Podcast

Episode: 376 |
Ali Ahmed:
Green Strategies:
Episode
376

HOW TO THRIVE AS AN
INDEPENDENT PROFESSIONAL

Ahmed-Ali

Ali Ahmed

Green Strategies

Show Notes

 

Ali Ahmed is the founder and principal of Green Strategies, a company that helps clients discover sustainability opportunities. He is a recognized sustainability and energy management leader who has developed and managed more than 50 global energy and sustainability programs. In today’s episode, we discuss carbon.

Key points include:

  • 01:37: An overview of carbon credits
  • 06:27: The companies buying carbon credits
  • 09:02: Carbon credit audits
  • 13:38: Carbon offset interpretations
  • 21:42: How the soil captures carbon
  • 30:04: Carbon accounting
  • 37:46: The international market for carbon offset

Ali can be reached through his website at green_strategies.com  or connect with him on LinkedIn.

 

One weekly email with bonus materials and summaries of each new episode:

Will Bachman 00:01
Hello, and welcome to Unleashed the show that explores how to thrive as an independent professional. I’m your host Will Bachman. And I’m here today with Ali Ahmed, who is the founder of green strategies. We’re going to talk about carbon. Ali, welcome to the show.

Ali Ahmed 00:19
Thank you. Well, good to be here.

Will Bachman 00:20
All right. So we have an hour early, I hope that you can get me smarter about this. You hear a lot about, you know, carbon markets, and carbon offsets and so forth. But you’ve told me before that that’s actually there’s just a lot of different products related to that. And you do a lot of consulting around this, maybe just to help orient us and kind of know where you’re coming from, just give us surges, the one minute overview on your form and your areas of expertise.

Ali Ahmed 00:51
Yeah, well, I I work primarily with companies that have kind of seen the issues around environmental sustainability, and their carbon emissions, and help them formulate strategies and then get down into the tactical projects that they might go through to help reduce their emissions or to help them create these credits and move into mindu into credit marketplaces.

Will Bachman 01:18
Okay, so give me an overview right now around what’s going on with carbon credits. And where do they come from? What are they, you know, do companies buy them? Is there trade on it, just just give me an overview of this whole market?

Ali Ahmed 01:37
Yeah, and it I mean, it is a very, very complicated collection of markets, collection of global markets, really. But it all comes down to activities that are being done, which either reduce the amount of carbon emissions associated with energy production, or epic manufacturing or other type of activity, or, and this is a more recent component, they’re associated with actually projects, which take carbon out of the air. So you know, there’s a lot of talk about things like carbon sequestration, and things like that, so, so that they really evolve around these two project areas. Probably the simplest kind of credit that people can think about is those associated with things like wind turbines and solar panels. But there’s a lot of other ways to, to generate these credits, including agriculture, including energy efficiency projects, including really esoteric things, like changing the type of refrigerant coolant that you use in your air conditioning systems. Alright. So there’s a lot of a lot of different project potentials out there. And a lot of different markets spread across the globe for people to look at as they as they kind of try to understand what’s best for them.

Will Bachman 02:58
So let’s start with the buyers. So who is buying carbon credits? And who is requiring them to buy it? And maybe we focus on the United States for the minute, and it’s different across the United States is different across industries. I mean, you hear politicians talking about, oh, we need to put a price on carbon. So it doesn’t seem like just for me as a lay person, that it’s even required for anybody to buy them, but people are apparently buying them. So explain to me, who are the buyers? Why are they buying these? What’s requiring him to do it?

Ali Ahmed 03:33
Yeah, and there, there are kind of two broad categories of markets, there’s a voluntary market, and it is what it is, it’s people who are voluntarily going into that marketplace. And they enter that space because they have some type of demand from their stakeholders, either end customers or b2b customers who are requiring them to do something about their emissions. And then there are regulated markets and there are different regulated markets, they tend to be state by state, across the United States, probably the most active one right now is in California. But a lot of states have developed what they call renewable portfolio standard is specific to renewable energy. There are requirements that that typically apply to utility companies that have been forcing them for a number of years to to buy more renewable energy and put more renewable energy in their portfolio. And that’s one type of of carbon credit is when it says give their noble energy.

Will Bachman 04:37
So um, so state will require the utilities that supply energy in its state to have some percentage of their energy be from renewable.

Ali Ahmed 04:47
Correct.

Will Bachman 04:49
And if they don’t, then they can get by by basically just so even if they’re supplying car electricity that comes just from a coal plant, they could go and buy These credits from someone else.

Ali Ahmed 05:02
Correct. And it creates these markets, probably the most popular one right now is in New Jersey, where they have a regulated market. And that market actually distinguishes for the utilities, the difference between solar produced credits and wind produce credits, and it actually has created a market anomaly, the solar credits are trading for in excess of $200 a megawatt hour. So a credit is is based on the amount of electricity in this case, but $200 a megawatt hour. And just to give you some idea, a kind of a national us mixed source credit, you can buy somewhere between 50 cents and $1 a megawatt hour. So that’s a 200 to 400% multiplier on, on credit prices. And so it’s created a huge market for solar in New Jersey, the electricians unions are loving it, they are they are rock solid, putting solar on every single flat roof in New Jersey, and have been for a number of years.

Will Bachman 06:08
So beyond utilities, then what other types so in that case, they’re required to do it. So the state requires utility to buy it. So they have to go buy renewable. What other sorts of companies would be buying carbon credits on the regulated or the voluntary markets?

Ali Ahmed 06:27
Right. So I mean, there’s obviously a lot of movement towards improve sustainability, you know, within the fortune 500 ranks, have signed up to reduce their carbon emissions. And there’s a variety of, you know, alphabet soup organizations, they report to you one most notably is called CDP, which used to be used to stand for the carbon Disclosure Project. Now, they just go by CDP, but they actually publish, you know, report and give grades to companies. And they are then supply those reports to the investor community. So companies participate in that in that reporting scheme, because they want to have, you know, positive looking numbers on their on their Bloomberg screens, where where CBP puts those numbers. So I think that that’s been a big driver, kind of in the fortune 500 world. And typically, if you look at the various offset markets, in the US, for sure, and even globally, when you go out to Europe, they are dominated still by the fortune 500 is that they’re the primary companies, you know, seeing too is as these standards get more strict, companies are looking down their supply chain with their value chains. And the standards are starting to require them to do things about the carbon across their value chain, so they can’t simply just outsource the carbon problem to another to another part of their value chain. And so now we’re seeing the larger companies start to require at a minimum reporting, but starting to see them actually require reductions across their value chain. So middle market companies, tier one, tier two suppliers, the fortune 500, are now taking a much more active role in measuring their carbon emissions and then participating in the various offset markets to to reduce their emissions.

Will Bachman 08:34
So is somebody doing an audit that tries to calculate bottoms up or in some way how much carbon a given company is responsible for based on? Okay, well, you have this many factories, and you’re shipping stuff around and you have this much electricity use from your data center. So who is doing those audits? And how do they, how do they go about them?

Ali Ahmed 09:02
Yeah, I mean, there’s a large group of companies ranging from, you know, the big five consultants down to folks like myself, who do GHG are greenhouse gas inventories for, for companies. And those inventories can be very tightly focused and maybe just on a company’s direct emissions from the fuels that they burn and the electricity they buy. Or they could be very broad investigations that look, as you said, all the way down the supply chain through their logistics providers to their source materials, and then even all the way out to how customers might be using their products and how those products create emissions. So, when that kind of study is, is often called a lifecycle analysis study, so so there are a large number of firms again, you know, most of the Big companies are engaged in are performing those inventories annually. But a lot of smaller companies have not yet started to measure their inventory. And they’re just now being asked by law by their, by their customers by the other b2b customers to start supplying those numbers.

Will Bachman 10:23
It would seem that some industries are just naturally, you’re going to be creating more carbon than other industries. And new companies typically kind of get ranked against their, you know, their peers. I mean, it would seem that, you know, like an aluminum company that uses too much electricity or an airline that it’s, it’d be unfair to rank them against something that is much lower use in carbon. So how does that happen?

Ali Ahmed 10:51
Yeah, I they do so they they’re our industry comparisons and industry benchmarks that are done. But but but they’re also just, you know, broad based, who’s the best in the fortune 500 sees the best in, in certain regions, regardless of industry. So a lot of the a lot of the leaders in this space are are the tech industries. So you know, folks like Microsoft, Google, even Amazon, to some extent, Apple. So they’ve been very active in that space. But again, a lot of the more dirtier industries are falling airlines have become very active. And again, what we see a lot of times is these companies start with an aspirational public goal. So the CEO will come out and say we want to be carbon neutral, or, or have a reduced environmental footprint. And then the tactics start to come after that, how do we achieve it? What programs want to be involved in. And again, right now, there are a lot of activities that we have not figured out how to do without emitting carbon. So that’s where these offsets come in. And, you know, we haven’t really figured out a good way to make steel or aluminum yet, without emitting carbon, we haven’t got a good way to fly an airplane without emitting carbon. So So those companies are very active, you know, in the offset markets, because they really cannot meet their goals. And then for other companies, they make make huge emissions reductions. But it’s that last little bit that they need, where it just becomes either uneconomic completely on nickel, or just really, really difficult to get rid of that last little bit of carbon. And so that’s when they use it offset.

Will Bachman 12:40
So, okay, so it sounds like companies are partly doing this voluntarily or just for their, their image, or for some customers, Who, who, who may may make buying decisions based on it. So let’s say the company now, lets you could you tell me anywhere in the US wants to, you know, buy some carbon offsets, because they, they’ve already tried to reduce their own carbon emissions. What are the different choices? Is there sort of one just global market? Like you can just buy, you know, you could just buy gold, kind of there’s the global price for it? Or is there like lots of different fragmented markets with different interpretations of what a carbon offset is, and, you know, different levels of how tightly vetted and audited they really are? So, yeah,

Ali Ahmed 13:38
yeah, it’s, it’s definitely the ladder and and yeah, they’re, it’s, it is a commodity that’s not yet really been commoditized. So they’re just lots of different products in the space. So, you know, if a company is, is most most companies that I work with, who are really just approaching and getting into this space and looking to maybe procure carbon offsets, or maybe, you know, put in solar or wind farms at their facilities, because they have the ability to do that and, and they want to generate revenue through participation in the carbon offset market. Most of them are focused on renewable energy. And, and there are there that is probably the most commoditized and the most obviously certifiable type of offset. I mean, there’s an electric meter, it tells you exactly how much renewable energy you produced. And there’s a protocol and a number of certification agencies at either the state level and there’s some national and global ones, probably the most noted is one called Green E, green hyphen E. And they provide a both a national certification and then an international certification for renewable energy credits. Other programs have have different different degrees. So we’re seeing a lot of movement. agricultural base credits and in fact that there, there are some bills sitting in Washington right now that actually have some bipartisan support, that could actually create some government voluntary programs around agricultural offsets, where farmers are performing activities to sequester carbon in the soil. And then that that sequence stration gets modeled and measured and monetized. And those credits are sold. So, again, wide variety, wide variety of opportunities, you know, for companies looking to purchase it. And again, if your stakeholders or your company is looking for very specific either geographic type of offset, the more specific of an offset, you get, the smaller part of the market, you’re approaching, and the prices tend to be higher. If you’re just looking to offset your carbon in general, then you can renew, use renewable electricity and get a pretty commoditized and pretty release right now. Low Cost credit. Okay.

Will Bachman 16:09
So what if a company is doing business today, you know, status quo x, and they’re able to say, Hey, we got more efficient at how we operate. And next year, we can do this at, you know, point 9x, or point 8x. So they’re doing the same thing. Maybe they’re producing aluminum, or maybe they’re running a data center, but they reduce their amount of energy usage. For the same task, do you get a credit for that?

Ali Ahmed 16:41
There are some programs that allow you to generate credits off of energy efficiency. They’re pretty limited. And they have a lot of rules. there’s a there’s a concept in the in the space called additionality, which is a made up word. That’s part of the kind of global construct around how we think about carbon. And one of the tenants of additionality is if it if you’re doing it, because you’re just going to make more money anyway, they really don’t want to issue a credit for that. Where they want to issue credits is where people are not economically incentive to do the right thing. And so the credit creates the economic incentive to change the activity. So again, there are some some cases where you can do offset credit and projects through energy efficiency. I know that, for example, the state of New York doesn’t really issue credits, but they have a lot of programs that that help people move into more energy efficient lighting, more energy efficient motors, the use of variable frequency drives and process control. But it’s not really a fungible offset that gets created for that.

Will Bachman 18:06
I mean, it seems that I mean, solar power is great and everything, but you still have to, you know, you know, consume resources to go put up the solar panels and everything, it seems like it would be almost better just to like, not use the energy in the first place.

Ali Ahmed 18:21
That is, that is and we look at, I think a lot of I refer to it oftentimes as a hierarchy of good. And if you look at kind of the most good that you can do is to not consume, right? I mean, is to not, not use the electricity, not generate waste, not use raw material. But that I mean, that that obviously has limitations, because, you know, we also want to improve the quality of life for humankind. So, you know, we want the internet and we want quality food on our tables, and we want solidly constructed homes and things like that, so, so you can only get so efficient. And then and then kind of that next tier is okay, what can we do very directly within our own confines, to create some type of circular or positive approach. And so typically, that’s on site, renewable energy generation. So putting up solar panels, right, that’s kind of the next level of good. And then as you get farther and farther down the road, kind of last resort, the weapon of last resort is really a carbon offset. Because ultimately, if hopefully, in 100 years, for example, we won’t need offsets, right? Everything will be carbon neutral or sequestering carbon. And there’ll be no need to, to have this marketplace where people are trading their emissions.

Will Bachman 19:52
Tell me a bit about the types of projects that your firm does.

Ali Ahmed 19:57
Yeah, so a lot of them are in renewables, a lot of them are in New Jersey right now we talked about it before the solar market there is very hot. We we do a lot of what we call off site, solar project contracting. So helping customers go out and directly purchase renewable energy from a new project, typically part of a new project that going up. So this may be a huge wind farm in Texas or Iowa or something like that. And then one of the areas that we’re really getting more involved in is, is in what we call scope, one offset. So these are where we’re actually helping customers reach out and either generate or buy credits from activities that are directly sequestering carbon. And a lot of that right now is soil carbon, that’s really a lot of new science has come out there, and it’s really a hot area right now for how do we turn our our vast agricultural resources into carbon sinks, places where we can store carbon, instead of, you know, kind of how we operated them historically, where, or at least recently, historically, where they are producing a lot more carbon than they are than they are fostering.

Will Bachman 21:16
Explain that to me a little bit. So I would have thought, if you’re growing some trees, then that those are carbon sinks. If you are, you know, taking crops and maybe you bury them, and so they don’t, you know, carbon gets back in the soil, but but how, what’s the science around this? And how is oil, the soil capturing carbon? Talk to us about that?

Ali Ahmed 21:42
Yeah, yeah. So what you have to think about is you want to give the soil the ability to operate, you know, like it did, since, since before humans were messing with it. And so what you basically have is you want to create a process where the top layer of humans, where the actual either manure from, from grazing animals, or, or materials like the vegetable materials that are on top, that they have the opportunity and the processes to be buried, to capture that, that carbon that’s in them, and then to slowly mix it down through the stratification of the soil through the natural processes of water, and root growth. So a lot of a lot of the things are around how you actually manage the soil. So if you’re doing agricultural, and you’re doing cropland, for example, you really want to avoid tilling. Because tilling you know, mixes that that bottom soil back up to the top, exposes it to the atmosphere exposes it to weather, and then you actually are losing the ability to store the nutrients that you just put in. And that’s why farmers use fertilizer and other things, which often made with petroleum products definitely moved over large distances. So they have quite a high carbon footprint. So in the grazing areas, we’re seeing a lot of motion to kind of go back to natural style grazing, and then looking at, at everything from the types of animals and the quantity of animals and the density of the animals and the duration of the animals on a specific pasture, as well as the type of grasses that you’re growing there and really, you know, a return to history or return to going back to natural grasses. One of the guys I work with describe it great, and you have to think about it like the wildebeest migration in Africa that is a a, you know, 1000s of years long activity, which is actually working with the grass and the land to sequester carbon through the activities of the wildebeest herd. So how do you repeat that in a dairy farm in Minnesota? Right.

Will Bachman 24:19
So farms would be what sort of new different practices would they be doing?

Ali Ahmed 24:27
Yeah, I mean, the whole concept around Carbon Farming again, depending on what what crop or agricultural product you’re growing, a lot of it has to do with low till no till a lot of it has to do with even organic farming where you’re removing the the additions, particularly the non natural additions to the soil. When it comes to to animals, we look at a process called rotational grazing or adaptive multi paddock grazing. You know again, how How you’re controlling the animals on the space to maximize their ability to do that actually sequesters the carbon?

Will Bachman 25:12
What and what sort of clients are engaging you on this? Is it like large corporate farms? Is it? Are they and then are the farmers actually then generating carbon credits that they can sell on them

Ali Ahmed 25:23
on them? Yeah, I would call them. I wouldn’t call them small holding farms, but but they’re not the big. The big companies right now, you know, are more involved with industrial agriculture, which is not really the style of agriculture. So it’s kind of the medium sized farms. A lot of them are already embracing the organic, grass fed movement, or organic vegetable movement, organic crop movements. So they’re really already a lot of the way there. And then there are new protocols, from different certifying bodies that are allowing them to monetize those credits. And again, probably the recent example, I think, in the past four weeks, Microsoft just bought a chunk of credits from a cattle farm in Australia. That is, that is again, applying these rotational grazing tactics to sequester carbon in their soil.

Will Bachman 26:23
And then, how does it actually get determined? So what are these certifying agencies do? Do they go in and measure the soil before and after? And you measure this carbon content in a lab? Or how do they go about this?

Ali Ahmed 26:41
Yep, that’s exactly what they do. They measure and model. So the measuring art is really exactly what it says they they drill a core sample down to the soil usually add to at least the depth of 30 centimeters. They look at the type of soil and the stratification layers of that soil. And then they test it to see how much carbon is actually in each layer. And then they then they work with the farmer to see which tactics the farmer is going to apply to increase the amount of soil carbon. And again, some tactics will be banned, like tilling may be banned for that, for that protocol. Other tactics would be encouraged. And then that gets modeled and the credits are issued off that model. And then there’s an audit process typically on a on a five year cycle where there’s re measurement and testing to say, Yep, we are seeing what we modeled. And, and the credits that we’ve issued, are valid.

Will Bachman 27:47
And talking about the economics a little bit what your order of magnitude what what sort of prices or or compensation can the farm get for following through with us?

Ali Ahmed 28:02
Yeah, this is one area where the markets are still very new. We know that, for example, and it’s a little hard because we don’t know the actual details of the deal. But the Microsoft deal that I mentioned earlier was for $500,000. Now for I think that they’re in the 20,000 hectare range ranch $500,000. A lot of the program being contemplated in DC right now is kicking around $20 a tonne of carbon, which, you know, think about what we talked about with renewable energy earlier. $20 a tonne is pretty good. So I think a lot of it is if you have somebody looking to generate offsets into that space, because the market is really not fully commoditized yet, you know, what I work with clients to do is to estimate what the costs are going to be, and then work with them to identify potential customers and see what those customers might pay for those offsets. You know, a lot of times they’re looking to create a more luxury good than a standard good, right, they want to advertise that they have, you know, a carbon neutral menu. And that, and by the way that’s coming. There will be you know, we we have the diet fat free option, there will be a carbon neutral option of menu items coming on on chain restaurant menus in the next few years. So the ability for them to do that is going to obviously drive their their desire and what amount they might pay for a product that is certified in that way. Or they might just need the offset and that and it, you know, it works with their marketing program and it’s something they want to be associated with.

Will Bachman 29:54
Why would a company pay $20 a ton for these carbon offsets from a farm If they can buy renewable carbon offsets for $1

Ali Ahmed 30:04
Yeah, that gets into the intricacies of something we call carbon accounting. And I know your audience as well as myself, I, we’re all MBAs and, and we understand the difference between accounting and finance. And accounting, I like to say counting is great, but it doesn’t make any sense. It’s just a set of rules. And so when it comes to carbon accounting, your carbon is classified into different areas, and we call them scopes. Scope one, scope Two, three. And the scope to which is from your electrical or your purchased energy is in the carbon accounting world only off settable by credits, which are also generated through electricity. So you can use a solar credit to get rid of your scope to but you can’t use a solar credit to get rid of your scope one. Likewise, an agricultural credit could get rid of your scope one or your scope three, but can’t get rid of your scope two. So it’s a it’s a pretty wonky description there. But the companies that are really big with the big companies that are really reporting the emissions, you know, to a CDP, or a, there’s a sbti, which is the science based targets initiative, there are a lot of rules on how they account for their carbon. And so everything needs to be in certain buckets. So that’s why, you know, a company might, you know, might not be able to get a 50 cent credit and have to go to a $20 credit.

Will Bachman 31:39
That seems odd. I mean, a ton of a ton of carbon in the atmosphere, you know, the atmosphere doesn’t care where it came from. What’s what was the what was the logic behind having this segmentation of different scopes?

Ali Ahmed 31:55
Yeah, I think a lot of it is done that way to go back to that hierarchy of good approach, and to really force people to be critical about how they, how they remove carbon from their operations, and not allow folks just an easy pathway out. So, you know, again, these are all designed around, kind of the UN constructs of, and the IPCC, the International Panel on Climate Change. And then the breakdown of activities that they created. And they looked at is where we kind of get the scope calculation. You know, the. And this is the same with that that conversation we had a little bit earlier about additionality. They don’t, these rules often don’t make a lot of sense. And they can be frustrating for people to try to enter the market, it does make it look more and more like a black box, some crazy marketplace than one that’s built on logic and common sense. But these are the rules that are at least in play right now until we get to an area where where we see, you know, huge parts of those scopes eliminated. And frankly, we’re getting that close to close to that in many countries. And even in some states, where so much of electricity, for example, is produced through renewables, that it’s almost a moot conversation to talk about scope two. And instead, we are all focused on scope one.

Will Bachman 33:31
And what is scope One, two and three, you said two is the is the purchased energy? What is scope one and scope for energy?

Ali Ahmed 33:38
Yeah, one is the direct emissions, typically the things that you burn. So tailpipe emissions from your fleet of vehicles, for example, if you have a, you know, if you’re FedEx and the postal service, and you have all these trucks, and cars, all the emissions associated with things that you’re burning, if you’re a food manufacturer, you are burning a lot of natural gas to make hot water for your food processes or your cleaning processes. So all that direct combustion is, is scope one in the agricultural world, methane from your cows is scope one. So that’s kind of your direct emissions of greenhouse gases. And then scope three is, is your supply chain. So it’s things where you don’t have direct control over your mission. So the classic example there is travel. You know, the airline is going to fly the airplane, whether you’re on it or not. So you don’t really have direct control over those emissions. But you do have some indirect influence because if you stopped flying, that’d be a little bit less market demand. If everybody stopped flying, the airplane would fly. So, so those are kind of the three three classifications that we have.

Will Bachman 34:56
So we’re talking about the types of projects that you do so I’m still confused by by, by this scope thing, it just seems odd that they’ve set up the rules that way you’d think that say like, let’s get carbon out the most economical way possible. And I’d rather get 20 tonnes of carbon out if it’s $1 a ton than one tonne at $20 a tonne. And just, I, I don’t understand that piece. But we’re talking about the projects, the types of projects you do. So you want to the one area is around soil. So you’re working with kind of mid sized farms on that to help them you know, I guess, work with accredited these accreditation agencies? How does the market actually work? Is it like a stock exchange kind of thing? Or is it much more of a one to one buyer to seller negotiated agreement? How do you find wires and sellers finding?

Ali Ahmed 35:51
Yeah, private transaction. And then there are some brokers that kind of run private market. So you know, you work with a broker. And a broker may be aggregating credits from multiple places and providing clients a portfolio of credits from different projects in different countries. And then they’re creating their own little marketplace, there’s a few companies like that, that are that are doing that. See, there’s one called three degrees, there’s another one called level 10. There’s a few others as well, a lot of those are moving into blockchain regulated and monitored markets and a lot of movement in blockchain terms of how you validate the markets and trace the carbon. And then, and then again, there’s a lot of just private transaction. So you know, a lot of the big companies who are buying significant amounts of credits, they’re going to do that through through private transaction. You know, whether that’s Google building, or working with a supplier to build an 100 megawatt wind farm, or whether that’s Microsoft going to a farm in, in Australia and buying credits from a farmer. So so it’s not a it’s not a commoditized. market there, there is really no real Stock Exchange style trading platform. Now there are some that are coming. So California, and the our California Air Resource Board, through one of their regulated markets on carbon, you know, does have a more typical Stock Exchange approach, and you can buy futures and options and things like that. I wouldn’t say that the volumes in that market are enough to truly have appropriate pricing yet, but it’s a new market few years old, and it could get there.

Will Bachman 37:46
Talk to me about the international market for carbon offset, do markets highly differ country by country? Are there international exchanges, where you can buy it from someone who is, you know, doing carbon sequestration or you know, better soil management in another country, talking about the whole international market?

Ali Ahmed 38:13
Yeah, primarily European driven. And it’s what we see there is, you know, Europe tends to have the buyers. And the offset generators tend to be in other countries, a lot of them in Africa, Latin America, Indonesia is a big space right now for offsets generated through forest preservation. So, those markets, the EU is well known for its bureaucracy. And those markets are highly bureaucratic. There are in country markets as well, as well, particularly around renewable electricity. But those again, tend to be more about utilities. You know, most end users right now, end users of electricity in Europe are getting 100% renewable electricity through their utility provider without a need to go out look for specific projects. So a lot of that regulation follows kind of the UN programs oeci and there’s another one called CDM, which is the clean defense mechanism. And that really establishes the the types of projects that can be created, how they get formulated, and created and certified, and then how those credits are exchanged, particularly when you’re going country to country. Because with the Paris accord in particular, but even the predecessor to Paris and yoto and Rio, there are international treaties in place in terms of how countries that made promises to reduce their emissions. And we obviously don’t want to say okay, well, you know, France can pollute all they want but offset it with emissions reductions from Peru because we have to think about what that does for the economics of both countries, not just the carbon. So. So this whole CDM is the way that the countries exchange carbon offsets.

Will Bachman 40:12
You mentioned Indonesia and forest preservation. How does that work? Is it something around? Well, we were going to cut down this forest and turn it into, you know, make some, you know, I don’t know, grow soybeans or something here. But we’ll get a credit because we just won’t cut it down. We were even though we were going to

Ali Ahmed 40:33
like, That’s exactly right. That’s exactly why doesn’t it seem strange, right? And so so, so the accreditation process for forest preservation is extremely difficult. And and one because as you say, it’s, it’s, it seems so simple. And so anybody can say, Well, I was gonna cut that forest down, even though they weren’t. And the second reason is that there there was a lot of certification issues over the past couple of decades, specifically with forest projects, where, you know, companies and countries said, Hey, we planted 10,000 trees in the Amazon, and that somebody showed up in the Amazon where these trees were supposed to be, and they weren’t there. So we’re seeing a lot of strictness in terms of how those products are certified. And one of the things you have to do is really prove to the accrediting agency that that that forest is really under threat. Yeah, to have a guy standing there with a chainsaw, right. And then the second part of it that we’re seeing, and this has been a huge area and satellite GIS is, you know, we’re able now to monitor these these forests, in relatively real time, I’m working with one client, we’re monitoring their forests for what we call incursion. And we actually provide a monthly satellite update on whether anybody’s coming in and cutting trees down. So so those are the kind of the two methods but your your summary was exactly right. As you’re, you’re getting paid to not do something.

Will Bachman 42:12
Okay. Which is I met as I can imagine, there’s all sorts of complexities around that. Yeah. Well, maybe they’re just cutting down. I mean, and when they do that, is it protecting specific acres? Like say, hey, this specific acre was gonna get cut down? Or? Because maybe the, maybe the foresters going to cut down some other acre down instead, you know, it’s kind of fungible? Well,

Ali Ahmed 42:36
yeah. And there’s a there is a whole section of the protocol that specifically deals with that under the gets called leakage. And so that’s exactly right. Well, okay, I didn’t cut down this acre, but instead, I cut down this other acre, well, then it doesn’t count. Right. So you have to account for this leakage. If you’re just shifting the problem to somewhere else, then you’re not creating additional sequestration. So there’s leakage. And then there’s also another concept, which is called buffer pool, because there’s things beyond anyone’s control. So most notably, in the Latin American countries and kind of Middle America, one of the things we deal with is hurricanes. Right? So you could be, you know, in year seven of a 20 year, forest sequesteration project, and a hurricane comes in and knocks the whole forest down. So, so we create these buffer pools, which basically sock away some of the carbon credits every year, so that in case there’s a catastrophic, non controllable event, we can pull out of the buffer pool to make sure that there are real credits.

Will Bachman 43:44
Okay. This is a silly question. But for like paper manufacturing, right? They, they have forests where they’re just planting trees to grow paper, right? And then when you cut the trees down, you make paper, that paper goes in a landfill and you hear sometimes, oh, well, the paper never degrades and the land focus is buried. Wouldn’t that be a good thing? Isn’t it isn’t that kind of like carbon sequestration?

Ali Ahmed 44:16
Ah, alright, I have not done the lifecycle analysis like that on a piece of paper. So what I will say is that what a lot of the paper companies are doing is instead of just protecting a forest, they’re moving to forest management plans where they are able to sustainably take trees out of a forest without clear cutting the forest. And so, you know what, one of the reasons that you release a lot of carbon when you can do slash and burn, clearing of forest land for for agriculture in particular, but even if you do a clear cut for for forestry purposes, Is that you not only lose the carbon in the wood, but you’re also losing the carbon in the soil that’s been sequestered by the trees. In below ground, you’ve got like a like an iceberg, right? There’s a lot, there’s a lot of carbon stored in the tree below what you see, you tear this thing down, you exposed to the elements, you get erosion, you know, all that carbon is going to come out. So you’re through forest management planning, you know, they’re able to do things where they’re maintaining a forest, they’re still able to economically harvest trees out of that forest. And keep that forest, you know, kind of in a relatively carbon neutral state, and we’re seeing project like that. I know that one of the big paper companies is doing some stuff in Latin America, particularly growing Eucalyptus, so types of tree matter, right, it’s faster growing, it’s good for paper, etc. You know, in terms of the lifecycle of you brought up out while we only sequester that carbon in a piece of paper, you probably could look at it that way, you have to kind of think about all the energy and everything else. And that probably blows away all of the storage and a single piece of paper. But But this, this is why you get into these extremely complex analyses. And again, it’s really hard to model some of these, some of these lifecycle stories. So that’s, you know, the good place for consultants to be when things are hard. That’s a good, that’s a good project for a consultant.

Will Bachman 46:41
What was your path to become an expert and a consultant in this greenhouse gas? space?

Ali Ahmed 46:51
Yeah, I think the industry kind of grew up around me, I started out in industrial energy management. So working for these big companies who consumed massive amounts of electricity. And helping them just purely from an efficiency standpoint, you know, how do we more efficiently operate these facility because, you know, they had 200 million $300 million line items for energy. So you know, even 1%, a lot of money. So that’s kind of where I started, and I moved through commercial institutional space for helping those customers be more energy efficient, as the technologies grow. And then the carbon conversation kind of grew around me. And it gave me the opportunity to kind of expand my thinking, move into renewable energy, participate in all these reporting, and, and carbon offset schemes, because I was kind of living living their initiation. And so again, when I kind of moved out on my own as my own consultant, I had a good knowledge base across all these things. And I’ve been both, you know, a supplier in that space, a consultant in that space, as well as a consumer when I worked for a fortune 500 company, and I was buying these offsets for them. So I’m kind of a long career that’s allowed me to sit at every seat of the table. And I think that really helps me when I talk to customers now about the rationale of why they should do something or why they should avoid something.

Will Bachman 48:25
And for listeners that wanted to follow up and learn more about your firm, where would you point them

Ali Ahmed 48:32
they can either reach out to me directly or through my firm on LinkedIn, that’s probably the easiest way they can also reach out via my website, it’s green hyphen, strategies.com strategies plural, or more than happy to reach out through through you to me directly. And and happy to have initial conversations with anybody that has a customer that may be interested in this or is asking questions and maybe point them in the in the various right directions of what might be a good project for them.

Will Bachman 49:04
Fantastic. Oh, so definitely reach out to ollie. If you’re curious to hear more about carbon sequestration. We obviously didn’t even scratch the surface today. No pun intended. And for listeners, if you go to umbrex.com and click on the Unleashed tab, you can sign up for the weekly email, where you get a summary of all the recent episodes and some occasional bonus material. Thanks for listening

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