Prior to COP26, there was a big problem in international carbon accounting. Both the country where a carbon credit was generated and the country where it was sold could count those very same credits toward their Paris climate commitments. COP26 seeks to remedy this issue with the practice of double entry bookkeeping. But is it too late? What are the unintended consequences of implementing the new rules now?
Aldyen Donnelly is a cofounder, advisor, and former Director of Carbon Economics here at Nori. She also serves as a carbon markets advisor to several organizations, including Terramerra, Inc. and the Livestock Carbon Exchange. On this episode of Reversing Climate Change, Aldyen joins Ross and Nori CEO Paul Gambill to discuss how the new rules will lead to export controls for carbon credits and describe how such protectionism is likely to impact developing nations.
Aldyen and Paul share their concerns around blockchain crypto projects like KlimaDAO and weigh in on why carbon removals are preferable to carbon avoidance credits. Listen in to understand why throughput might matter more than permanence and learn how the upcoming Nori token launch aims create a true price discovery mechanism for carbon that others can use.
Key Takeaways
[1:26] How COP26 adopted new rules to implement double entry bookkeeping
[4:33] How a failure to implement double entry bookkeeping in prior carbon markets led to the price crash of 2012
[8:00] Why double entry bookkeeping was blocked until now
[12:33] Paul and Aldyen’s fear that the new rules will lead to export controls around carbon credits
[17:58] How export controls will negatively impact the carbon removal industry in developing nations
[20:19] The 3-year window COP26 allows for the creation of an international carbon market oversight body (and the opportunity that gives us at Nori)
[22:29] How crypto projects like KlimaDAO perpetuate a system where carbon credits are resold more than once and the underlying value isn’t actually one tonne
[26:10] The loophole in COP26 allowing the backlog of carbon credits to be sold without double entry bookkeeping
[28:05] What differentiates carbon avoidance credits from carbon removal credits (and why large corporations don’t necessarily care)
[33:07] How Nori’s take on the fundamental constraint of carbon markets differs from that of KlimaDAO
[35:30] How Paul and Aldyen think about permanence and why It's more important to focus on throughput
[41:40] How the upcoming Nori token launch will create a price discovery mechanism for carbon
Connect with Ross
Subscribe to the show on Substack @ rosskenyon.com/subscribe.
I also write Carbon Removal Memes and curate Climate Workers Anonymous.
Resources
Aldyen on Reversing Climate Change EP031
‘Cryptocurrency Traders Move into Carbon Markets’ in The Wall Street Journal
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 the Reversing Climate Change podcast with Nori. I’m Ross Kenyon, Nori’s creative editor. Today I have with me Paul Gamble, our co-founder and CEO of Nori. Hey, Paul.
Paul Gambill: Hey, Ross.
Ross Kenyon: And another one of our co-founders now moved on to other things, Aldyen Donnelly, currently an advisor to Nori, carbon markets advisor to Alice Canada, Terra Merit Incorporated, and the Livestock Carbon Exchange. Aldyen, I thought you were going to take a break after you left Nori.
Aldyen Donnelly: No, I’m having too much fun.
Ross Kenyon: You’re having too much fun. That’s a good reason to keep going then. Thanks for being here. Do you know that your shows with us are among our most popular?
Aldyen Donnelly: Oh, no, that’s too tough a standard to live up to today. I don’t like that news right now.
Ross Kenyon: People oftentimes comment unsolicitedly to me about them. Does that happen to you too, Paul?
Paul Gambill: Oh, yeah. Well, also, I shout like episode 31 from the rooftops constantly. The one where we talked about like pricing and carbon pricing history and carbon taxation and that kind of thing in the past. That’s still to date my favorite episode. So we’ll see if we outdo that one here.
Ross Kenyon: Yeah, that’s a classic. Yeah, indeed. That’s a classic. And we’re going to update that story too. We’re going to talk about COP26, which just happened over the winter. There’s a little bit of old news by now, but there’s still a lot to talk about and unpack with it. And then we’re going to move forward and talking about how the new carbon economy Accounting rules have changed the game in carbon markets and what the future of carbon markets are going to look like. You can make some wild speculations, hopefully grounded in some empirical reality.
I think that’s your specialty, Aldyen. So we’re going to lean on both of you to do that. So Paul, why don’t you set the stage for us with COP26 a little bit? Set the stage for us.
Paul Gambill: Yeah. So prior to COP26, there was a big problem when it came to international carbon accounting. So Paris 2015 was when the International Climate Agreement was adopted. And there was a piece of it called Article 6 that was there to define... How you would actually measure the impacts of different carbon projects that were being accounted for by different countries. So prior to COP26, the way it worked was that if a carbon If a carbon reduction or removal project happened inside a company’s borders, that carbon could be counted against their own Paris climate commitments.
But then if that carbon credit that was generated and was sold to some private buyer in a different country, then that country could also count that carbon reduction relative to their Paris climate goals. And then that could just continue on and on and on. So you had a situation where there was no such thing as double entry bookkeeping when it came to international carbon accounting. And that’s just ridiculous. Double entry bookkeeping is like a 500 year old technology. It’s been around with us for a very long time and it was being blocked for years.
Largely political reasons. So what happened with COP26 was they finally did adopt new rules sort of that are going to implement double entry bookkeeping so that if a carbon reduction project happens in Brazil, and then that gets sold to a buyer in Germany, then Brazil takes a minus one and Germany takes a plus one or flip them, whichever way we’re talking about here, for that particular carbon. Now, there are going to be, I think, potentially bad consequences that come from this, but that was the big outcome from COP26. Did I miss anything, Aldyen?
Aldyen Donnelly: No, I think you got it. I think the other important related outcome and the reason this really makes a difference now is for the first time, Almost every nation in the world has at least voluntarily committed to certain greenhouse gas emission targets between now and 2070. So in every past COP and under the Kyoto Protocol, some countries committed to goals and objectives almost most of the time, which they did not end up keeping. But this is the first time that almost all countries have made commitments. So getting bookkeeping and accounting right is probably more important now than it ever was before.
Ross Kenyon: What led to the politics being this way where this is even a fight? Because it seems quite obvious that if one country is counting a negative emission, the country that sold it can’t continue to count that on their balance sheets for their emissions. It seems like politics, right? It seems like it doesn’t actually make sense in reality. So something else must be happening. How did we end up here?
Aldyen Donnelly: I’m going to run the risk of sounding nasty, but I don’t have a good explanation for that. And this is very close to home for me because by 2002, 2003, acting on behalf of 14 large corporate greenhouse gas emitters, I was the largest private sector speculative buyer of carbon credits in the world. And in every carbon credit purchase agreement I ever signed on behalf of the investors in my group, there were clauses in the contract. And if the other party sold real interest in minus one ton to me, my contract bound them to an obligation to do two things, publish their inventory, Whether or not governments were requiring that at the time and also add a balancing plus one to their inventory after I paid for real interest in a minus one.
So we get to around 2003 and all of the early drafts of the market design rules for the European trading market. The Northeast U. S. State’s Reggie Market and also the Chicago Climate Exchange. And that’s important because the first two were designed by governments. The Chicago Climate Exchange was all private sector. And in all three of those markets which proceeded, they had no double entry bookkeeping. If you sold me real interest in minus one in those markets, you also kept the minus one in your inventory report. And I went back to my investors in 2003, 2004.
And said, we have a problem because inevitably the market’s going to be awash in a whole bunch of credits because the underlying value of every credit, even if it’s otherwise impeccable, it represents real reductions, is no more than half a ton. In fact, many of the protocols that were being introduced at that time were also Generating credits that really had no underlying greenhouse gas reduction value. So I got permission to flip my portfolio because I forecasted in 2003 that highest price anybody would pay in real dollars would be the price they’d pay in 2005, 2006.
And the market price would crash by 2010 to 2012. And my projection came true. History is quite interesting in how it’s revisionist. Experts today say that crash happened only because of the 2009 financial crisis. But it happened because it was going to happen anyway. And the financial crisis did not lead to major reductions in energy and fuel demand. So the data doesn’t support the assertion it was due to the crisis. It had to happen because the market was creating a whole bunch of credits that had no underlying value.
Paul Gambill: I can add another perspective take too, which is from a political standpoint, how do we get to this point at the international level? Because keep in mind, I’ve always found this a little bit weird. Countries, nation states are taking credit for activities. So, like if a private developer produces some sort of forestry carbon project in Brazil and then sells that to a buyer in Germany, well, the national governments had nothing to do with that. And yet they’re counting that. So anyway, I set that aside. Historically, since the Kyoto Protocol in 97, what came out of that was the Clean Development Mechanism, a program by the UN that was to set up a framework for how you might do carbon trading, which is ultimately related to what Aldyen was just talking about.
That went on for quite a period of time, mostly between private actors like Aldyen and her investment group that she represented. But as we got closer to Paris, you have countries like Brazil specifically, like Brazil was a blocker here, who was saying that Look, they’re recognizing that they have the Amazon inside their borders, which is an enormous carbon reservoir. And so that’s a huge national asset when it comes to this and recognizing that they could use that as a source for their own carbon reductions. But they originally, under Kyoto, it was the developed countries of the world that had requirements, not the developing countries.
So Brazil would be in the developing camp. So originally, they were able to export their carbon credits while not really being beholden to the same type of commitments. But with Paris, that changed. And now every country has their own emissions reductions targets. So Brazil especially still wants to. I also, this is going to sound strange coming from me, but I sort of want to come to Brazil’s defense.
Aldyen Donnelly: Because in Paris, when Brazil made a commitment in COP talk, it’s called a nationally determined contribution. So when Brazil made their commitment to reduce emissions on a given schedule, they made that commitment on the understanding that they could both keep and sell credits. And the idea that they had to Moved to double entry bookkeeping and must add an adjustment to their inventory for each credit they export was introduced a little bit later. So Brazil said, you can’t change the rules on me like that just overnight. I made a certain commitment.
We in Brazil made a certain commitment under a certain accounting method and that your change in the accounting method materially Changes things for us. So it was always crazy that the system did not have double entry bookkeeping or proper accounting for trades. But I sort of got to agree with Brazil. That was a really, really big change in the rules of the road. I do think that it’s correct to reflect trade. I think people were perhaps extra hard on them because the story that I saw was often of a perfidious, villainous Brazil.
And it was easier with Bolsonaro fitting that narrative really, really cleanly in a lot of people’s minds.
Ross Kenyon: But yeah, if you have an agreement and the agreement changes around you, and you have all these expectations built upon that, that doesn’t necessarily make you the bad guy.
Aldyen Donnelly: Well, Brazil also wasn’t the only developing an economy who for years has been hearing commitments from the developed economies, where our leaders have been saying, we’re going to send you hundreds of millions of dollars a year to help you reduce emissions. And we haven’t been keeping those commitments. So you could argue that if we weren’t going to send them money, one way to effectively indirect them, send the money is to let the credits be double counted. So I don’t hold Brazil in the villainous category that many do. It was a rational reaction to the situation.
Ross Kenyon: But things have changed now, right? Some new watershed agreement has actually transpired. Things have been changed and we are happy about it on this podcast. Yes?
Paul Gambill: To some degree.
Ross Kenyon: Sorry. Take your stabs at it.
Aldyen Donnelly: Do you want to go first of all? Yeah.
Paul Gambill: So, I mean, this is a concern that I have that this idea was originally incepted in me by Aldyen. So we’re in agreement here. I really have a fear that this is going to lead towards export controls around carbon credits. Because now, now think about it. If we get to a point where... That we are simply not meeting these aggressive goals. And if Nori is successful, we’ve already worked with farmers to remove over 70,000 tonnes. And let’s say there are others that are growing this and there’s like a if there’s a large supply of carbon removal that’s being created inside the US, but then those are being sold at like some percentage to international buyers, that means that the ones that are sold to buyers in other countries won’t get to count towards US reduction.
And so we could find ourselves in a scenario where leaders of the federal government say, ah, there’s too much export happening. We’re not meeting our goals. Therefore, we are going to limit the amount of carbon credits that could be sold to international And then you could actually see that happening down at the individual state level as well. And so we could find ourselves in a deeply mercantilized way of being able to find the best buyer and the best price for the product and good that you’re trying to sell. Carbon protectionism is coming, basically.
Aldyen Donnelly: Paul, you’re right. And it’s not a risk that’s going to happen. It’s inevitable without a fundamental change in the market design. And it’s a simple thing. We now live in a world where most nations in the world have said, we are going to at least try to live with an absolutely limited nationwide greenhouse gas emission budget for 2030 and 2040 and 2050. And every nation’s greenhouse gas budget by definition Constrains that nation’s combined rights to produce and consume fossil-based fuels and uranium, produce building products, so iron, steel, aluminum, glass, plastic, produce and use fertilizers and produce food.
So as long as any credit or government-issued allowance is perpetually bankable, as they are right now, Then it would never be prudent for any government to approve the export of a credit or an allowance because in a future where all nations are committing to reductions, the way to derive significant competitive advantage in a global market is to hoard all of your credit, is to buy all the credits any idiot will sell to you and ban the export of any credits you can accumulate. It’s not possible for this market to proceed into a free market international format in that context.
There are solutions that probably will take another six years for people to start talking about. I had the honor. So we put banking limits on credits. To some extent, create the opportunity for an open market to emerge. But that still is a very limited partial solution because it doesn’t take very long for the corporate emitters to figure out that hoarding credits and not letting your competitors get them is worth a lot more to you than the price that you can sell them for. So even with limited banking, hoarding is the how to get rich scheme from the corporate side.
So this is dead. This is over. We should have 20 years ago started on the assumption that if anybody sold a credit, they would have to add a balancing entry to their inventory and then said, in that context, what is the path forward? The problem is we picked a path forward that doesn’t fit. Can’t be made to work if we’re actually doing double entry bookkeeping. So we got to start over.
Ross Kenyon: I’m trying to puzzle through some of the implications for the nascent carbon removal industry. And then most places, most of the companies that I’m aware of now are United States based. And if they have to sell within the United States borders, they’ll probably be okay. There’s a lot of buyers here, but I think for some of these forestry providers, especially those who work overseas, they might face some serious problems now.
Aldyen Donnelly: Absolutely. And it’s just coincidental. I’m not aware of anybody sort of looking at the maps and thinking this through. But 60% of the global potential to draw down and sequester incremental carbon in soils and root systems are in 10 countries. And six of those 10 countries are the largest national greenhouse gas emitters in the world. So it’s kind of lucky for those 10 countries that the demand for their natural solutions credits or six of the 10 will match the supply in terms of the, you know, within country boundaries. But the developing nations who, you know, you’d want to have a global market that is delivering value to develop nations that are outside that group of 10 to do the right thing.
And you can’t make this market work for that. You just can’t.
Paul Gambill: Let’s say you’re a country in Africa or South America and you have large forestry reserves and you’re in this situation where carbon credits are not being exported by countries. That means that if you’re a supplier in that country, you’re going to be largely dependent upon buyers in your country. And if you are a developing country, their ability to pay prices that will sustain your existing projects. We can all agree right now that carbon prices are too low.
Unknown speaker: You’re going to result in a number of people Googling what mercantilism is.
Ross Kenyon: Good.
Paul Gambill: We need that in this era of protectionist presidents.
Aldyen Donnelly: Can I try to surprise you and go optimistic on you?
Ross Kenyon: Please do.
Aldyen Donnelly: In true consistent form. COP and UN community have decided that, yes, it’s time to introduce proper accounting for credit exports. And as I said, that is the right thing. It’s just too late to do it. But they’ve also decided that global market that’s going to emerge, or at least to the extent that credits and allowances that are exported count towards nations’ reduction commitments, formal reduction commitments, They have to be overseen and administered by a very, very, very high-level international oversight body that will be basically playing the same role in reporting to the same people that the old CDAMJI board was reporting to.
And they have decided that it’s going to be a very complex and detailed oversight system that will apply a whole bunch of standards towards credit issuance and trades that have to be an international standard, but also That have to account for women’s rights, equity, diversity in marketplaces. And they have announced that they perceive it will take them at least three years to set up that oversight board. So essentially, the international credit market is dead now until they... The oversight committee, unless some wily hustlers can convince voluntary market participants to buy into that backlog of under- Unsold credits that have no underlying value, that historical backlog.
What’s that mean? It means that groups like NORI, the carbon removal service provider groups we intend to serve, and other like-minded parties should be very serious about proving and demonstrating how a real market works as soon as possible. They’re going to take three years to try to wrap their head around it. Our best response is to get ahead of them.
Ross Kenyon: Coincidentally, before we recorded today, an article came out in the Wall Street Journal entitled Cryptocurrency Traders Move Into Carbon Markets. And for those of you not watching this process, there’s been a number of cryptocurrency projects that have launched and they interact quite often with the carbon markets that we described in the first half of the episode. Paul, maybe you can give the listeners a nice finger on the pulse of what’s been happening here.
Paul Gambill: Yeah, so this is specifically about KlimaDAO and the Chucan protocol that is pulling real-world carbon credits onto the blockchain. The way that it works is there are carbon offset registries like Vera, Gold Standard, Climate Action Reserve that project developers work with to create and sell their carbon credits. So they create protocols that these project developers conform to. They go through a validation step, a verification step, and then they’re issued carbon credits. And then those carbon credits are basically tracked by the offset registries as more or less serial numbers in the database.
It’s mostly brokers who are facilitating exchanges. There are a lot of things going on in the DeFi world, particularly around a platform called OlympusDAO. Now, I’m not really going to go into what OlympusDAO is. People can look that up. But in 2021, there were a number of forks of this particular project that were basically duplicating the same incentive structures that they had set up. One of them was called Klimadao. And Klimadao is intended to be what they’re calling themselves as a black hole for carbon credits. So they’re trying to create financial incentives to buy up carbon credits that are I would say that you would do that to increase the amount of financial incentive to project developers, but they actually describe it in their documentation as they’re trying to increase the amount of money that emitters have to pay, which I don’t know, that just seems like punitive to me.
I wouldn’t make that my objective. However, The way that it works is Klima DAO is issuing bonds to people. You can basically buy the Klima token at a discount as long as you have to hold the Klima for five days or something like that. And these are backed by We are taking final ownership of this. It’s not going to be traded again. But then what Toucan does is they create BCTs or base carbon tonnes that are tokenized representations of those retired carbon credits. They’re not actually retired, which is why Vera has issued a couple very passive aggressive statements on, And the problem is that they’re not actually retired because those BCTs could be released and resold if the price the Klima token drops below the price of the BCT.
So my complaint and criticism of this is that they’re perpetuating this system where carbon credits can be resold more than once and the actual underlying value of them isn’t actually one ton. So that’s what’s been going on. There are other criticisms about Klima and all of the Olympus Forks, but that’s the issue that’s going on there. And ultimately what they’re buying are carbon credits that no one ever wanted to buy in the first place anyway, because they’re old and junk. So that’s the kind of overview of what’s going on there.
Aldyen Donnelly: And that goes back to the COP decision about introducing the accounting rules, because in an attempt to please everybody, the new Article 6 accounting rules do introduce loopholes. Where a certain supply of old credits that have been lying around since, you know, some go back as early as 2002 and have never been bought by anybody can be sold without the double entry bookkeeping under the rules. So they’re letting not all but a large share of this backlog of old credits that nobody bought before get used and not have to apply the accounting rules.
And estimates of how many such credits are old, most of them have very questionable underlying environmental value. The estimates are the total potential volume of credits in that category that are going to attract plays like Paul just described, ranges between 2. 4 and 3 billion credits. To put them in context, I could have gone to an exchange 18 months ago and bought most of those credits for less than 34 cents US a ton.
Paul Gambill: Shockingly low.
Aldyen Donnelly: So this is a mess. This is not sustainable. This is not doable. Again, what we need to do is be very, very clear that we can show that when a credit has an underlying value of one ton, how it’s properly accounted for, what it’s worth. Where it originates, where it’s retired. And as I said, we’ve got 36 months to actually build a robust market that works like a market that’s real, that’s reliable. And that’s going to be the easiest way to turn this really bad situation around.
Paul Gambill: Not to mention, there’s one more important distinction to make here, which is the difference between carbon avoidance credits and carbon removals. And I don’t know if any of those that are being bought by Klima, which I think is around 14 million carbon credits, I don’t know if any of them have anything to do with carbon removal. And I am, I mean, obviously, because Nori focuses exclusively on carbon removal, but I just don’t believe that anyone should be spending their time on carbon avoidance or carbon reduction projects anymore. Market forces are already pushing everything into that direction.
And it doesn’t make sense from an accounting perspective, from proving the counterfactual and so on. So there’s also this artificial weird demand that’s being created for carbon avoidance that doesn’t actually do anything to solve climate change. So that’s another beef I have.
Aldyen Donnelly: But I think that’s a really good point. But I should state that the overseers of the new market that are going to set up their oversight body still have some outstanding decisions. And they have said clearly that they haven’t decided yet whether or not to include avoidance credits in that marketplace that otherwise they might limit to emission reductions and removals. Again, what does that mean? They’re giving themselves three years to get this right, so the risk is pretty high that a whole bunch of avoided credits are going to show up in ETF versions of carbon credit funds to get big margins off buyers who don’t understand the difference that you just described, Paul, sooner rather than later.
So it would be reasonable to expect brokers to start moving avoidance credits to buyers who don’t get the difference.
Paul Gambill: It might not even be that buyers don’t get the difference. They might just not even care, even though they do know the difference. So I’m not going to name names, but there are large enterprise companies we have spoken to in trying to sell, become Nori customers. Basically, when you’re a big enterprise company and you buy carbon credits, you’re actually taking on a really big liability. Because not only are you the financial cost, whatever, but if they’re big companies that can absorb that, that’s not a big deal. But they are taking on a public perception liability.
So if you buy a large amount of forestry carbon credits, and then it turns out that forest burned down and that carbon is no longer locked up in those trees. You’re going to get destroyed in the press for it. I have spoken to sustainability directors, Fortune 100 companies who have said their biggest concern with carbon credits is having an investigative reporter show up at their door. So in order to mitigate that risk, they go to the effort of hiring brokers and big consulting teams, and they build out big sustainability teams, which by the way, like only the biggest companies can afford to do this.
So again, this is not scalable. And they do so in order to find what they call high quality projects. I’m doing big air quotes here. I hate that term because to them, high quality means the most likely to pass muster as determined by So this is what’s going on. That’s what this system perpetuates. And the biggest enterprises at this point don’t even really care because all that they want to do is be able to check an ESG box and make sure that they’re getting proper media coverage and being seen by their consumers and by their shareholders as, quote, doing the right thing.
But ultimately, it doesn’t actually help solve the problem.
Aldyen Donnelly: You know, what you’re looking at is a market that the risk is, this is going to play out in a manner that is very similar to, fortunately, smaller than, but still large, but very similar to the credit defaults and secondary mortgage markets circa. 2006, 2007, where the guys holding the bag in 2008, 2009 are the ones who lose their shirts. Again, we can fix this. Fortunately, the crazy people who came up with these ideas have given themselves three years to develop the oversight system to make it work. We can show the way.
We can show the better way. The parties who... Feel strongly that the most efficient path to climate change risk mitigation and adaptation includes natural solutions and carbon removals along with emission reductions. We know how to create a real commodity and establish its value and do so transparently. And we just have to do that so loud and so clear over the next 18 months that the group That has appointed themselves to design and control these markets, decide the way we’re showing them is the right way. That’s what our opportunity is. The risks associated with us not doing that are very, very large.
Ross Kenyon: I want to go back a little bit to this demand driven solution set. So if we’re talking about something like Klima, where it seems like the underlying thesis is that the problem of carbon markets and climate action is that not So if we buy them all up and raise the price up, that will somehow help. But I’ve always been curious about the second step for voluntary assets like this, where if low quality assets are just all being bought up and it raises the price, why wouldn’t people just produce a huge amount more of low quality assets?
So Nori, our thesis is that supply is the fundamental constraint inside of carbon markets. The supply is bad.
Aldyen Donnelly: Supply is no good. The UN approved and issued CDM credit supply started up in 2002. Six different projects accounted for 57% of the credits that they had issued by 2012. And an audit found that, in fact, deciding to issue credits to those projects likely added, would add by 2020 if those projects continued on. A billion tonnes a year to atmospheric concentrations that would not otherwise have been added. The credit issuance actually led to an emissions increase. I was one of 80 people who wrote reports in 2000 telling the UN not to do this because that would be the outcome.
But they didn’t stop doing it until their own auditor told them 12 years later to stop. You know, it’s time to recognize that markets should be designed by people who are in the marketplace. And that includes us. And also recognize that in any market, if we create an opportunity for people to sell stuff that has no underlying value with government and premature, they’re going to sell it and it could take all of the rest of us down with them. But it’s up to us to be able to show the marketplace, the market participants, the difference between what’s real and what’s not.
Cause government’s not going to do it for us and neither is, neither are the international agencies.
Ross Kenyon: I found a, I found a clip that I think explains this pretty well. Best of us episode.
Paul Gambill: Yeah. Yeah. Okay. So while we’re on the topic of varying grievances, can I talk about permanence?
Ross Kenyon: Yeah, I was going to set you up. Go ahead.
Paul Gambill: Thank you. Thank you. You know, permanence is another thing that is discussed often when it comes to carbon credits. So permanence is, well, originally this came about for carbon avoidance projects. So if you’re a big enterprise company. So if you’re a company and you’re paying someone for carbon avoidance offsets, you know that the typical average lifetime of a CO2 molecule in the upper atmosphere is about 100 years. And they say, yeah, sure. We’ll sign a contract that says we do that. But in practice, how many companies do you know that are over 100 years old?
It’s a small handful, and they’re also gigantic. That is not how project developers in carbon markets work. But there’s a bigger, more pernicious thing that’s going on in the carbon removal space. In carbon removal, permanence means If you remove the carbon, how long is that carbon staying out of the atmosphere and staying locked up in whatever reservoir or material or however you stored it and sequestered it? How long is that staying out? There are lots of efforts being put into very, very permanent methods of removal. For example, direct air capture into mineralization, which Experimentally, it’s looking like it might lock that carbon up for 100 years or more, or biochar, which could lock up that carbon for potentially 1,000 years or more.
That’s good. That’s cool. That means that’s carbon that we don’t have to worry about anymore. But I would posit that we should be approaching this from a very different perspective because we have an atmosphere carbon problem right now, today. It is not like we don’t have a problem today and we’re anticipating a problem in 100 years. We need to deal with it right now. And there are a lot of different ways that are much more scalable right now that can pull carbon out of the air, but in a not so permanent fashion.
For instance, at Nori, we work with farmers who are storing carbon in their soils by adopting regenerative agriculture practices. And it’s pretty straightforward and doesn’t take a lot of effort to store that carbon in their soil, but it similarly doesn’t take a lot of effort to re-release it. All you need to do is really plow the fields. So there are some actors in the market who think that’s bad and that we should be focusing on more permanent stuff. But I would argue that I would so much rather remove 100 million tonnes of CO2 for 10 years than I would remove 10 million tonnes for 100 years.
So I’m not arguing against any carbon removal method. At Nori, we’re agnostic. We work with farmers today and we will plan to support many more in the future, including stuff like direct air capture. It’s just that there’s no scale. Like the world’s largest direct air capture facility just went online a few months ago and it removes 4,000 tonnes per year. That’s the size of like one medium-sized customer that Nori has. So when it comes to permanence, I think people are putting way too much emphasis on that. And what we should instead as a planet be focusing on is throughput.
How much carbon can we remove at any one point in time? And how can we increase that number as rapidly as possible? Because we’re never going to stop needing to remove carbon. Like we’re never going to like remove the amount that we set out We’re done here, folks. We can go home. Let’s go do whatever we want. As a planet, we need to be building what I’d like to think of as a metaphorical factory that is capable of removing between 50 to 100 billion tonnes of CO2 per year. That’s A number that almost doesn’t even seem possible today, but that’s really what we need to be doing.
So we will always have to be removing carbon into the future because we’re going to have to be managing the carbon cycle from now on. And so I argue that it’s throughput that matters much more than permanence.
Aldyen Donnelly: And I agree, but actually for different reasons. When we started Nori, I gathered a whole bunch of the liens and covenants that are attached to land that are ostensibly being put in place to keep the permanence commitment to buyers. And in consultation with lawyers found that, in fact, most of those covenants restrict land use. I totally agree. And if you really understand the desire for permanent carbon retention in terrestrial reservoirs, the question is, how do you get there? And I’m of the view that the way to get to 100 years is to build a portfolio.
Portfolio of carbon with removal and retention agreements that might have a variety of terms. You might have one contract that is a 10 ton year term and another contract that’s a 30 ton year term. And each credit should have its own ton year denomination like any other currency. And you build up in that way. And I think that’s the only way to get to effective permanence. So let’s be real. And we do have a lot of history, particularly in North America, with land tenure and use agreements that bind operators to land.
And many of those longstanding, well understood, established agreements have resulted in outcomes we know as abandoned wells and mines. So why would we go to repeat that story here unnecessarily? Just assume that you can’t get an enforceable 100-year retention agreement. So don’t try to. Think about how to build up to 100 years.
Ross Kenyon: In wrapping up, getting pretty close to the end here, I was wondering if you might like to make some abbreviated predictions for what the next year or couple of years will look like for carbon markets generally.
Aldyen Donnelly: I’m really worried there’s going to be a great amount of hype. And it’s the right time to calm down. And here I am contradicting myself. I’m always encouraging farmers to come to the Nori marketplace. But it’s the right time to just slow down a bit, breathe, think it through, and work with partners who are making sense. And if somebody is saying to you something that doesn’t make sense, or it doesn’t sound like it makes sense, it’s probably because it doesn’t make sense. Just calm down, find some people you trust, take your time, work this through, and we can make it happen.
If too many people get on a hype bandwagon too fast, it could crash and burn and take us all down.
Ross Kenyon: Sobering. What have you got, Paul? Anything happier than that?
Paul Gambill: Well, I mean, I agree with Aldyen on all of that, but okay, I’ll speak to Nori, which is I’m really excited about our upcoming token launch, because as you mentioned, Ross, we have spent years getting to this point of building out the carbon side of our business. We work with farmers. We can go through measurement and verification processes. We’re able to sell in an end-to-end process, the carbon that’s been removed to customers who are going carbon neutral or carbon negative. We’ve proven out that concept, but long-term like nor Discovery is not just a carbon removal company.
We’re not just a carbon selling company. The point of what we’re doing is to create a price discovery mechanism for carbon because the real problem is no one knows how much carbon actually costs or should cost, and they can’t build business models and invest money around that. It’s funny that we use the term carbon markets, but there actually is no such thing. And what we’re trying to do here is get this token launched as the method of price discovery for this commodity that is carbon being removed. So we are nearing our token launch, hopefully within a few months.
We’ll be, I’m sure, having more episodes about this, but I’m really excited for the possibilities that having a true one-to-one price reference for carbon removal. So just as a recap for people, we have two different assets at There’s the NRT, which is the NRT removal ton. So one NRT is one ton or basically 10 ton years, one ton removed and stored for at least 10 years. And the price of one NRT will be one NRT and that NRT price will fluctuate So whatever the price of the Nori is, is the carbon price.
So I’m really, really, really excited because this was the vision that we came up with in 2017. We’re finally at the point of being able to realize that. And that’s all along been the objective in order to create the market example that Aldyen has been talking about. So I am very optimistic about getting that going and actually seeing price discovery happening on the Nori token.
Ross Kenyon: Well, thanks both for being here. Thanks Aldyen for taking time to come back and hang with us. It’s always nice to hear from you.
Aldyen Donnelly: Nice to be here.
Ross Kenyon: And thanks Paul, but I have pretty much all of you that I need.
Paul Gambill: Don’t forget it’s bagel day on Wednesday at the office.
Ross Kenyon: A very Seattle little comment there.
Paul Gambill: That’s what we do here at Nori. We’re also hiring. Can I say that? We’re hiring a bunch of people. We do get bagels every month. We have a lot of fun working out of our Seattle office. So check out the nori.com slash careers page if you want to work here.
Ross Kenyon: Yes, thank you. And links to everything we talked about are in the show notes if you’d like to read any of those articles. Thanks so much for listening. If you like what we did here today, please give us a great rating or review on Apple Podcasts. Also, Spotify has ratings now. So if you can give us a great rating on Spotify, it helps us a lot, helps us get this content to more people. And thank you so much for listening. 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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