Project Carbon – update

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.

Ryan Fan: One of the ideas of Project Carbon was to help alleviate that pain point for the registries and for the clients. So the onboarding process, if you’ve already on board with your bank, which everybody does, then the bank will then give you permission to access the platform via their onboarding process. And so it alleviates a lot of the pain of having one registry on board every single market participant.

Dominique Barker: Hi. Today, I’m joined by Robin Green and Ryan Phan, who are part of our capital markets team at CIBC. And the three of us have been working together on an exciting project called Project Carbon, and we press release this back in September. Twenty eight twenty twenty one. And it’s an exciting project that we have with partners eTauo from Brazil, National Australia Bank in Australia and NatWest in the UK. Welcome Robin and Ryan.

Ryan Fan: Hi, Dominic.

Dominique Barker: Robin, why don’t we start with describing we completed a pilot trade on our platform last week, and for those of you who don’t know a pilot, trade just means testing it out. It’s a bit of a initial testing of a system. Robin, can you describe to our audience the pilot trade that we completed September 28th?

Robin Green: Yes, of course. And I think the last time we spoke, we were talking about how we were pulling together all the legal work or the technology and the operational subgroups to help us run this pilot transaction, which was a legally binding transfer of ownership of their issued carbon offset between a seller and a buyer. So we were really quite excited about this because all that hard work we’ve put in over the months leading up to it sort of proved out on the day of that transaction.

Dominique Barker: And so maybe I’ll just interrupt you just to say that Vera is a carbon registry, and I believe they have approximately 80 percent verified credits in existence today. So they’re a large player in the ecosystem. Sorry, go ahead, Robin.

Robin Green: Yeah, thanks, Dominic. And that was that was really important to point out because, yeah, this is a mainstream registry. It was really great to work with them and the other participants of the trade as we ran the pilot. So what did we actually do? So we had this very issued credit. So this had come from the Nature Conservancy of Canada, who I’m sure many of you will be aware of, and the objective was to sell that credit to NatWest. That’s the NatWest bank in the UK who are using that credit or the credits that they bought to actually offset at the events that they are running later this year. So in detail, a little bit more detail had we run this transaction? Well, as we said, I think the last time the whole transaction was governed through a rule book and that rule book, which was signed by the buyer and the seller and various other participants, that transaction really governs the movement of that credit. And that’s that was really quite important because generally in the market, the contract are more bilateral, more bespoke. Whereas through the rule book structure that we ran this transaction under, you’ve got standard terms. And so whilst this was the first pilot under those standard terms, all subsequent pilots and as we go live will be running under those standard terms as well. So the market now starts to understand using our platform, the terms at which the transaction will take place.

Dominique Barker: Great. Thanks, Robin Ryan. Can you discuss the benefits to the buyer and the seller? So as Robin said, the seller or the project developer was the Nature Conservancy of Canada Dark Woods project, which is based in British Columbia, Canada. Can you describe the benefits to both the buyer and seller?

Ryan Fan: Sure. The easiest way to explain it is to understand what the current construct is right now, and as Robin said, there are bilateral contracts and they’re fraught with counterparty risk. And so by having banks act as intermediaries through this platform, it ensures the proper settlement and it reduces the credit risk to simply the buyer facing its own bank and the seller facing its own bank. And so that’s no longer are you facing that credit risk against the buyer or the seller directly.

Dominique Barker: And Ryan, that’s important because I think what people don’t understand is in the voluntary carbon markets today is sort of this, you know, you might enter a transaction in a website and you have no idea where that money is going. So having the role of that bank to step in like, you know what, the role of the bank is trust. And so we’re removing that friction. What other benefits are there well

Ryan Fan: Beyond the actual settlement of it? What’s really good for the whole ecosystem, not just buyers and sellers, is the ease with which these credits get retired. So if you think about the ecosystem as it currently stands, registries like Viera take on multiple roles, and the original purpose of zero was truly to create protocols against which projects can be measured and accredited and basically earn credits to be sold. But beyond that, now they’re onboarding clients. There’s their manual process of retiring the credits so that onboarding process can be handled. Our platform where banks have significant experience and expertise to onboard clients at scale. One of the ideas of Project Carbon was to help alleviate that pain point for the registries and for the clients. So the onboarding process, if you’ve already onboarded with your bank, which everybody does, then the bank will then give you permission to access the platform via their onboarding process. And so it alleviates a lot of the pain of having one registry on board every single market participant.

Dominique Barker: So I think some of the feedback that we heard from both the Nature Conservancy of Canada when they were selling the credit was the ease like the removing of the friction that they felt they had to enter into all these bespoke contracts. I think, Robin, you mentioned that and Ryan, you alluded to it as well. And when we spoke to NatWest, they felt the same way. There was just so much work that went into developing a relationship with the credits. And so we’re just really removing quite a bit of friction from the whole process, which of course, means more money for the project developer and less time spent and less effort spent and less expenses, legal expenses, et cetera on the actual project. Any other points you want to features or benefits that you want to point out, Ryan,

Ryan Fan: For this particular pilot? No, I think that it served its purpose in defining the rule book, which Robin had alluded to. I think that’s of significant value, like you said, in terms of reducing the friction. Now I can talk a little bit later on about where we’re going to be going next on this, how we can leverage the work that we’ve done.

Dominique Barker: Ok, Robin, let’s go back to the pilot and talk about some of the challenges. And clearly with a pilot, there’s always challenges. Can you just talk? Or maybe not. Can you tell? And I know you have a lot of experience in leading some of these projects. Can you talk about some of the things that we learnt or some of the challenges that we faced?

Robin Green: Yes. So I think the key we’ve talked about reducing the friction, and that was a central part of the objective of what we were doing. But we also wanted to ensure that the integrity of the transaction was still as good as it currently is through the existing contract. So a lot of time and effort was spent with our legal teams, ensuring that those standardised terms did in fact give the same rights of ownership as the existing bilateral bespoke contracts, but obviously in the lower friction way and also the exchange of ownership, making sure that that process was whilst again low friction was operationally very sound and had all these sort of credit and settlement characteristics that we were looking for. Ryan described. So I think a lot of time was spent working with our legal counsel, working with our technology and operations teams to make sure that all those things sort of came together. And yeah, the pilot itself when when it came to the day, it took a few days to get that over the line. And I think there were some, as you would expect with any such first endeavour. We were just making sure all the terms were agreeable to all parties and all the right signatures are in the right places. But we got through that. We accomplished that, we ran the transaction. We learnt a lot from that and I think rightly suggested you. Maybe you can talk a little bit around some of the future transactions we aim to run also voting off these foundations that we’ve now set that first trade.

Dominique Barker: Great. So Ryan, why don’t you get into that? Where is this going in the future? Maybe talk a little bit about some of the visibility that you see going forward.

Ryan Fan: Our first pilot was exactly that, the first pilot. We expect to run a few more pilots to add functionality and capability to the platform. And what our first pilot really taught us was that clients really want to get involved. The outreach from clients to us, us being project carbon, all of four banks is there is an emergency here that needs to be addressed. And we’re basically trying to figure out, OK, so what market functionality is really needed? And this input from clients from ecosystem players has been really crucial. And so we’ll be developing a few more pilots with the added functionality. Currently, we are in discussions with a number of select financial institutions as well to join the platform. The only way this works is if we have scale and the scale doesn’t work with just four banks. So our intention is to expand the number of banks that participate on the platform over time. And so we’re in discussions with that. And in addition, we are looking at possibly functionality down the road where credits are generated in a data driven way as well. And so we are looking at all facets of this marketplace and we continue to have conversations with existing ecosystem players and even post this first pilot, they’re all confirming that there is this need for this global settlement layer, right?

Dominique Barker: And this has been such a great project to work on. I mean, the team across all four banks, it’s been really fun. Now you mentioned scale, and I know we’ve had this question from someone, Well, what’s the big problem? I can just I can buy a credit today, but if we’re to really scale this market, we need the banks involved and we need to have an ecosystem that’s working together and collaborating together to solve this global problem. And maybe one other things that I would add is the work of the FCM or Taskforce on Scaling Voluntary Carbon Market. You can Google that to see more information, but they’re on the cusp of coming out with core carbon principles or CCPs, and that should help define the direction of the voluntary carbon markets. And maybe rob. Do you want to remind us how big we expect this market to be? According to a recent McKinsey report,

Robin Green: Yeah, yeah, there were many estimates out there, but the McKinsey report you’re suggesting, as I recall, 20 30, it was suggesting it one a half billion to two billion tons of offsets required. So really quite significant.

Dominique Barker: And I think that’s like 15 or 20 times bigger than today’s market, right? So it could be quite significant and we’re very motivated to help scale this market and to play our role. Ryan Robin, thank you so much for your insights. This is podcast number two with you. I want to thank you for coming back, and I know we’re going to have you back on. I know there’s a lot more evolution to come on this project. Thank you.

Robin Green: Thanks, Tony. Thanks, Tony.

Dominique Barker: Please join us next time as we tackle some of sustainability 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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