Project Carbon – in conversation with Robin Green and Ryan Fan (CIBC)

Dominique Barker: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape with a view on addressing current issues in a concise format to help you navigate and take action. I’m your host, Dominique Barker. Please join me as we explore today’s most pressing matters with special guests that will give you some new perspective and help you make sense of what really matters.

Robin Green: And I think that’s a really important point to make here, that this isn’t you know four banks producing a platform in isolation. But we are really keen to invite other members of the ecosystem to be that banks, registry’s marketplaces, exchanges to come and work with us.

Dominique Barker: On today’s episode, I’m speaking with Ryan Fan, managing director and vice chair of Global Distribution. He’s based in Vancouver. And Robin Green, executive director, Digital Markets Initiative, Quantitative Analytics. He’s based in London. And the three of us have been working on an exciting project, project Carbon. I’m based in Toronto, so you can imagine this has been a global project. Good afternoon, gentlemen. Welcome to the Sustainability Agenda.

Ryan Fan: Hi, Dominique, it’s nice to be here. 

Robin Green: Hi Dominque.

Dominique Barker: We’re just going to describe Project Carbon to our audience. And maybe I’ll just start off by describing the compliance markets in the voluntary carbon markets because they are quite different. So today, the compliance markets are really what we think of in terms of carbon markets today. So it’s things like cap and trade system. We have those in California, in the Northeast, US, that’s called REGGI or Regional Greenhouse Gas Initiative, or the most prevalent one is the one in Europe ETS, European trading scheme. And actually China is about to launch one as well. They’ll be launching their own cap and trade system. These are compliance markets. The government or a regulator has set a number of emissions that can be emitted in that one geographic area. And so within that area, there’s some trading that happens. And so those are the compliance markets. The subject that we’re going to discuss today, Project Carbon, is the voluntary carbon markets. And it’s just that it’s voluntary and it has existed for some time in a retail space. For those of you, for example, who’ve taken a flight and you wish to offset your emissions, you can buy credits. But the issue is, what are you actually buying and where does it sit? What does it look like and how do you know what you bought? So there is a bit of confusion. There’s not a lot of transparency in terms of pricing. So our project, Project Carbon, aims to show transparency of what the carbon markets is about. And we think that that could unlock a lot of potential. So, Robin, why don’t you just describe the press release that we put out last week, describe the project in and of itself?

Robin Green: Yeah, thanks Dominique. To summarise what Project Carbon delivers, it’s a book of record of ownership for the carbon markets sitting on top of the registries, which will continue to perform their valuable role as the source of the issue of credits against their standards and sitting behind other platforms that may offer free trade services exchanges of the marketplace. So what we do, what Project Carbon will do, will offer this record of ownership that we feel will be really powerful in the market and will enable a large number of additional use cases to get on top and will really drive some significant growth in the market.

Dominique Barker: Robin, what are the four banks that we’ve partnered with? Can you just describe that relationship?

Robin Green: It’s a great story that we have here. So there’s four banks is CIBC. It’s our NabberNetWest, working together to deliver what will be a shared service platform to help grow this market. And I think that’s a really important point to make here, that this isn’t  four banks producing a platform in isolation. But we are really keen to invite other members of the ecosystem. Be that banks, registry’s marketplaces, exchanges to come and work with us to help grow this platform out because, as you would expect, the more volume and activity passes through this platform, the more benefits it can deliver to the market.

Dominique Barker: And that’s actually an important element that I omitted in my description is that part of what we’re doing here is in alignment with a report that just recently came out, which is called the Task Force on Scaling Voluntary Carbon Markets. There was over 450 institutions that were involved in the end. And it’s about scaling those voluntary carbon markets. And Ryan, I’m going to go to you, because as we think about all these corporations that have set net zero targets, presumably it’s going to be a lot more demand. Can you maybe just describe where we think, as a group, where we think this market is going?

Ryan Fan: Yeah, I think anecdotally you can easily see many corporations making these net zero claims. And, you know, first we’d like to see them obviously abate as much emissions as possible, but there’s a base level of emissions that they simply can’t abate. And so they’re going to need offsets. And so, according to McKinsey, this market should grow 30 times its existing size now by 2030 to a market size of fifty billion dollars. So it is significant and there clearly needs to be support to scale this industry. And ultimately, what we think that’s needed to scale the marketplace is transparency. And this project aims to bring transparency to transactions into the overall marketplace. The conversations we’ve had with current ecosystem players is that this is the need and this is what Project Carbon is looking to do. It’s looking to serve that need for transparency.

Dominique Barker: And Ryan, I guess we think about that, because when we have transparency, for example, in pricing and perhaps in what the actual projects are, can you talk about some of the impact that that could have on unlocking potential for new projects?

Ryan Fan: There’s many ways to look at it. The first and most basic way is if you were a project developer, let’s say, for example. You had an engineered solution where you were directly pulling carbon out of the air. It’s difficult to get financing for such a project because it’s new, it’s innovative. The market is relatively untested. So why would anybody invest in that company if they don’t know whether or not there’s demand? If there’s a visible price of carbon through precedent transactions and indicative bids and offers, then that project developer or engineered solution can go to the marketplace and say, look, investor, look, financier, look, bank here is a visible, credible, reliable price on carbon that demonstrates that there is demand for this and they can take that physical demonstration of demand and turn that into financing for its projects.

Dominique Barker: Right. And Robyn, there is a distributed ledger technology aspect to what we’ve proposed. It’s really been part of your expertise. Can you just describe why that’s important in this case?

Robin Green: The tokenization aspect, which I think really derives from the block chain, is really the thing to focus on here, where we have tokens on the platform, which really are a legal claim of the underlying asset that’s looked at the registries and by using this tokenization so that we can really start to reduce the friction when it comes to transferring ownership between Seller and Buyer, those tokens allow an owner of a credit to very clearly demonstrate to the market that they have possession. So if you a large corporate wanting to demonstrate to the market, to shareholders, to customers that at the end of your zero journey, you reduce your emissions as much as you can. Now you’re looking to offset the how to abate emissions. You can clearly demonstrate to the market the offsets that you have bought and the market would be able to drill in. So you’ll be able to post up, let’s say, a hash, or think of it as a NFTE effectively that links into your wallet. The market can see that they can drill right in and they can see exactly the types of the credits that you have bought. So as a corporate, you can be really proud of the high quality credits that you have bought and your customers will be aware of that.

Dominique Barker: And we envision, as we think about this project and feel free to chime in, there’s this element of charisma, of carbon credits and a bit of a badge of honour for corporations to describe what they’ve bought and the difference that they’ve made.

Ryan Fan: Yeah, definitely. There’s definitely a narrative to be told here. Let’s look at Canada, for example. You know, many industrial companies will look to offsets because they simply can’t fully get the full abatement. And so it tells a much better story to all of their stakeholders, whether it be employees, shareholders, et cetera, that they’re supporting local projects within Canada within their own borders to help offset the carbon footprint that they’re leaving in the country in which they’re operating. Governments, shareholders, employees, they were all aligned to such stories. And that’s part of the reason why we believe we’re going to see exchanges address these regional market issues.

Dominique Barker: Ryan, can you talk about it with regards to exchanges in particular and then perhaps touch on investors? I think a lot of people think that what we’re building is an exchange and it is not. Can you just describe the difference between exchanges and what we’re doing?

Ryan Fan: Yea, Exchanges are really good at providing price discovery and bringing buyers and sellers to a marketplace to negotiate. What we’re trying to do is to provide that post rate settlement layer to confirm ownership. We would expect the platform that we’re creating for exchanges to sit on top of that platform. As Robyn had said, we really encourage exchanges to come and talk to us because we do want this to be a global platform. And we know that there will be exchanges in various geographies trying to address their market constituents. And ultimately, exchanges are really good at helping to accelerate growth, because the big issue that we’re trying to solve for right now that exchanges would love to solve for is fungibility. We all know that these carbon credits are unique in their own characteristics. And so it makes it challenging to make them fungible. But it’s not dissimilar to, say, for example, the fixed income market or corporate credit where you’ve got credit default swaps that are based on a number of reference contracts. It’s a matter of scaling this carbon credit market out so that you have enough reference contracts to be able to create some type of index.

Dominique Barker: In the fixed income market. You’d have different credit risk, different duration, different coupons, different jurisdictions. I don’t think we’re quite solving for fungibility quite yet. It’s still early days. But on that comment about the post trade settlement and for those of you in our audience who are like, well, what’s the big deal with that? Everyone we have engaged with and Robin and Ryan chime in. I mean, we’ve spoken to buyers, sellers, environmental, non-government or agencies or organisations, governments. Everybody agrees that this is absolutely necessary in this marketplace.

Robin Green: Yea, I’d agree that the tokenization brings in another really interesting set of features that we could have in that settlement Area. So a seller can sort the retirements have a credit to a buyer, for example, which is something that some of the sellers really are looking to achieve, or they can prevent some credit for being sold on from that buyer. So this really starts to open up a whole load of additional dynamics that can be so supported by this platform with the market. So additional features and services where we’ve spoken with the market that you believe will be really useful.

Dominique Barker: And there’s one other thing that I just wanted to cover, because I think there is some discussion and some argument that all we’re doing is enabling more carbon because, you know, you’re just making carbon offsets. But I just want to leave everyone here with an argument is that if we don’t have a way to have a price on carbon in the voluntary carbon markets, we cannot incent further development of things like direct air capture or carbon capture and sequestration or other engineered solutions or nature based solutions. This is the best way to help finance and to develop these projects. We cannot do it without a price. Gentlemen, do you have anything to add, Robin or Ryan? Anything that we’ve missed that you think the audience would appreciate knowing?

Robin Green: I think we’re really excited to be a part of this. We’re super keen to work with all the members of the ecosystem. Be you registries, exchanges, other banks to help really build this very thin layer. That’s the key thing. And I think we try to emphasise that we sit on top of the registries, that we facilitate simply the book of record of ownership and this post trade settlement and sort of reporting feature. By doing so, we really expecting to be able to help the scaling of this marketplace.

Dominique Barker: Thank you very much for your time today. And I just want to note, it’s been a pleasure working with both of you and with the other banking members. This has been a real challenge, but a really exciting one and lots more heavy lifting to do. But thank you for being part of the journey.

Ryan Fan: Thanks, Dominique.

Robin Green: Thank you.

Dominique Barker: Please join us next time as we tackle some of sustainability’s biggest questions, providing different perspectives to help you move forward. I’m your host, Dominique Barker, and this is The Sustainability Agenda.

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