? Like, we’re dealing with these intangible credits.
Jeremy Epstein: And I guess that’s maybe where — that’s more or less where religion comes in. Because ostensibly, I know at least the way that we’re designing it at Open Forest Protocol, there’s essentially a retirement button, right? Like, you have a credit in a wall— a digital wallet, you hit the retire button, right, and it’s burned. Like, it’s still there, you can see that that was done, but the credit is stuck there forever, right, and no longer moves. And so that’s, like, the says who — it’s like, well, let me give you an address. You can see that this happened, you can see how many of these were retired, and that kind of puts that question to rest.
Siobhan Montoya Lavender: Learning something new. I didn’t know you could, like, burn them on the chain so they couldn’t be transacted again, but they were visible, but frozen. I think offtakers will like that feature, right? It puts that one to rest. It’s like, oh yeah, okay, well, it says me, because look at this thing. I can tell you exactly when this happened and, you know, how many of these were retired.
Ross Kenyon: I’m really interested in your point about derivatives and to what degree this is on net good for carbon credits or carbon removals. What happens when there’s hundreds of millions of dollars moving around and it’s derivatives, weird synthetic assets that are not merely representations of a tonne of carbon dioxide, or a certain tonne-years of carbon dioxide being stored? Is that good? I mean, financial wizardry adds a lot of complexity to the system, but also brings a lot of resources to bear.
But if it’s not done right, it’s not like more money is necessarily flowing into projects being developed, which is our concern, why we originally split those out. But you seem to think that it would on net be good to have financial wizardry — one might say a derivative layer, if we want to talk crypto about it — on top of the rest of the market. Why do you — what do you think that? Will you unpack a little bit for us?
Jeremy Epstein: Partially because I like stirring the pot, being contrarian.
Siobhan Montoya Lavender: It’s good, it’s good. I want to — I want to hear the answer, for you and Ross both, [unclear].
Jeremy Epstein: And like I said, I’ve sort of flip-flopped on this, but that’s the camp that I’m in today. I guess no one knows how these things play out long-term. I think you could imagine a future where it’s like, all of these unretired credits are spinning around in this derivatives market and suddenly they get flooded and not purchased, and now no one’s actually buying new credits to retire. Like, that scenario — and I think, I don’t know, could that be the case? Could it not? I don’t know.
Or, the way I am thinking about it is you’re creating an appetite from people who wouldn’t otherwise want to buy and retire a credit. They want to buy something of value and basically create more value off of it, being financial, sort of Wall Street wizards. Like, this stuff is, you know, I can’t tell you how it gets done. It’s over my head and my skill set. But the way that I imagine it happening, the net result being, right, you have investors that don’t want to mess with carbon credits, but they see that, you know, they can throw some money into this machine and a little bit more comes out, and the result being that the market now needs to create more of these because everyone wants to play in this game.
So I think we all want the same thing. I think we’re sort of — we’re telling different futures about what happens, right? That we all want more money to come into the system to develop more projects. What happens with these unretired credits, I think, is something we can only try to predict.
Ross Kenyon: Because — have you read Reminiscences of a Stock Operator? Do you know that book? It’s like a trader’s memoir from, like, a hundred and something years ago. I think I read it when I was trying to learn more about how, like, equities and commodities markets work. But there used to be a thing called bucket shops back in the day, where you would basically just bet on whether the price of something would go up or down, but you wouldn’t actually own the underlying asset or claim to it.
Jeremy Epstein: So it’s the derivative.
Ross Kenyon: Yeah, yeah, there’s one more — one more product. Was that actually adding anything to the system in a meaningful way? Like, did it lead to more of the assets that were underlying this betting game? It was just, like, early stocks — this was on stocks. So then you may have had lots of, you know, entrepreneurs spinning up penny stock companies simply to feed into the system, right? And that’s the analog to, you’re going to have lots of project developers going out and, like, we need to plant a bunch of forest to feed into the — I mean, their underlying motive is greed, not regen, but does it matter in the end? I don’t know.
I guess it was, like, the person — the person who is running the bucket shop would cover the other end of the bet, or maybe would pool with others, I’m not sure. I think that money just went between the bettors and the house. I’m not sure if there was a feedback loop that even included the underlying equities or commodities. Like, I’m not sure if that would have been affected at all. I recognize that someone listening might be like, that’s not how derivatives work now, and they actually do interact in a more meaningful way. If you’re listening, [unclear], reach out and tell me how derivatives actually work. I’m going to get painted as the Jordan Belfort of ReFi now.
Siobhan Montoya Lavender: So we should — we should probably switch topics. No, I think the guy has no concept. [unclear] Both of you are in advance of me.
Ross Kenyon: I got the Series 3 license years ago for, like, mostly a way to train myself to think more about how commodities and derivatives actually trade, so I could be better at my job at Nori. But a lot of that stuff is — when you described it as wizardry, I totally buy that. It’s almost a different kind of mind that thinks in this way, and I don’t think it’s mine.
Siobhan Montoya Lavender: But let’s talk a little bit more about, like, the whole supply-demand stuff, because I feel like that’s a hot topic. And in creating, you know, whether it’s Open Forest Protocol or Nori, you know, the idea is to provide a supply, to authenticate that supply. And we — what about how demand right now outstrips supply? But honestly, like, if you look at, like, gigatonne scale, we are still demand constrained, in the sense that we still don’t have — like, if you had 20 gigatonnes to offload, how easy would that be to offload? Not very, right?
I don’t think there’s a lot of people asking for, like, 20 gigatonnes worth of carbon, but we need to get there, right? Jeremy, how do you see — like, how do you factor Open Forest Protocol into, like, the future of, like, the supply-demand curve, what it will be in maybe 10 years or 20 years? Or are you kind of dialed into the moment right now, like getting the customers you need now?
Jeremy Epstein: Yeah, so I’m sure someone’s done a study, right, of all of the net zero pledges and if and when all those come to fruition — 2030, or whether that’s 2040 or 2050 — like, what does demand look like at that point? Probably Trove Research or McKinsey or Sylvera has done a study like that. But, you know, the macro picture is, we are looking to the future and we don’t see a way to supply the market given the current process. And that is a bullish case for Open Forest Protocol, that aims to be a new supplier to the market, right, that is sort of issuing its own potential credits at a future date. And, you know, I think that as time moves on, and hopefully these trends pan out, that we will be able to fill gaps that the current system simply isn’t filling today, and walking into the future.
Ross Kenyon: So, we talked about tree humor — I really haven’t hit on any of our memes yet, but we do always try to make guests evaluate some of our memes, or especially ones that are in their wheelhouse. So we had Jason Hochman rate our, like, DAC memes.
Siobhan Montoya Lavender: And I feel like when it comes to humor and CDR, we kind of do one of two things with trees, forests, and — first of all, I love reforestation, and I generally think — is it — as an individual I’m agnostic; as Thanks a Ton, we certainly try to be agnostic. Like, I really do believe we need an all-of-the-above approach. I feel like trees are a really easy wildfire joke, so I go for that a lot. I also feel like there’s the just-plant-trees kind of cohort, and that’s an easy joke to do too, because it’s like, well, there’s not enough land, et cetera, et cetera.
But then I also feel like — trees, they become like the hero of the joke a lot of times, when it’s like cost-comparing or popularity-comparing or understanding. Like, I use trees as the analogy to communicate all the other, all the other methods to people. And, like, I use trees to communicate, like, vintages of CDR, right? Because sometimes there’s a CDR vintage that you’re paying for now that, you know, it gets in the queue and that credit actually won’t be removed — that tonne will be removed from the atmosphere in a year, maybe, or something.
And so I tell people and explain that by saying, well, it’s like planting a tree. Like, you plant the tree on day one, that doesn’t mean the tonne is removed on day one. And so I feel like I always come back to trees as, like, this foundational explainer for carbon removal, and maybe that’s because they’re by far the most widely known and accepted method, I would say.
And now, you know, now I feel like there’s all this kind of controversy within academia about durability and, you know, where should we be investing most resources? And I’m like, I don’t know, are we really — are we really fighting over the scraps? Let’s just invest in everything, guys, I don’t know. What do you think of, like — do you think trees are an easy story to tell? Do you think trees are good fodder for climate humor?
Jeremy Epstein: I think they’re both. I think there’s very few people who are opposed to trees, right? They’re a pretty easy thing to at least be agnostic about, if not to say, I love trees. Like, what, there’s nothing wrong with trees. And that’s kind of like — that’s the case study for photosynthesis that we all learn back in sixth grade biology or whatever. It’s like, yeah, these trees pull carbon out of the air and that’s what they’re made of. Like, okay. So, like, harkening back to that, like, original lesson on nature-based drawdown.
Siobhan Montoya Lavender: Yeah, it is sort of — that’s the tree example that gets drilled into our heads, or at least got drilled into mine.
Jeremy Epstein: And I actually moved away from nature-based solutions, kind of just thought, okay, this isn’t it. You can tell — I mean, obviously I flip-flop on a lot of things, because I’m open to new ideas and I take in a lot of ideas — and ultimately I did come back to trees for a number of reasons. And I think one of them is sort of analogous to, like, this whole, well, what if climate change is a hoax? Well, okay, fine, then we at least will have clean water and clean air, right?
And you have all these co-benefits, right? So even if the trees are a terrible climate solution — they’re not — you still have these massive co-benefits. And those markets — we talked about biodiversity briefly in the beginning; those types of markets are, I think, maybe going to eclipse carbon at some point in the coming decades. But yeah, it’s a meme for sure. I mean, particularly in the CDR nerd world, I’ve kind of moved away from using the term CDR when it comes to reforestation. Maybe it’s more sequestration, because maybe there has to be a certain length of durability to qualify for the term removal. Maybe it’s a sequestration, right? And I get it, right, we’ve got to suss out our terminology as an industry.
Siobhan Montoya Lavender: But we also have to do that without getting too tribal and fighting. But with tribalism and infighting come really fun memes, so there’s a trade-off there. That’s our fodder there. But I’m with you, I feel like, you know, the infighting isn’t super helpful.
And, you know, photosynthesis at the end of the day, whether it’s in planting trees — and we call that the complete cycle, the complete method of carbon removal and storage — or if it’s in one of the plethora of other solutions that require photosynthesis. Like, I recently made a TikTok because I wanted to explain photosynthesis, but then I realized, like, oh wow, but, like, biochar and bio-oil — I tell them, like, these all rely on photosynthesis. There’s so many solutions that actually the mechanism for where you’re moving the molecule is via photosynthesis, and then the storage mechanism is kind of where the humans get more involved. Anyways, Ross, you want to pull up some of our forest memes, and maybe we can have Jeremy rate them live here?
Ross Kenyon: I mean, yeah, I just have, like, one. I pulled it from a tree memes page, so this is only to share it, and we were going to recaption it for our own purposes. But yeah, here’s a tree one. I don’t even know if I fully understood it, but hey, can you see this? Oh, you can. Help us — we’ve been working on this one, we’ve been workshopping this. So we want to convert this into a pure CDR meme using this format. It’s a picture of Luke Wilson doing the, like, tiny little kind of grimace face that he’s known for, and the format is, Luke Wilson always looks like you just told him, and insert your own caption.
But this one is, his tree wasn’t struck by lightning, it just fell apart because of codominant stems with included bark. This is way too deep for [unclear]. I don’t know, that’s — what is with this deep forest? It took me a really long time to think it through, and then, and then I laughed. So I like it, but it might need to simplify the language a little bit. But oh yeah, I just pulled this. I’m going to — I’m ditching that entire caption. We thought of some options being like, Luke Wilson always looks like you just told him we can figure out the MRV later. Just told him — I got, the energy requirements of direct air capture. It’s just sitting there. So I don’t know, we have to figure it out.
So, well, if you were to put a tree one in here, let’s live-meme this. But we’d say like, Luke Wilson looks like he just told him that DBH is not sufficient to measure a tree.
Jeremy Epstein: Luke Wilson always looks like you just told him that forest project operators should collect and report their own data.
Siobhan Montoya Lavender: Okay. Okay, operational joke, I like it.
Jeremy Epstein: All right, you guys — like, just measuring, like, throwing a measuring tape around the base of it or something. I get that when I explain our MRV process, before I get to the second part of it where I’m like, well, yeah, no, we’re letting the projects collect their own data. And I get this face. Then I get to the part where it’s validated, you know, dozens to hundreds of times on a public blockchain, and the improvement that that provides over the legacy process. But again, that’s — I’ve seen this look before, I will say that.
Ross Kenyon: All right, we’ve gotta keep working, keep workshopping that one, but it seems like a pretty good place to conclude for today. Jeremy, as we wrap up, are there resources you want to direct people towards? I’ll put links to this in the show notes, to whatever you’d like people to see.
Jeremy Epstein: I would say openforestprotocol.org would be the place to go to get some information. There’s some opportunities there to get involved in the community. If you’re interested, we’re building a validator network, which we didn’t talk about much, but essentially that is forest expert organizations who lend credibility to the verification of the data. So essentially we’re taking the best thing from web2, which I would say is a network, right, the ability to build networks, and we’re creating a network of verification bodies that coordinate to review all of that self-reported data from the forest. The reason I mention this is, if you feel like you are one of those forest expert organizations, we’d love to hear from you and potentially add you to the network, and you can help us build the future of dMRV — distributed MRV.
Ross Kenyon: Wow, that’s the first time I’ve heard that initialism, but certainly won’t be the last. Well, thanks for being here, Jeremy. It was a lot of fun.
Jeremy Epstein: Thanks, guys. Good to rap with you. Nice, nice talking with you.
Siobhan Montoya Lavender: I’m glad I got to get a little, a little education in web3 and whatnot, and carbon finance, of which I am sorely lacking.
Ross Kenyon: That’s, um — boy, I think Siobhan was like, all right, enough derivative stuff, I’m taking control of this conversation, gonna get far away from this. Sorry, Siobhan. Thanks so much for listening. If you like what we do here, please give us a great rating and review on Apple Podcasts and Spotify, send it to a friend, and thanks so much for hanging out with us. We always appreciate it. Thanks.
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