Understanding Voluntary Carbon Markets with Maryanna Saenko from Future Ventures

[00:00:00] Maryanna: The voluntary market's interesting because you know that the people participating in the voluntary market really want to be there. I think the sentiment that nature based solutions are uninteresting makes no sense to me. The only people who end up thinking that way are just doing like a direct carbon to carbon comparison.

[00:00:16] Maryanna: Restoration is really equivalent to storage. And the important question when it comes to sequestration is sure, but for how long we need to create these spaces of like. Global environmental sanctuaries that are outside of these political turmoils, not a trivial thing to do. What I'm really excited about today is when I talk to this generation of graduates, climate is the first or second word out of their mouth.

[00:00:45] Maryanna: I've not talked to someone who's not motivated by the broader mission of what they're going to work on. It's not possible. With Where we are today, but I believe [00:01:00] it's possible with the ingenuity and engineering and care that our people are putting into this market.

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[00:01:10] Rahul: Welcome back to Understanding VC. I'm your host Rahul. Understanding VC is a perpetual MBA on a single subject, venture capital. Today, I'll be having an in depth conversation on voluntary carbon markets with Mariana Senko. Mariana is a co founder and partner at Future Ventures, an early stage VC firm that invests in Frontier Technology Company.

[00:01:31] Rahul: Previously, she was at Coastal Ventures and prior to that, DFJ. Let's talk to her.

[00:01:36] Rahul: Hi, Mirena. Thank you so much for joining me today.

[00:01:39] Maryanna: Oh, such a pleasure to be here. Thank you for having me.

[00:01:43] Rahul: Yeah. So, before I start, uh, recording a podcast, I usually search for some interest, something interesting, uh, to talk about, to begin the conversation. So I opened up Twitter today morning, and then the first thing that I see on volunteer carbon markets is an investigation on this, uh, firm Southport, [00:02:00] which is.

[00:02:01] Rahul: It's the largest carbon offsetting firm and, and apparently a lot of their credits are, worthless. So the quality is a problem with these, uh, the space, right?

[00:02:12] Maryanna: That's right. And, you know, I I think we should be, a little bit more understanding to the folks at South Pole who I think very much have their, hearts and minds and, you know, professional intentions in the right place, and to, to really unpack that question of what does it mean for a voluntary carbon credit to be quote unquote worthless?

[00:02:39] Maryanna: And are they truly worthless? Like, I don't actually believe that the majority, of South Pole's credits are worth it for if we step back for a second, like who is South Pole, right? They're, they're a broker, they essentially people come to them and say, we'd like to buy voluntary carbon credits. They go out in the world and they figure out where can these [00:03:00] projects be run?

[00:03:01] Maryanna: What might those projects look like? Figure out, like, let's say, Reforestation in Indonesia, determine what plot of land, what are the constraints around it, figure out how many trees can grow over there and what time period and, and basically back calculate through a series of like quite complicated calculations, what number of carbon credits could credibly be gotten from that kind of a project and they turn that back around to the buyer and say, Okay, if you want to fund this project, this is how many carbon credits, and then there's an exchange and some contracting. the group Vera came under some fire earlier this year from a kind of a, a strong exposé piece, I think it was originally in The Guardian, that essentially said that the, the methodology by which these projects calculate their carbon credits is invalid. And so is it really South Pole's fault? I would argue that South Pole follows the Vera methodologies [00:04:00] and the Vera methodologies have been found to be Maybe more optimistic than they credibly should be given the data we have these days about these projects.

[00:04:11] Maryanna: And so, I think it's important to state that like I, I, South Pole as an organization and as individuals in the market are by no means like a nefarious organization who are trying to like sell snake oil, right? Like that's not the case. but rather that nature is unbelievably complicated. And multifaceted and these projects are difficult to manage and engage with and incredibly track over time.

[00:04:38] Maryanna: And so really what we have here is. the standards by which we understand how these systems work are actively evolving. And in the past, we haven't done a great job in terms of exactly saying how tightly coupled our calculations are to the outcomes. And now that's getting better. So I'm actually [00:05:00] oddly hopeful, because this kind of scrutiny and.

[00:05:04] Maryanna: Reference checking is like the only way forward to actually developing our credible voluntary carbon market.

[00:05:12] Rahul: Yeah. Yeah. So before we go on, it would be great if you could, you know, define what is carbon credit and, and is carbon credit and, carbon offset the same thing or?

[00:05:24] Maryanna: Oh, that's, it depends on who you talk to and they, they, shouldn't be. so what is a carbon credit? A carbon credit is basically, uh, it's actually, let me go look up the tight definition of this, because if I get this wrong on your podcast, that's going to be really sad for everyone.

[00:05:43] Rahul: Yeah. Yeah.

[00:05:44] Maryanna: so most people use carbon credit and carbon offsets interchangeably.

[00:05:52] Maryanna: And I am increasingly seeing some folks use them [00:06:00] a little bit different, particularly in the voluntary market, where maybe there isn't a one to one trade, but essentially. It's a mechanism by which it allows the owner of said carbon credit or offset to emit a certain amount of carbon dioxide or other greenhouse gas, and the carbon credit permits the emission of one ton of carbon dioxide or equivalent in greenhouse gases.

[00:06:27] Maryanna: And so it's kind of, it's half of a cap and trade style program that essentially. Companies that pollute are allowed a certain number of credits and they allow, allowed to kind of co pollute up to that limit. And then over time, the amount of carbon credits that they are allowed to pollute worth of should go, should be periodically reduced, right?

[00:06:54] Maryanna: So if a company like ExxonMobil. Has a particular level [00:07:00] of carbon credits, they, those, those should go down over time and regulation and the way that private companies. And public companies manage this is they have to spend money to buy extra credits if they exceed their own cap, and I'm not sure I've done a great job explaining that.

[00:07:22] Maryanna: So I'm happy to further break that down.

[00:07:24] Rahul: I mean, I understand. Yeah. So it's. Uh, so you yourself cannot, uh, take the, a lot of initiatives to reduce your, uh, carbon emissions. Then you go purchase. And then maybe, there's a equivalent project that kind of stops a certain amount or maybe, like remove a certain amount of carbon emissions.

[00:07:45] Maryanna: That's right. And this is where a lot of people have some level of frustration or even occasionally vitriol towards the carbon credit because they basically say, This isn't functional. This [00:08:00] is, this is a bandaid to the climate crisis, but the simple reality is that we can't turn off all of our carbon emitting industries and businesses today, full stop.

[00:08:14] Maryanna: Like it'd be great, but we need ways to transition, right? So, so what the carbon market is endeavoring to do is to ease the transition between. Our energy needs today, our capacity to solve those, and what they might look like in the future. And so the trade is between emissions producing companies and emissions reducing projects.

[00:08:38] Maryanna: And so projects on the carbon credit side, in terms of the ones that produce credits rather than consume credits, are things like reforestation projects, right, so there's nature based solutions. Think literally planting trees. there are agrarian focused projects. So ways in which farmers might. They [00:09:00] act in ways to better sequester carbon, which is bind it into the rootstocks of their plants, potentially could calculate that and create carbon credits.

[00:09:08] Maryanna: There are man made solutions, so things along the lines of direct carbon capture, direct air capture, DAC, is the, the often, and that's people essentially, filtering carbon, normally CO2, but occasionally methane and kind of equivalent gases out of the air, normally at points of creation. So think about like, if someone came up with a machine to put on top of a flume stack or something like that.

[00:09:35] Maryanna: So before the gas escapes, the, the classic one that people get kind of annoyed about is airlines.

[00:09:46] Maryanna: And then they have to buy carbon credits because of how, kind of energetically expensive it is to produce aircraft and then fly aircraft and then they fly these aircraft to the altitude of commercial airliners, [00:10:00] and then they burn all of that gas. And so a peak point of frustration for people is that, well, who cares if you're buying carbon offsets for the airline industry, because all of the emissions are happening up high in the atmosphere, making those even more damaging.

[00:10:19] Maryanna: And so a direct one to one trade to, you know, a tree growing on the ground. Is not the same because one one would make the argument that the emission where it's happening is is actually also needs to be calculated in. And so there's a lot of ways to kind of squint and and be unhappy with the carbon market.

[00:10:40] Maryanna: and the other system is like, it's more or less the best that we've got today. And so we should absolutely think collectively as a global society about how to. Better that system and figure out as. investors like myself and [00:11:00] entrepreneurs how to take advantage of that system to support better businesses into being.

[00:11:05] Rahul: so we, we talked about the removal side, which is the direct air capture. So there's one thing that I wanted to, know what is sequestration by carbon sequestration of carbon. I looked it up. I didn't fully understand.

[00:11:19] Maryanna: Yeah, sequestration, so the idea is you can remove the carbon from the air, theoretically. It's actually not that trivial to do. The parts per million, basically the percentage of carbon in the air is pretty low. so there's a question of like, what is the filter mechanism that you use by which to capture the carbon, whether that be like a tree or a machine or anything else.

[00:11:43] Maryanna: let's say, like, let's say that part of the puzzle gets solved, however it gets solved. Then you have this question of, great. Now you have captured the carbon, but how do you store the carbon? And so sequestration is, you can think of sequestration and storage as [00:12:00] essentially the same meaning in this case.

[00:12:03] Maryanna: and the real question that people ask is how long can you effectively store the carbon for? And so think about it this way. You grow a tree. That's great. However, the tree, if you leave it forever, will eventually fall down and rot. And when it rots, it will release all of the CO2 that has been stored in it.

[00:12:24] Maryanna: So then essentially natural sequestration or storage in a tree is only as long as the life of the tree, plus how long it takes to, to, to decompose over time. Right. So that's a lot, um, uh, that, that scale kind of ramps versus if you grow a tree. And then you cut it down for lumber, then the, the carbon is stored for as long as the building or whatever you build out of that lumber lasts.

[00:12:59] Maryanna: [00:13:00] Right. And so that potentially is orders of magnitude longer than the lifespan of the tree, right? They're like thousand year old temples in Japan that are built out of wood. and in the soil, for example, you can measure kind of the age of carbon at different soil depths. So if you can. Get the carbon deep enough in the soil, it could potentially sit there for hundreds, if not thousands of years.

[00:13:27] Maryanna: But most of carbon that gets trapped in topsoil in, in the first, you know, 15 centimeters of soil, essentially gets turned over and released back into the air in less than a year. so sequestration is really equivalent to storage. And the important question when it comes to sequestration slash storage, Is sure, but for how long

[00:13:49] Rahul: Okay, So this is essentially like, you know, we dug up a lot of carbon out of the ground, deep underground, and now you, now we have to put it back

[00:13:58] Maryanna: that's exactly the point, right? Like we [00:14:00] dig up these dead dinosaur bones. We burn them in our cars. Hopefully our cars are getting more efficient. And then you have to drag these components back out of the sky. And the best thing you could possibly do with them is shove them back into the earth. but turns out it's not that trivial to do.

[00:14:17] Rahul: Yeah. Yeah. , it's, it's not too bad though because, all these carbon fields, how bad it was, allowed us to get to this point, right? In terms of growth and everything else. And now we have the resources to get, do all this.

[00:14:33] Maryanna: that's right. I mean, I think people have really, demonized. Something that's, you know, two elements of the periodic table. So that's interesting, but it's also important to recognize that so much of heavy industry and subsequently modern infrastructure and life is built on the back of the carbon economy.[00:15:00]

[00:15:00] Maryanna: And one of the things we need to be particularly mindful of is that. You know, wealthy countries that have most accelerated in their own growth on the back of that economy are now turning around to, lesser economic developed regions and saying, Okay, we did all the damage, but you bear the brunt of the problem solving.

[00:15:22] Maryanna: And that's quite unfair, right? is to say we, we did a great job harvesting all of our dead dinosaur bones, but you're not allowed to. and I, I think that's a real... Difficult and interesting and necessary conversation to have in the world right now, which is we need, we have, we have a global crisis, we need global solutions, but we don't have kind of equivalency or equanimity among all of the relevant stakeholders about How much they can pay, how much they're able to participate, and how much, frankly, they should, given that some of the [00:16:00] countries that are most suffering from the climate crisis did the least to cause it.

[00:16:05] Rahul: Yeah. I was reading about Volunteer Carbon Market yesterday and then, there was a line in an article which I thought was like very obvious, but, uh, which is great. It's like new challenges nearly always produce new markets and the ongoing climate crisis and rising global emissions are no exception.

[00:16:21] Rahul: So we have a mechanism to fix this. In a very, as long as we, like, align the incentives properly, right,

[00:16:30] Maryanna: I firmly believe that, you know, and there was this sense, this, this phrase that's been going around this year, this, this term, I don't know if you, you, Saw it in some of your reading, but, polycrisis, uh, which is, It, it's a term that's getting branded around a lot in the kind of environmental space, but also anyone who's looking at global issues is basically [00:17:00] saying, Oh, we have a number of challenges, you know, current, former and next pandemics, security issues, environmental issues like Like poly in terms of like many folded right and crisis in terms of obvious issue.

[00:17:18] Maryanna: And so I, I think the, the only compelling way to look at something like a poly crisis is through poly solutions, which is to say we, we have the right mechanisms in place. We just need to ensure that we kind of have the fertile soil to align at incentives and to ensure that everyone who can be working on these problems.

[00:17:41] Maryanna: Should be and should be incentivized to do so

[00:17:44] Rahul: Yeah. Yeah. So, so, uh, can we look at the whole marketplace in detail, both at the supply and the demand side and all, all the incentives and how to align them? so the one thing that I want to clarify is, so on the [00:18:00] demand side, companies are purchasing them, to kind of offset their greenhouse emissions.

[00:18:04] Rahul: Is there anything else that these companies can do with this credit?

[00:18:08] Maryanna: to, well, so companies can purchase them to offset their own emissions. then you have a number of companies kind of going beyond their own requirements and purchasing kind of above their capped emissions. So that right, so purchasing more than the market expects of them or more than they're required by compliance to guidelines to purchase.

[00:18:37] Maryanna: and then there are kind of almost on an individual level, people who are trying to stand up the opportunity to say, you know, as individuals who travel in airlines, like we don't have to offset our miles, but there's increasingly programs that allow us to, to do so as individuals. So that, [00:19:00] if that's your question of like.

[00:19:01] Maryanna: Where does, where is the line drawn? Essentially, people can be as good stewards of the system as they'd like to be. There's no, like, limit. the, the limit in terms of where can people buy credits. is essentially how many credits are available, like how many, and, and to your earlier point where we started with the South Pole conversations, how many like good credits are available?

[00:19:24] Maryanna: and this is actually a real issue. Like the, the market is severely supply constrained these days, and that's a really interesting question and hopefully a really interesting one for people of an entrepreneurial mindset.

[00:19:38] Rahul: Yeah, so, in terms of the supply side, there is, two ways, right, the removal side and the, what was the other one, the avoidance carbon, and the, the removal is usually what you already mentioned, the direct air capture, and, sequestration of carbon, yeah.

[00:19:57] Maryanna: the supply side. You [00:20:00] have, you have the kind of, you have carbon removal projects and those projects, I think one of the easiest ways, and, I'm sure there are much better experts than me in this field, that one of the easiest ways to look at is like, is it a mechanistic solution or a nature based solution?

[00:20:20] Maryanna: Nature based solutions are exactly what they sound like. Like, are you basically enabling, natural ecosystems? and biological systems to better flourish and then figuring out how much carbon is captured or mechanistic solutions are things like direct air capture. So, like, build machines to pull carbon out of the air or out of the ocean.

[00:20:46] Rahul: so then the, the challenge here is to accurately measure like, the, the, the project, and then define like, I mean, accurately say that, okay, this one credit unit is actually one [00:21:00] ton of greenhouse gases. That's the challenge here. And we, we spoke about, he spoke about Vera, who CEO, I think had to resign, this year.

[00:21:09] Rahul: Earlier this year, because of the, the methodologies. So, the, the challenge is just the methodology, in terms of, trying to control the quality here or?

[00:21:19] Maryanna: I think there's a couple. So one, I think the challenges are different for nature based versus mechanistic. So for kind of machine based solutions, right, like engineering based solutions, maybe is the right way to think about it. The challenge is not in calculating how much carbon they're going to capture, but in actually like building the thing, building whatever the capture mechanism is, in, uh, an economically viable way.

[00:21:48] Maryanna: And that's where a lot of these projects are promising that they will figure out how to create These carbon credits, but there's a pricing [00:22:00] problem, which is basically like, how expensive does the carbon credit, what is the cost of that carbon credit such that it covers the cost to generate it. so that like, it's a profitable business to generate it.

[00:22:12] Maryanna: And so that it covers like the electricity and energetic and, you know, all the associated costs with like running an engineering based company that's trying to capture carbon. So I would say economics on generating. Effective credits on the engineering side, like not trivial people. Lots of people are working on it.

[00:22:33] Maryanna: and and people are working on in all sorts of interesting ways from like, trying to figure out how to make sustainable aviation fuels to, you know, like, if we capture this carbon, then what do we do with it on the nature based side? You have a different series of problems and that's kind of where Vera comes in, which is how do you actually calculate where these nature based solutions are viable?

[00:22:56] Maryanna: Where can you plant the, like, let's just talk [00:23:00] about reforestation because it's, it's kind of like the easiest for people to wrap their head around. you know, you have to find large swathes of land that you can ensure control of and control in the sense of that, you know, militants in Brazil. That get paid off, by Chinese corporations, to mow down large swaths of the rainforest for cattle farming.

[00:23:26] Maryanna: Like, nobody wants to do this kind of destruction. It's just like their economic means for survival. And, you know, frankly, the Brazilian government also has like some backwards rules, which is like the way in which you stake out and claim ownership of land. Essentially is to like clear, cut it and put some cattle on it.

[00:23:44] Maryanna: So like we have lots of issues on the, on the nature based solution side. The reason that I particularly like nature based solutions is because they, to, to that earlier point that I was [00:24:00] suggesting of like poly crisis requires poly solution. The problem in our world right now is not too much carbon dioxide.

[00:24:08] Maryanna: That's one of many issues. Like we also have this. Massive kind of destruction of biological diversity and ecosystem expansion and the interconnection of all these systems. And so at least nature based solutions solve a lot of those in a way that the engineering solutions don't. Really do anything for in that aspect.

[00:24:34] Maryanna: Like they certainly help. We should do them. I'm, I'm not against direct air air capture. It's absolutely necessary, but nature based solutions, which people lately, for some reason, seem to be like less excited about, or, or there's people are just quick to be derogatory. They're like, oh, we're not here to plant trees.

[00:24:52] Maryanna: I'm like, we should definitely be here to plant trees. Like trees are extremely useful, right? They, they support, underground micro arousal [00:25:00] fungal networks. They. Support, you know, above ground entire ecological systems for birds and insects and all sorts of animals. So I think what's really, really powerful about the nature based credits is that they're valuable beyond their carbon offset.

[00:25:19] Maryanna: and maybe one day the world will actually figure out how to price that value in. We haven't quite gotten there.

[00:25:25] Rahul: Yeah. This is something that I wanted to ask anyway. So in terms of effort to impact, you feel the nature based solution may be slightly ahead of the mechanical solutions.

[00:25:36] Maryanna: I, I personally believe that. to me, you know, our, our natural world systems are so incredibly complex and interconnected. And to the extent that we can help support their flourishing and at least mitigate their extinction. I think that's a much higher leverage point, [00:26:00] um, that we should absolutely consider using.

[00:26:03] Maryanna: So I think the sentiment that, nature based solutions are uninteresting makes no sense to me. and I think it's short sighted because I think the only people who end up thinking that way are just doing like a direct carbon to carbon comparison. but as we all know, like our, our climate crisis is one of.

[00:26:23] Maryanna: Many, many impacted systems. And so to the extent that we can restore these systems more holistically, I think we'll end up in, in much stronger economic footprints. I mean. Honestly, all you have to do is look at like countries like Costa Rica, where, you know, so much of the economy is supported on ecotourism.

[00:26:43] Maryanna: Like, you can't do that if you clear cut the rainforest.

[00:26:48] Rahul: Yeah. Yeah. But when people talk about, the net zero targets, they're usually talking about scaling up the, the, uh, the mechanical sort of direct air capture sort of solutions, right?[00:27:00]

[00:27:00] Maryanna: Yeah, they are. It's frustrating.

[00:27:03] Rahul: But why is that? Is it because we can't do the nature of a solution fast enough or?

[00:27:09] Maryanna: So we, we invested in a company called Earthshot Labs. and, you know, they're kind of like a technologically mediated, Maybe not South Pole competitor, but like think South Pole is kind of like the classic way to spin up these projects. It takes a lot of people and a lot of time and a lot of capital.

[00:27:28] Maryanna: And so the, the supply side is essentially constrained by the bandwidth of groups like South Pole who are doing the best they can. and our thesis was, well, how could you use? Modern mapping systems technologies, you know, faster, basically, how can you automate and speed up the process by which these projects are then receive kind of like that, that stamp of credibility.

[00:27:58] Maryanna: There are other really [00:28:00] strong groups, like Pachama, who's looking at like the existing. Carbon credit market and basically going through and, and figuring out, um, exactly which ones of those projects are the most credible and, and trying to better match them to, to suitors. So I think that the real reason that the nature based market has struggled is that it, it's a complex people and government and regulatory problem.

[00:28:32] Maryanna: And when people think about like, okay, well, what can a handful of smart people do? The answer is generally like, we trust people and their capacity to build an interesting machine more than engaging with the government of Burkina Faso and trying to, you know, repair aspects of the Congo. Like that just feels scarier and more complex [00:29:00] and less certain for people.

[00:29:01] Rahul: Yeah, definitely. I think, um, there are like nature aspects of it as well, right? Like climate. So there could be a forest fire or there could be policy changes. and you know, and trees could just die

[00:29:19] Maryanna: Yeah,

[00:29:20] Rahul: because of climate change. So I think we'll be more in control with all the engineering mechanical solutions.

[00:29:27] Rahul: Maybe

[00:29:27] Maryanna: that's right. And so I think at the end of the day, we need both. and people are nervous about the nature based solutions because they requirement, they require large swaths of land and government buy in and regulations and all sorts of things that feel impossible. But, I also believe that they're some of the most powerful.

[00:29:49] Maryanna: things that we could be doing, um, and we should also do the engineering based solutions. Like it's not one or the other.

[00:29:57] Rahul: Yeah, in terms of engineering solutions, [00:30:00] um, one challenge that I was, reading about is like the energy used to, to run all the systems, right? Like when that energy source changes, then the, the, the calculation of the carbon credit also changes. So,

[00:30:16] Maryanna: yeah, exactly. And so, years ago, I, I worked, at this, Little kind of boutique consulting firm and and a brilliant colleague of mine helped make this map of the US, which was basically like, how clean is your electric vehicle? and turns out if you are driving an electric vehicle and charging with electricity in the Midwest, where at the time there were still a lot of coal burning plants that were charging electricity substations.

[00:30:53] Maryanna: You actually were doing worse for the environment with your electric vehicle than if you had bought like a Ford F 150.[00:31:00] and that's really frightening. Right. So, I think thankfully we're, we're well past those days now. So people are very mindful and considerate of like where their energy is coming from and how clean is that energy to begin with.

[00:31:15] Maryanna: So at least that like first order issue of, are you, is the energy required to run your process. So dirty that maybe you shouldn't consider that it would be better to just not do it like that's Getting addressed largely Then you have this real issue, right? The the Carbon dioxide is not that common in the air, right?

[00:31:40] Maryanna: and so if you're just talking about like filtering it out of the air the I'm trying to think of a good analogy for it But, um, you know, it's like capturing a soap bubble in the wind. Like there's not, so it takes an enormous amount of energy to kind of like sift through the total [00:32:00] stack. So people try to go for these, higher concentration outputs, like right.

[00:32:06] Maryanna: Next to the industrial setting where, where the, the pollution is happening, but even then it takes some amount of energy to run these filtration processes. I think at the end of the day, what will be interesting in the direct air capture world is. The solutions that are the cheapest to operate will most likely win.

[00:32:30] Maryanna: And that's probably going to be stuff like literally like spreading something like concrete granules on the ocean surface, right? Advanced rock weathering. So basically, as. Certain minerals decompose in certain environments. They'll actually, uh, capture and, and bake CO2 kind of out of the air and the process of that.

[00:32:55] Maryanna: And so there, there are potentially some very, very low, low [00:33:00] energy ways. to do this. they're just not very sexy, I guess maybe is the word. Like they're, they're, they're not as interesting and complicated as like big machines, but like maybe we should just be spreading concrete granules around the ocean surface like that.

[00:33:20] Maryanna: That would actually work pretty well. Not, not necessarily advocating for that. There are lots of challenges associated with it, but like it would work. Well,

[00:33:28] Rahul: Okay, I'm curious about that. So, is it similar to, you know, at one point there was this news of, you know, black balls being put, on a LA, uh, reservoir or something,to prevent

[00:33:42] Rahul: black balls on the,mean, how does this work?

[00:33:46] Maryanna: so the thing I think you're talking about was that like, right, so reservoirs lose an enormous amount of water through evaporation. and so if you can. Cover the [00:34:00] large, large land, large water masses, then, then you don't have as much fresh water escaping. This is a different thing. and so essentially, for millennia, this has been happening forever.

[00:34:15] Maryanna: there's been this construct of, It's called, it's called rock weathering, essentially. And so, volcanic rock, if you Spread it on a field. Well, if you just leave it where it is, like volcanic rock, wherever it is, falling rain absorbs carbon dioxide from the atmosphere. So rain comes out of the sky on its way down the water droplets, capture CO2.

[00:34:48] Maryanna: The water then hits volcanic rock and reacts with it to form carbonates. And these carbonates then wash into [00:35:00] rivers and seas and places where essentially they're, they're stored like carbonate. Then hits a water mass and you get these little like rock granules that have high concentrations of CO2 in them and be there for a while.

[00:35:16] Maryanna: Like it's, it's hard to break down a carbonate. And so, yeah, I mean, you could literally take volcanic rock or something, you know, chemically similar to it and like spread it across a field or a beach or something else. Wait for it to rain on it. It will form carbonates. It's actually a really effective Methodology for capturing co2 seems ridiculous, right?

[00:35:45] Maryanna: It's like that shouldn't work, but it really works

[00:35:48] Rahul: Okay. So, but when you, you were saying about, putting it on the ocean floor, right?

[00:35:56] Maryanna: Yeah, I mean so so you you want to take [00:36:00] the You want to get your carbonates into, you want to get them to sink in water because if they're pelleted with the sun's rays, the UV will eventually break them down and, and really, so they'll kind of crumble over time. But if you get them out of, if you, if you, if you spread them somewhere where they can get wet from rain and then sink, that's like the ideal situation.

[00:36:28] Rahul: Okay. Yeah. Then they're stored permanently. Yeah.

[00:36:32] Maryanna: Yeah. And, you know, permanently varies, but like quite a, quite a bit of time. And there's,

[00:36:38] Rahul: a

[00:36:38] Maryanna: there's, yeah, there's, and, and there's, there are quite a number of startups that are like wholly focused on this. and I think it's brilliant, frankly. I don't know how you end up being cost competitive, and I don't know what your IP is, and so like, we've struggled to invest in one of these, even though I'm like, oh yeah, like, that's a hundred percent the solut like, maybe not the solution, [00:37:00] but certainly a really strong solution.

[00:37:03] Rahul: Yeah. So what are some of the other problems of the volunteer carbon market? So, one thing I was thinking about is, what if a project kind of registers with, multiple exchanges, or multiple markets and then there is like a double counting, right?

[00:37:18] Maryanna: Yeah, They, I, I don't know the mechanisms by which they're precluded to do so, but I, I believe there's a mechanism in place. I mean, your, most of your problems, what, once something, once a project is like sufficiently validated to the point where like it's actually entering an exchange, I'm going to say something like slightly heretical, which is like, it's more or less good to go.

[00:37:40] Maryanna: Like if it's gotten to the barrier of getting into the, then yeah, I'm sure some double counting happens. the, the greater challenge I, I think is actually in bearing out new carbon projects and [00:38:00] getting, getting enough of them online quickly enough and to the point where they can credibly enter exchanges.

[00:38:07] Maryanna: And this is where the voluntary market's really interesting because, you know, there, there's, there's some real issues with the compliance market. Like. Large industrial players can say that they're going to participate in the compliance market, but at the end of the day, they're going to do some quick accounting.

[00:38:26] Maryanna: And frankly, it's just like not that expensive for them to fail to meet their compliance. So it might be cheaper for them to like pay the tax and the penalty and not participate in the compliance market. Then to actually go ahead and, and, and like fully participate in the compliance market. And I think we'll see more and more and more of the people trying to figure out like what, where the trade is for them.

[00:38:51] Maryanna: The voluntary market's interesting because. You know that the people participating in the voluntary market really want to be there. They're, they're actually, they're actually out there trying to [00:39:00] buy credits, right? Like Microsoft is, doing really strong work in the sense, right, their sentiments. and so then the question becomes, okay, well, if companies like that are willing to participate, are willing to state aggressive goals, like being carbon negative by 2030, then why can't they be carbon negative tomorrow?

[00:39:23] Maryanna: Like, what's precluding them from doing so? Like, if the answer is not that they're trying to shift their processes of operation, like they're just trying to buy... Enough carbon credits to get to carbon negative. Why can't they do that in 2024 or 2025? Like why? And can they even do that by 2030? And the answer is like today, the carbon markets are basically sufficiently starved for credible projects at costs that these industrial players would participate in such that like you, we just can't get there.

[00:39:58] Maryanna: And I think that's a really [00:40:00] interesting space, which is. How do we get the supply up such that all of these big companies that are throwing around their weight and saying we're going to be carbon negative by the state can actually go and do it or at least show us that either they're going to do it or that, you know, maybe they weren't being entirely truthful or they set an aggressive goal, but they weren't intending to meet it.

[00:40:25] Maryanna: Right. But like, yeah. Let's take the opportunity for, like, the market to fail them off the table, and see if they actually are serious about hitting their goals.

[00:40:34] Rahul: Yeah, but why do you think, uh, a lot of companies have changed their mind in terms of like, why are they voluntarily doing, there's no, this is going above, above, above and beyond the, the compliance stuff, right? Why are

[00:40:49] Maryanna: I, I mean, frankly, I think it's a failure of compliance. I, I, I imagine what's happening is, I, I think it's twofold, which [00:41:00] is, one, the people who run these companies are very intelligent. And they see the crisis firsthand, right now, they, they don't see it in the way that, poverty stricken regions in India are experiencing heat wave, but they're seeing it in the way that like their ski resort doesn't have as much snow as it used to, right?

[00:41:22] Maryanna: and I, I'm being a bit facetious, but I, and the reality is that the, the leaders of these companies. Actually recognize the science behind the climate crisis. They, unlike politicians, are not motivated by their constituents to pretend that that's not true. And they recognize that if they were to follow the letter of the law of compliance, that they would just be contributing to burning the world.

[00:41:53] Maryanna: And I think most of them, you know, recognize that. particularly those companies [00:42:00] that are consumer facing that given the option their users would probably go to a kind of greener and climate friendlier solution and company, because that's very much, you know, if you gave most apple consumers the choice between like, more climate friendly iPhone or less.

[00:42:22] Maryanna: Like a significant portion of them, I would guess, would probably even pay a premium for it. So I think one, there's like just the recognition, the demand. The other side is interestingly on the employee basis, which is, it's already hard to recruit top talent into these companies. And the, essentially the current workforce today is saying, I refuse to work for companies that I can't stand behind the mission of.

[00:42:49] Maryanna: So, you know, Google will lose employees to Microsoft if they don't kind of match and keep up with the claims. And that's a real thing. [00:43:00] the, the sentiment that the broader workforce culture can push upon their employers is really, really strong. And that frankly is pushing these to be more aware.

[00:43:13] Rahul: Yeah. Yeah. And you talked about compliance market, so it would be great if you could, like define like how it is different from volunteer market. so the one thing that I've read is like, if for compliance participants in compliance market, they have to reduce the emissions themselves. It's like they can't buy credits.

[00:43:34] Rahul: Is that true?

[00:43:34] Maryanna: I'm not an expert in the compliance market. I'm not an expert in the voluntary market either. So I, I'll be cautious before my understanding of the various intricacies here is that in emission regulated industries. There is like a, [00:44:00] a globally set standard of emission requirements per industry. And then companies can choose whether or not to strictly adhere to those, do better than those, or do worse than those and pay fines.

[00:44:17] Maryanna: And the, basically a company has to meet their own emission standards. And there's already baked into that some assumption that they can't do that through just their own production alone. They have to do that and bicarbonate credits, right? So it's like this, this offset thing. So they're going to make more carbon than their emission standard demands.

[00:44:46] Maryanna: But the demands of the emission standard understand that it's basically an impossible goal without also participating in the offset market. And so the offset market. Drives the delta between those two. And [00:45:00] then the idea is that over time, the emission standard it gets stricter and stricter it was in companies have to produce less.

[00:45:05] Maryanna: But then their capacity to buy carbon offsets also gets less and less. The idea is to like drive these companies to lower emissions. or force them to pay fees on top of it.

[00:45:17] Rahul: Yeah. And, technically by market size, I was reading this is like a 851 billion where volunteer market, is only 2 billion at the, like in 2021. So, why, why is, why are you more interested in, volunteer carbon markets?

[00:45:35] Maryanna: Well, I mean, frankly, I'm interested in both, but the compliance carbon markets set a price and most of the solutions by which new people are coming to market can't profitably make carbon credits in those set prices. It's just good luck. And so,[00:46:00] for new ideas to flourish, you generally, right.

[00:46:03] Maryanna: And this is always the case, like you figure out how to do something. It's quite expensive at first. And then hopefully it gets cheaper over time as you figure out how to do it better and better. And so what's interesting with the voluntary market is you have a lot more price elasticity. So you have people who are willing to pay much higher prices.

[00:46:22] Maryanna: For high quality credits and that to me is interesting because it allows for experimentation and exploration of different ways to create new carbon credit projects that otherwise, I mean, maybe we'd eventually get there, but like, I'm not sure who's going to subsidize those into existence, maybe governments, but that'll be slow.

[00:46:49] Rahul: Yeah. And in terms of, disadvantage of voluntary carbon markets. what would be some of those? So, the one of the first was this, [00:47:00] Chicago, Chicago carbon exchange, which, which kind of had to close down at one point, mostly because there was too much of supply and not enough demand. And then the price went to zero.

[00:47:12] Rahul: So what would be some of the challenges for, like a volunteer, carbon markets?

[00:47:17] Maryanna: Yeah, that's right. Um, so, you know, we, we talked a little bit about one, one of the challenges is the coming up with credible projects today that can actually meet the supply side. So, like. There was this open question, like, did it really shut down because it was really flushed on supply and there was no demand?

[00:47:39] Maryanna: Or like, was, what were the things that were supplied on that market when investigated by buyers really insufficient? So almost a separate conversation. So the, the first is kind of development of gold standard. Credits. the second is really clarity [00:48:00] by global government organizations to say, not only do we support these kinds of projects in our jurisdictions, but we will ensure that they're enabled and protected because one of the biggest challenges is For the nature based ones, but also for, for the engineering ones is, are you operating in a regulatory landscape that's protected for long enough?

[00:48:25] Maryanna: Right? And we're, and we're talking about parts of the world where like, there's regime changes and totalitarian dictatorships and all sorts of frightening things happening. and it, it is. It becomes very hard for people to participate in 30 year projects when they've seen, well, looking backward, the government in that country has been overturned five times in the last 30 years.

[00:48:52] Maryanna: Right? And so it's kind of the sense of like, we need to create these spaces of like global [00:49:00] environmental sanctuaries that are outside of these political turmoils, not a trivial thing to do. And I think the biggest thing is just creating a mode by which the capital that would like to participate in these markets can actually exchange hands, because I would say I've never seen anything like this in terms of you know, stated goals and intentions by executives and everyone else in press and shareholder meetings and everything else.

[00:49:35] Maryanna: And then when you actually go to them and go, great, I have an interesting, you know, here's a series of great projects for you. then suddenly it turns into like these. Bare knuckle fist fight, six month negotiations with like seemingly no end. Like, how, how do you have any intention of meeting your goals if this is the [00:50:00] process by which each one, right?

[00:50:01] Maryanna: Like, just people standing in, in their own ways. so I, I think at some point. What we really need is kind of like a, uh, a champion in this market. Like whether it's an executive of like a fortune 100 company or someone who's just like, this is critical. We have to solve this problem and we're going to lead.

[00:50:25] Maryanna: and I'm not sure, like, may, maybe it's one of these large tech companies today, we'll, we'll see what happens, what they're, you know, what they can commit to, um,

[00:50:37] Rahul: What about the government? Would you trust government to do this?

[00:50:40] Maryanna: depends on the government. I

[00:50:43] Rahul: U. S. government?

[00:50:44] Maryanna: think that they're. You know, I, I was pretty heartbroken to read the Inflation Reduction Act and have it essentially, essentially saying no nature based solutions, which I think was just like a ridiculous, [00:51:00] uh, stance, right? it was this very, like, American made, American manufacturing, American ingenuity, first piece of legislature.

[00:51:09] Maryanna: sounds like there's a farm bill that might have some nature based solution carve outs in it, so. I'm, again, I'm all for direct air capture and all, all sorts of other stuff, but I think we need multiple solutions. So, I would like to see the U. S. government take... A more open minded stance on just how multifaceted the solution space can be. But yeah, at the end of the day, I mean, we have a pretty great set of infrastructure here in, in the U S.

[00:51:40] Maryanna: And so there's a Testament that, you know, it's a government that can take on. Large projects in meaningful ways. Like I probably have less faith in this, but I don't know if you've ever gotten a chance to come to the U S and see our national park system. It's pretty spectacular. So we kind of need to do that again.[00:52:00]

[00:52:00] Rahul: Yeah. And, uh, are there enough, founders, who's attracted by wanting to solve this problem?

[00:52:09] Maryanna: Actually, this is the part that I'm most optimistic about. when I was finishing university and graduate school. Which was longer ago now than I care to admit, all of my peers were going to Wall Street, an investment bank, like if you were clever, you were going to work for an investment bank, or the equivalent, or maybe medical school, but either you're going into healthcare or you're going into investment banking.

[00:52:39] Maryanna: and what I'm really excited about today is when I talk to this generation, this, this kind of new generation of graduates, you know, climate is the 1st or 2nd word out of their mouth there. There's essentially. I've not talked to someone who's not motivated [00:53:00] by the broader mission of what they're going to work on.

[00:53:02] Maryanna: And the first and foremost problem for most of them, is, well, what are we doing about climate in a serious way? So I'm really excited about this. a couple of years ago, there was like one or two climate startups that you could join. These days, when peers of mine are looking for jobs and they say, I want to go work in climate, you know, there's like.

[00:53:22] Maryanna: It's literally a jobs board that we're supporters of that has hundreds of postings, across really credible companies. And, I'm, I'm really excited. I, I think not only are there lots of people who want to go work in it, I think there's a lot of people who are trying to figure out how, how do we go figure out what those poly solutions are.

[00:53:41] Rahul: Yeah. And, so what are the backgrounds, of these entrepreneurs in terms of both education and also the work experience?

[00:53:49] Maryanna: I mean, a bit of everything. a lot of strong engineering talent. now I'm clearly biased. That's my background. So that's probably, you know, just like socially, those [00:54:00] are the people I run into. We, we. Mostly at future ventures fund. well, we, we wholly focus, innovative tech companies where there, there's like an actual technological breakthrough.

[00:54:13] Maryanna: And so most of our founders have a scientific or engineering background. that said, I don't think you have to come from that to. Be a credible actor in these spaces. So, policy backgrounds, legal backgrounds, some people who just care and are compelling and motivating, right? Like the, it turns out the entrepreneurial spirit and mindset is, not precluded by any one orientation.

[00:54:42] Maryanna: so I, I feel really strongly that. Essentially, everyone from inspiring young people like Greta Thunberg to, postdocs coming out of Berkeley are, like, very capable in this space, it's just a question of, like, What are they motivated on and can they [00:55:00] go and find the right team to support them on that journey?

[00:55:04] Rahul: Yeah, uh, in terms of business models, and I mean, is this a really like a lot of these startups who are operating in the space, does it really fit into the VC model of investing in terms of capital efficiency and also, margins?

[00:55:20] Maryanna: I mean, a lot of them have gotten a lot of funding. so I can only comment on the ones in our portfolio that, you know, we, we think are highly credible. So, Bflow, for example, is a company in our portfolio that is working on increasing. pollination for, um, for farmers. So you can only grow as many plants or as effectively as you have effectively pollinated and, with global hive colony collapse among bee populations, you have this huge issue.

[00:55:55] Maryanna: And so BeeFlow is, series of technological solutions that support [00:56:00] bee health and further impact the bees ability to better pollinate the crops of interest. And so it's a company that actually doesn't rely on carbon credits, like might eventually, but today, and so what we really liked is like, oh, that, you know, nature based solution, huge need in the agricultural world, addresses, some of the systemic challenges.

[00:56:24] Maryanna: In, in and around, climate and farming, which is like farmers spend a lot of money and fertilizer and water growing crops that if they're not effectively fertilized, like you didn't, you know, it's just a waste of energy. Um, things like Earthshot, where, it's really about bolstering the supply side of the market.

[00:56:45] Maryanna: But I look across the field. I mean, I think every day I get in my inbox, like one or two companies, that just raised large rounds, of capital. So in the space, what, from one aspect, from [00:57:00] whether it be, direct air capture or, You know, something for like messing with the genetics of plants so they better store carbon like there's, there's a thousand ways to go after this and people are funding all variations on this.

[00:57:14] Maryanna: Like, have there been any huge standout winners? Today that really like prove all yeah this model works i think the jury is still out you know there's there's a couple that are claiming large successes and i think mostly what they can can claim is that they've successfully raised lots of capital But I'm really, I guess I'm, I'm quite optimistic in that I think many of these business models will make sense, or at least these companies will have enough capital to go and figure out a business model that should make sense.

[00:57:48] Rahul: Yeah. So in terms of beef flow, you mentioned, what is their business model?

[00:57:54] Maryanna: Their business model is literally pollination as a service. So, farmers, [00:58:00] Pay for farmers don't have their own bees. They generally, I didn't know this before I was an investor here, but, it turns out farmers pay for beekeepers to come to their land with their hives and release the bees. The bees go and pollinate the crops.

[00:58:16] Maryanna: They come back to their hives and the, the beekeepers like take them to the next farm. And the, what would be flow, be flow can either work with those be keepers or directly with the farms, right? They don't, depending on the region and who the best partner is there, there, there's some, um, space there, but yeah, it's, it's essentially, farmer still pays for the service of pollinating their crops as they're used to.

[00:58:46] Maryanna: And they just pay Bflow instead to do so and they end up with higher yields. And so like that's, that, that's the ideal world, right? Where like the end customer doesn't really see anything different, but they end up with a better [00:59:00] product that's better for the world.

[00:59:01] Rahul: Yeah. And you know, what is the one sort of startup that you would like to invest in this space that haven't come your way yet?

[00:59:13] Maryanna: That's a good question. I mean, I've been deep in the work in, in trying to figure out how to help support Earthshot. and so I, I still really believe in that. I think the company has a lot more to prove, but that's one where it's not answering your question. Cause it's one where we're already investors, but if we can figure out how to unlock the supply side in a credible way, um, that would be so important.

[00:59:51] Maryanna: and I, I'm. I'm very curious about [01:00:00] if someone can figure out a really low cost, direct air capture system that is like, obviously head and shoulders better than everyone else, that would be very compelling. and the interesting thing is that I've seen is that it almost doesn't matter what approach, like they all basically paint the same cost curve.

[01:00:25] Maryanna: And so for me, it's almost at this point, like, I just want to see someone with a different cost curve,

[01:00:29] Rahul:

[01:00:29] Maryanna: to say, like, okay, you've thought about this, like, de novo, like, you've considered what the, What, what your system requirements are as opposed to like what you think Stripe or someone else will pay for them,

[01:00:41] Rahul: Yeah. I think, uh, unlocking the, supply side and then the fixing that quality problem will really allow everything to just scale up. Fast and then get us to net zero very quickly.

[01:00:56] Maryanna: but

[01:00:57] Rahul: Apparently, you're supposed to remove [01:01:00] like 30 gigatons or something in 25 years, every year to reach net zero. That seems like an impossible target for now.

[01:01:10] Maryanna: I know it's pretty frightening. so it, yeah, and with every subsequent year, it becomes harder to maintain the kind of optimism that, you know, I, I really hope for, I suppose my sense is, I think it's, it's, it's not possible with. Where we are today, but I believe it's possible with the ingenuity and engineering and care that our people are putting into this market.

[01:01:39] Rahul: Yeah, I think The same podcast also we ended on a similar note. The solution is human ingenuity

[01:01:49] Maryanna: That's right. I mean, it's kind of always it, right? It's like, we're, we're here to be champions of the people who are motivated to go fix the problems and figure out how we can [01:02:00] support them and ensure that incentive structures remain aligned long enough for those companies to survive.

[01:02:07] Rahul: Yeah, yeah, yeah, this was great thank you so much for taking the time to do this

[01:02:13] Maryanna: Oh, this was fun. Thank you.