Are Carbon Offsets Credible?
Carbon credits are coming under increasing scrutiny. The Guardian ran an article last week that alleged that 90% of rainforest carbon credits issued by Verra, manager of the world’s leading voluntary carbon markets program, the Verified Carbon Standard (VCS) Program, did not represent genuine offsets. And, comedian John Oliver made the entertaining case that carbon offsets do not deliver the emissions benefit that they claim.
This week, our guest Dirk Forrister, President and CEO of the International Emissions Trading Association (IETA) helps us understand the current state of the carbon markets.
Here are some of the questions that Peter and Jackie asked Dirk: What is your response to the critics of carbon markets – including John Oliver and The Guardian? To improve credibility, some groups are advocating that avoidance credits should be banished, and only removal credits should be supported – do you agree with that perspective? When do you expect that countries can trade credits across borders? Does the Article 6 agreement ,made during COP 26, facilitate international trade? Do you think Canada could use Article 6 to offset the emissions for operating LNG export terminals? Are you concerned by the price volatility in carbon credit markets?
Content referenced in this podcast:
- Our weekly publication, the ARC Energy Charts has our 2023 outlook for the Canadian oil and gas industry revenue, cash flow, and capital spending – see the last page
- The Guardian, January 18, 2023 “Revealed: More than 90% of rainforest carbon offset credits by biggest provider are worthless, analysis shows”
- John Oliver show on carbon offsets
- International Emissions Trading Association (IETA) website: https://www.ieta.org/
Please review our disclaimer at: https://www.arcenergyinstitute.com/disclaimer/
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Episode 185 transcript
Speaker 1:
The information and opinions presented in this ARC Energy Ideas Podcast are provided for informational purposes only, and are subject to the disclaimer link in the show notes.
Speaker 2:
This is the ARC Energy Ideas Podcast with Peter Tertzakian and Jackie Forrest. Exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas Podcast. I’m Jackie Forest.
Peter Tertzakian:
And I’m Peter Tertzakian. Well, Jackie, today, I think we’ll talk about carbon. We’ll start with hydrocarbons and we’ll talk about carbon markets, but more on that in a minute. Let’s talk hydrocarbons, specifically oil. We’ve made some revisions to our forecast.
Jackie Forrest:
Yeah, it’s this time of year where we put out our outlooks for Canadian industry. We’ve done this for many, many years. Even before I joined Peter, you were doing this. So ARC Energy Charts publication, which we put out each week, the very last page has an outlook for 2023. And we’re assuming a certain oil price and gas price. And from that, we forecast what we think industry revenue will be in 2023, and ultimately, what the activity levels will be for the oil and gas industry. It’s always difficult to do this time of year because commodity prices can go anywhere. It’s traditionally been about your assumptions around commodity price that have really affected that, although that is changing. Interestingly enough, if we assume $80 oil on average next year for WTI and $40 for the gas. We are assuming that we’re going to see a bit of a drop in industry revenue.
Peter Tertzakian:
From last year.
Jackie Forrest:
From last year. So we’re thinking there’ll be about $ 185 billion down from $227 billion in 2022. And cash flows are actually down quite a bit. But the interesting thing is, even though there’s such a revision in the amount of revenue and cash flow, we’re actually expecting fairly similar amounts to be spent this year by the industry on capital projects like new wells and drilling. It seems to me, an interesting observation looking at this data is that, maybe going forward, the price of oil isn’t as influential on predicting the activity levels as it used to be. Because people are spending at a level that would have modest growth or maintaining their production, and it’s less impacted by changes in oil price.
Peter Tertzakian:
Yeah, it is less impacted. But first of all, let’s take a look at that top-line number, $185 billion relative to $ 227 billion in 2022. I mean, that sounds like a big drop and it is, but it’s still a very robust number. I mean, it’s-
Jackie Forrest:
Yeah, it’s still the second highest ever.
Peter Tertzakian:
We’re still the fourth largest producer of oil and gas in the world. These are big, big numbers. I think what has changed from previous eras is, as you pointed out the elasticity. In other words, the response to spend on drilling more wells is not as coupled with the commodity price and the revenues’ cash flows as before. Because companies are largely just spending enough to maintain production or grow just a little bit in aggregate, industry-wide. And so these types of numbers, whether it’s $227, $185, and honestly, even if it was $120, I think they would still be spending about the same amount. Because the incentive to drill for more in a climate-constrained world policy, ESG, et cetera, electric vehicles, transitions, all… It might as well-
Jackie Forrest:
Pipeline constraints.
Peter Tertzakian:
Pipeline constraints, long laundry list of things. It means that North American Oil & Gas is largely going to be a maintain, maybe possibly grow production a little bit, for the foreseeable future, and then into the 2030s, potentially, be on the decline.
Jackie Forrest:
So our outlooks maybe aren’t as hard to do as they used to be, but still worth checking out. Check out our publication, we’ll put a link to it in the show notes, and you can go look at all the details of how much money has been made in 2022, and what we’re expecting for 2023. But interestingly, you can look back, we have about 10 years of history there, as well.
Peter Tertzakian:
Yeah, just a final note before we move on, is that, it is much more consequential to government take, whether it’s federal and provincial taxation or especially royalties. But $185 billion in revenue, it still speaks to a very robust government take, including royalties and taxes. But let’s leave that for another time and move on to our special guest.
Jackie Forrest:
Yeah, we’re very excited to have Dirk Forrister, president and CEO at the International Emissions Trading Association, IETA, join us. Welcome, Dirk, to the show.
Dirk Forrister:
It’s a pleasure to join you both today. Thank you.
Peter Tertzakian:
Yeah. Well, thanks Dirk. Why don’t you just start telling us a little bit about IETA or the International Emissions Trading Association. I understand it’s a nonprofit business that’s dedicated to climate policies.
Dirk Forrister:
Yeah, we’re a membership association. So our members, and I think there are just over 290 of them now, are involved in carbon markets around the world. Some of them are involved in rather niche markets like there in Alberta. Others are involved in international markets that are more voluntary, and certainly, the European Emissions Trading System and the China Emissions Trading System are getting a lot of attention because of how large they are. But our membership really cuts across all the aspects, whether it be the polluting companies or the companies offering solutions and finance, and trading services. So that that’s what we’re about.
Peter Tertzakian:
So in a nutshell, you’re a global industry association of members that are involved in the production of carbon credits trading and purchase of them.
Jackie Forrest:
Well, and you have a unique perch, I think, because you’re not only looking internationally at all these different, we call them compliance markets, but government-regulated markets. But you’re also looking at voluntary markets, and we’re going to get into all of that. But just for our listeners, some of them may not have much of a background in carbon markets. Just describe carbon offset and how they are generated, and how people use them in general. And I know there’s lots of nuances for each jurisdiction, but in a general way.
Dirk Forrister:
The credits that are created have to meet certain criteria. In governmental programs, they’re defined by law. In the voluntary market, they’re defined by best practice codes. And they usually have to have some kind of an assessment of whether they are new and additional, and whether they’re real reductions, whether you can measure and verify them independently to assure that the performance has occurred. And probably the easiest example of it would be, again, in the oil and gas sector, if you had a facilities leaking methane and you had a strategy to seal the leak and not emit the methane, that’ll have a cost associated with it. But you could measure and verify the performance before and after, and then convert that into a carbon credit. It’s usually issued by an independent agency like the Verified Carbon Standard or American Carbon Registry. And once they go through their assessment of whether you’ve met all the criteria, they’ll issue the credit.
Peter Tertzakian:
Mm-hmm. And how is the credit issued? Is it on a blockchain or what kind of token, I guess, is it issued as?
Dirk Forrister:
Yeah. So our markets predate blockchain, obviously. They’ve been around for a couple of decades now. And so most of them are issued as a number in a registry, as unique serial number in a registry. But Peter, it’s ripe for conversion to blockchain and that change is beginning to occur. Most major carbon crediting registries are in the process of moving blockchain, because the blockchain can give you a lot of information about that credit.
Jackie Forrest:
But today, I think, when someone wants to use it, they would then register that code, or serial number has been used and it’s no longer a valid one to be resold, is that right? There’s some process to register used ones.
Dirk Forrister:
That’s exactly right,we call it retirement. So, the credit is repaired and canceled out of the registry.
Peter Tertzakian:
This is like a carbon currency, for our listeners, and the issuance of a dollar with a serial number is like an asset that appears on somebody’s balance sheet. And we can talk about that more in a minute. But then, when it’s actually used, it’s just ripped up and destroyed, and that serial number’s retired. Is that, more or less, how it works?
Dirk Forrister:
That’s more or less how it works.
Peter Tertzakian:
… is it also fair to say that there’s multiple currencies as in the currency exchange?
Dirk Forrister:
It is fair. And that’s because in the early days of our market, the UN crediting agency known as the Clean Development Mechanism, conducted this exercise and issued the credits. And it didn’t cover some asset classes that businesses were interested in, notably, in the area of natural climate solutions. So, soils or forestry. So these independent standards grew up as an alternative to the UN mechanism.
Jackie Forrest:
All right. Well, let’s talk about the voluntary markets. And so these are the ones that the compliance is when the government says you have to do this, and there’s a bit different, sometimes, validation to that. But let’s talk about the voluntary, because there has been some controversy. There’s been a couple of recent things that have happened. A comedian called John Oliver targeted carbon credits in one of his skits. His view was that carbon credits are bullshit, and can make climate issues worse. And he talked about the fact that big companies are using these and it’s a bit of greenwashing, because these credits, these nature-based credits is really what he focused on, did not result in anything additional happening that wouldn’t have happened anyway. So for example, a forest that was sitting there already, which was not in threat, and now somebody’s issuing carbon credits saying that they were going to cut down that forest when they never really were going to. He also talked about renewable power projects in India, which would’ve been built anyway because India has growing demand for power, and now, suddenly people are generating credits.
Now there’s been some other controversy. Just last week, actually, The Guardian wrote an article that claimed that more than 90% of the rainforest credits offered by Verra, which is a third party who issues and verifies the credits, who were talking about the different groups that do that, do not represent genuine credits. Now Verra is quite big, they’re one of the largest, voluntary credit creator out there. And their rainforest credits are something like 40% of all the credits that they issue, so it’s a big part of the market that Guardian is saying is not valid. Now, of course, Verra has said in the article that they disagree with the findings and don’t agree that they’re not valid. So, Dirk, with all this information… Should people be questioning using these voluntary credits, are they really a credible way to reduce emissions?
Dirk Forrister:
Well, I think they are highly credible, and the challenges in carbon markets, we do hold ourselves to higher standards than other governmental programs would hold themselves. It’s externally measured and verified. The standards that create the credits are developed with loads of scientific input and go through an open consultation process. And I’ll say just… John Oliver’s a great comedian he’s not a great climate scientist, and unfortunately, he was led astray by a set of critics of carbon markets that are, in my opinion, missing the forest for the trees. Some of their complaints may be valid and that they could be used to drive improvements in carbon crediting, but most of what they said is misleading, and comes from an anti-market bias. But you know what? We’re going to have those critics out there. They’ve been around as long as I’ve been working on climate policy for 30 years or so, and it’s important to involve them in the process.
And each of these standards does go through these peer-review processes in establishing their criteria. And I prefer that that’s where the scientific experts hash it out rather than on the John Oliver show. It’s same with The Guardian. I mean, The Guardian, the study they are citing isn’t peer-reviewed yet. It’s, in my view, preliminary. They use a different approach of how they would assess. They call it synthetic type of review. Our markets have been forced to deal with real types of review, like real on-the-ground situations so that they can assess properly what historic rates of deforestation have been, what the local drivers of deforestation are, understanding if they’re actually at risk of being cut down, and whether incentive is needed to drive it in the other direction.
And I think the really important thing as you step back from it is these types of solutions, which I think in both examples we’re focusing primarily on REDD crediting and on forestry, is that these are solutions that we’re going to need if we’re going to get to net zero. So without these solutions, if the market pioneers aren’t out there pushing forward the understandings of it, the “net” in net zero isn’t going to happen. The “net” is all about whether we can come up with ways of removing carbon out of the air, and I do think we’ll get better and better at it as we go along. But right now, they’re minority views in a world where there’s a much stronger set of scientific inputs that have formulated the standards.
Peter Tertzakian:
The notion of minority view, I think we have to be cautious. Because< as I think about John Oliver’s rant and The Guardian article, and I believe there’s going to be more. I get the sense it’s a consequence that this subject is so complicated. I sense we’re already losing our listeners because of the jargon and complexity of this subject that it lends itself to the vagaries. Even people who live and breathe this stuff like Jackie and me lends itself to criticism and questioning. And so what is your organization doing to try and make this currency of carbon and the carbon economy more accessible to people so that it’s not so complex?
Dirk Forrister:
Yeah. I would say, first and foremost, our organization actually supports laws that establish this in law so that it’s not purely a voluntary gain. There in Alberta, you’ve had some great successes in agriculture under defined governmental rules, so the government issues the credits. And similarly in the EU right now, the EU market is an allowance market where the permits are issued every year in declining numbers that are aligned to net zero. And you don’t have the same kind of complaints about was it going to happen anyway or not, It’s a hard cap. It’s a regulatory cap, and it’s working. And that’s my first response, is that laws are better than pure volunteerism. But in some jurisdictions like the one that I’m sitting in the United States, we don’t have those laws at a national level. We’re a long way away from it given how divided our politics is.
And I don’t think it’s right for corporates just to sit on the sidelines. So the next best alternative is with these voluntary markets. The second piece related to that, there are a multitude of carbon crediting standards that are undergoing a review right now by an organization called the Integrity Council of the Voluntary Carbon Market. And it seeks to set a threshold standard, so it’ll set a new bar that all of the existing carbon crediting standards will be urged to meet, and they will label the credits that meet that with a special label called Core Carbon Principles. So, a CCP label that will hopefully allow buyers to have an easier path to understanding the best of the best. I think the Integrity Council, it’s an effort that we are involved in at IETA. Many of my member companies are awaiting for the results of it, and I think it’s got a terrific benefit to offer to those of us in the market that meets the current need with an effective solution.
Jackie Forrest:
Okay, well… And we’ll come to that, because there are many groups, moving towards trying to increase the credibility of the carbon markets. I had a question. First of all, define this: there are different types of credits. Some are called avoidance credits, and those are some of those forestry ones, and some where you’re avoiding cutting down a tree, so therefore you’re doing something for CO2. Removal credits are where you’re actually taking CO2 from the atmosphere and removing it. So that could be something like a carbon capture storage project or a direct air capture project. Now some groups are advocating that avoidance credits should be banished altogether. There’s this science-based target initiative that would say only removals allowed. Now apparently, something like 90% of all credits in the voluntary market today are the avoidance ones. Do you think that it’s a good idea to remove these avoidance credits as a way to solve the problem of poor quality?
Dirk Forrister:
Not in the near term. I think, as more and more emissions get covered by caps then you’re in a healthier place with regard to that. But the SBTI, as we call it, they’ve gone overboard on that one. And in part it’s because… So that’s collapsing both the types of credits that stop deforestation and bring a lot of other benefits to local communities in terms of biodiversity and clean water benefits, and things like that. But it also has renewable energy in it, so renewable-energy-related credits. There’s been some controversy of late on renewables on whether they’re really truly additional anymore, because they’re so much more cost-effective. That’s what you ought to be adding anyway. That’s the thinking. So, many of the carbon crediting standards at present would not issue a credit for a new renewable.
So that’s been seen as a thing of the past. I’m not sure that’s right. And the reason is when you look at what we expect to do in terms of transforming energy systems and weaning communities and countries off of fossil fuel, and putting them more and more onto electricity, we’re going to need more renewable energy on electricity than the pace at which we’re adding it right now, or carbon-free power. And most of the developing countries that I see adding renewable capacity aren’t necessarily shutting down the fossil capacity. They’re energy-poor. They’re trying to add as much of whatever they can, as fast as they can, just to meet their people’s needs, and I think that’s laudable. Energy access is a sustainable development goal, but we need incentives when you add renewables to go beyond that so that you can add enough to start shutting down fossil.
And this is, by the way, a crediting strategy that Secretary John Carey in the US has recently launched an initiative on calling it an energy transition credit. It doesn’t exist yet, but he’s advocating that we come up with a way of crediting that transition so that you are, in a sense, crediting both the renewable and the fossil phase out. In the world of carbon crediting, those would be considered avoidances, because you’re avoiding the emissions from the fossil. And I think we’re going to need those strategies for a while, because in the forestry arena, just to give you another example, I know, Peter, I’m following into that technical stuff that they roll their eyes at. But the difference in an avoidance and a removal in forestry is the difference in whether you are protecting big old trees that are sucking out carbon, and a big tree growing ring is a lot more carbon-removed than a new plant. So I think the reforestation only doesn’t give us enough of what we need. So we’re going to need it all.
Peter Tertzakian:
We’re going to need it all. And in the context of the word, all, and you talked about the world of carbon credits. I want to get back to this notion that, basically, carbon credits. However, they’re generated currency. It’s like carbon money that gets traded, and the wealth gets shifted from emitters to renewables and non-emitters to encourage… and finance the growth of the cleaning green. But much like currency, can you comment that, jurisdictionally, this carbon currency often is not fungible. In other words, I can’t spend rupees in the United States and euros in China very easily. I mean, isn’t that one of the big problems?
Jackie Forrest:
In COP26, there was an agreement that was deemed positive for getting this international agreement, and we didn’t hear much about it at COP27. How optimistic are you that we’re going to get into that, that’s going to be agreed, and we could actually start trading these? And I guess there’s a question, especially in Canada, because we are debating, should we build more LNG terminals here to offset coal use in China? But until this Article 6 is in place, a lot of people here don’t want to increase the emissions, domestically, by building these projects.
Dirk Forrister:
Yeah. I think the agreement in Glasgow was something we’d been waiting for a long time. We were delighted to see the negotiators get to “yes” on it. And in fact, the only part of it that’s not done is the implementation of the UN level crediting mechanism. But right now, we don’t have to wait for that. Governments can use their own crediting systems or they can use the voluntary crediting systems and perform the corresponding adjustments for any credits that are traded across borders. So I think in our market, are starting to look more to, is less at what happens at the UN level and at what happens at a national level. So you guys in Canada, government is working on Article 6 implementation plan. That is going to be important for corporates across Canada to know which credits does the government want, which ones will it take for compliance, which ones will it report on person.
But many other countries are undergoing that process. So now, it’s up to the users of the system to decide how they want to use the flexibilities offered. So that’s why you didn’t hear more about it at Sharm El-Sheikh. If you went in the negotiating halls, most of the work got done in Glasgow. But if you walked around the exhibit halls in Sharm El-Sheikh, and you listened to what Brazil was talking about, what China was talking about, what Japan was talking about, what South Korea was talking about, all talking about how they’re going to use Article 6.
Jackie Forrest:
So are these going to be bilateral agreements, potentially, between countries that are going to foster some of this trade?
Dirk Forrister:
There could be bilateral agreements, there could also be plurilateral clubs that form. And I think that’s one that’s quite interesting is if a set of countries band together and say, “We’re going to recognize each other’s credits. We’re going to have a mutual recognition agreement as part of joining the club.” I think those are equally possible. The bilaterals are easier because it’s just two countries, but I think you’ll see both emerging.
Peter Tertzakian:
Okay. So we want to get more bilateral, we want to get more trading, but ultimately, the market speaks in terms of price. And one of the trends that you mentioned in your annual report is the fall in carbon prices, which is not necessarily conducive to transition. In fact, a lot of the prices have been cut in half. Talk about the price of carbon- why are they softer and how does this price volatility impact the overall momentum to transition?
Dirk Forrister:
Right. Yeah, I think the article that you’re referencing, written by one of our members, was focusing on the voluntary market softening. And I think it was waiting for more clarity from the Integrity Council on the threshold standard. I think it was also digesting a big move of some credits that were moved to a blockchain. In fact though, the compliance market strengthened in value, the European market, partly because of the war, to be frank, and the lack of Russian gas in the continent meant that the price in Europe escalated significantly, approaching nearly 100 euros a time.
This is one of my frustrations in carbon markets, is that we get so much focus right now on the voluntary market, and the last year that we have good data for was 2021. That year, it reached 2 billion in value, the same year. And by the way, that included some of the churn of sales and resales. If you compare that number to the EU market in the same year, the EU market was 700 billion in traded value. The big money is in the compliance markets, I guess is what I’m getting at. And they didn’t soften. And the reason they didn’t soften, I mentioned the war, but it’s also the tightening of the targets toward Paris goals, toward net-zero goals.
Jackie Forrest:
Dirk, one compliance market that really fell was California. I think that California fell from about $160 a tonne last year to about $70 now. And that was driving a lot of investment in North America. When you look at that, you say, “Well, how can I invest in projects when there’s such volatility in these prices?” It does slow down people investing, or they assume a very low carbon price and a bunch of projects don’t get done because of that, because they can’t trust the price will be there. How can people continue to invest with all that volatility?
Dirk Forrister:
In the California market, it’s even more complex than that. And California is incredibly sophisticated economy and their environmental programs reflect that. They actually have two markets. One of them is a low carbon fuels market, which is the one you’re citing that had that volatility that I think was reflecting the broader volatility in fuels markets. There may have been other things going on that drove that, but the allowance market in California is pretty steady, and that’s partly because it’s got guardrails on it. It’s got a minimum floor price in terms of what the government requires when it auctions credits. It’s also got a form of a buffer on the top of the market so that you hit speed bumps when the government will issue more credits if the price starts to get too high. So it’s, in a way, a form of a regulatory collar that’s been put on pricing on the allowance side. But you’re exactly right on the fuel side.
Jackie Forrest:
Let’s come back to that idea that maybe we’re going to get agreements between countries to allow carbon credit training across the border as part of the government systems. Do you foresee that that could be something that could happen in Canada for these LNG projects in the next several years? Or what kind of timeframe do you think the Canadians should be thinking about?
Dirk Forrister:
Well, certainly, the appetite for that clean fuel, the LNG fuel is rising, and so your export partners are certainly going to be clamoring for it. I think one of the questions about it that often comes up in Canada is around whether the exporter gets the credit for the carbon content in that fuel that’s going. And I think that will be a matter of negotiation. The reason I say that is in Paris terms, Canada is not penalized or it’s not have to take responsibility for the carbon content of the fuel that it exports.
It’s only responsible for the fuel it burns. So in that respect, the place that LNG gets burned is going to have to account for it. And so you’ll have to buy back the credits from them if there’s an improvement. And that’s just the way the Paris accounting works, that you are responsible for what you burn, not what you produce. It’s been talked about as long as I’ve been working in the climate space about whether those kind of fuel exports should get some kind of a treatment. But I think it’s likely to go contractual rather than by governmental rule.
Jackie Forrest:
All right. So, you’re not optimistic?
Dirk Forrister:
I’m optimistic that the fuel will command a premium in the market, and that there’s a form of recognition that it will get. But I’m just not optimistic that by fiat, the UN will say that you get a credit for that by selling the fuel, because the benefit is going to go to the customer you have that you help get on a better path.
Peter Tertzakian:
Yeah. Well, we’ve talked about a lot of things. I continue to say this is a very complicated subject when we think about compliance markets, voluntary markets, different types of credits, different jurisdictions, not yet written articles and agreements, price volatility. And on top of that, not surprisingly, I guess, some skepticism. So, Jackie, I don’t think this is the last time we’re going to be talking about carbon markets, but Dirk Forrister, thank you very much for joining us from the International Emissions Trading Association. You’ve helped clarify some things, and I would say for our audience, probably, have them asking even more questions. But Jackie, that’s your job, and mine, to have more sessions like these to try and bring some clarity to the situation of carbon trading, carbon markets.
Jackie Forrest:
Yeah. Thank you very much, Dirk, for joining the podcast.
Dirk Forrister:
Thank you for having me.
Peter Tertzakian:
Well, Jackie, that was a good interview with Dirk. But I still feel like this is such a complicated subject, if I can say it for the third time. And so what were your takeaways from the interview?
Jackie Forrest:
Well, I think there were three. The first one is this criticism. I think it’s a big deal. I mean, the fact that you’re getting mainstream media or even comedians and articles written that say these things aren’t credible is not helpful.
Peter Tertzakian:
Yeah. Well, I guess it’s a natural human response. I’ve had other friends in the carbon markets who are being very dismissive about the criticisms, about the quality of carbon credits, especially from the voluntary market, and so on and so forth. And I think it’s wrong to be dismissive because these sorts of things tend to fester, and given the complexity of the subject, they will affect. So I actually think you’re going to see more and more criticism of the carbon markets and the credibility of them in 2023.
Jackie Forrest:
Well, and there’s a number of initiatives focused on improving the quality. He talked about that CPC label. I definitely think there needs to be a drive towards greater credibility, one source of truth, one set of standards. So I think there’s a lot of work to be done. I think some of the criticism is valid.
Peter Tertzakian:
I think too.
Jackie Forrest:
I think things need to change. And I do think I agree with him that voluntary credits do need to be part of the solution here. Now another takeaway for me was this Article 6 discussion, that it’s going more, in a way, that it will be bilateral or maybe many groups of countries coming together and making agreements. So that was good, and that probably will happen faster than having the whole UN agree to something. So I thought that was constructive, but I was a little disappointed to hear that something like Canada talks about exporting our LNG, and that the emissions associated with doing it here domestically couldn’t just be offset by sending it to China, and them not burning coal. So that isn’t great, because as you know, that is a real barrier. There’s so much concern in Canada about not increasing our domestic emissions, and if we want to build industry for products that people need like LNG, I think we should get some ability to avoid those out if they’re going to help somebody else. But anyway, he didn’t sound too optimistic about that.
Peter Tertzakian:
Yeah. Well, I think the overlay to this is, 2023 is a far different world than 2015 when the Paris Agreement was first agreed to. And that trying to get international consensus on these sorts of things is far more difficult in the polarized world that we’re in, in a world where we do have a Cold War effectively going on, camps between countries, and just a lot of… I guess the word is polarization. So I’m not as optimistic as a lot of people that these sorts of agreements, A, can be agreed upon, and B, can be implemented even once they’re agreed upon.
Jackie Forrest:
Last thing is volatility. I understand what his point that some of the compliance markets have been less volatile. Europe has guardrails on, they didn’t initially have those, and there wasn’t a lot of investment in Europe until they started giving some price certainty. And seeing what happened in California, seeing how the voluntary markets fell this year is not really great for making investments. And we’ve had that issue here in Western Canada, and that people are very concerned about investing in carbon capture storage projects because they’re uncertain about these carbon prices that are market-based and couldn’t be volatile. And examples of what we’ve seen just reinforce the fact that it’s difficult to make investments based on these prices of carbon that can change year to year with supply and demand. So I think that’s another thing that if we really want to get to net zero, we want to drive a lot of investment. We need ways to create guardrails that where the bands, in terms of where these things trade, are much tighter.
Peter Tertzakian:
To try and create this ideal market where everybody trusts that we can trade between jurisdictions easily. Everybody is on board with understanding all the different credits, and that the supply and demand is in a balance, naturally, where you don’t need interventions. Boy, that’s a long way off.
Jackie Forrest:
I really am optimistic. 10 years from now, the carbon markets will be much more established, much more credible. The price volatility, hopefully, will be a lot less, and they will be driving investment. But today, they’re probably not driving then level of investment we need to get on track for some of these low carbon scenarios.
Peter Tertzakian:
Well, my arm could be twisted to agree with you that in 10 years we’ll get there. But in 10 years, we’ve got some aggressive targets to meet. So what you are painting as the ideal situation in 10 years is needed now, if we’re going to get to those targets in 10 years.
Jackie Forrest:
Yeah. Well, that’s fair. Things have to move quickly.
Peter Tertzakian:
Yeah. Anyway, good discussion. So I think we’ll wrap it up there.
Jackie Forrest:
All right. Well, thanks everyone for joining the podcast. If you like this podcast, please rate us on the app that you listen to and tell someone else about us.
Speaker 2:
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