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#8 Aldyen Donnelly, Director of Carbon Economics for Nori

January 23, 2018

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Why don’t voluntary or compliance carbon offset markets work? The numbers simply don’t add up. A lack of connection between the certificates and the physical inventory means that both parties—the seller and buyer—take credit for a reduction in emissions. And this double counting (issuing two certificates for a single credit) leads to a surplus of certificates under which the associated markets crash and burn. The good news is, the blockchain will allow us to start over and do the math correctly, ensuring that a traded certificate represents a real reduction in emissions. 

Ross and Christophe are joined by Aldyen Donnelly, the Director of Carbon Economics for Nori. She has enjoyed a 40-plus year career as a small business developer and consultant, with a focus on cost-effective methods of reducing pollutants. In 1996, Aldyen designed a non-profit consortium of Canada’s largest emitters, bringing those corporations together to reduce and remove emissions via a carbon offset market. By 2002, the Greenhouse Emissions Management Consortium (GEMCo) was the largest private sector buyer of carbon credits in the world. 

Aldyen joins Ross and Christophe to discuss how GEMCo employed double-entry bookkeeping to trade in certificates that represented an actual reduction in inventory and why the voluntary and compliance markets that followed did not. Aldyen explains the fundamentals of cap and trade, the concept of ‘pump and dump,’ and the function of a derivatives market. She shares her experiences with landmark climate change work like the Kyoto treaty, COPT, and the Vancouver Stock Exchange. Listen in for Aldyen’s insight into how the transparency of blockchain technology can help farmers become more productive and profitable—with or without the benefit of carbon credit sales!

Key Takeaways

[2:18] Aldyen’s experience through the GEMCo

  • Brought together consortium of Canada’s largest emitters
  • Pretend that existing carbon offset markets work
  • Purchase offset credits, seek emissions reduction/removal

[3:40] The fundamentals of cap and trade

  • ‘Quota-based supply management’
  • Government-induced limits on particular sector

[5:44] Aldyen’s involvement with COPT and the Kyoto treaty

  • Proposed global cap and trade on carbon emissions of developing nations
  • Work with tech innovation, company adoption led to her focus on greenhouse gasses

[9:18] How the principles of GEMCo differed from current markets

  • GEMCo offset credits represented reduction in physical inventory (double-entry bookkeeping)
  • Other markets lack connection between certificates and physical inventory (double counting)
  • Surplus of compliance certificates cause markets like Chicago Climate Exchange to crash in 3-7 years

[15:30] The elements of a good market

  • Trade in certificates that represent real emissions reductions
  • Removing carbon from atmosphere only viable path forward

[18:33] How the ‘additionality test’ limits innovation

  • Must prove that project wouldn’t make profit without carbon credit sales
  • Cannot build sustainable new economy, eliminates incentive to find new ways to make money

[20:38] The difference between voluntary and compliance markets

  • Voluntary means no obligation to offset (e.g.: airplane)
  • Compliance indicates obligation imposed by government (i.e.: California Cap and Trade)
  • Both implement additionality test
  • Both lack contractual link between inventory and certificate

[27:06] Aldyen’s role in the Vancouver Stock Exchange

  • Served as public governor (not part of brokerage community)
  • Brought in for experience in carbon markets

[29:10] The concept of ‘pump and dump’

  • Create illusion of increased demand, sell at higher price
  • Cryptocurrency can contain without regulations
  • Nori token = one credit, link with physical commodity

[34:07] How a derivatives market could be useful for Nori

  • Commodities markets about allocation, distribution of ownership
  • Derivatives markets about allocation, distribution of risk
  • Accounting discipline required for lasting derivatives opportunity
  • Easier to build accounting discipline on foundation of blockchain

[39:02] The benefits of blockchain technology for farmers

  • Changing farm practices costs money up front
  • 50% quit between year three and year five
  • More productive, profitable by year seven
  • Blockchain transparency provides asset to borrow against in tough time

[44:42] Aldyen’s climate change solution

  • Everyone who sells energy, building products worldwide would report global fossil content
  • Obliged to reduce at 3% per annum with option to buy carbon removal credits

Connect with Ross & Christophe

Nori

Resources

Aldyen’s Website

Aldyen on Twitter

Kyoto Protocol

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