Nori + Klaus Lackner 2: White Paper Boogaloo
This week on Nori’s Reversing Climate Change podcast our advisor Dr. Klaus Lackner of Arizona State University’s Center for Negative Carbon Emissions returns to discuss the Nori white paper. If you’re new to Klaus, we highly recommend podcast episode #7, which is the first time we had him on the show to talk about his background, direct air capture at an industrial scale, and the paradigm of carbon removal rather than purely mitigation.
In the world of blockchain startups, a white paper is so many things: a compendium of a project’s technical documentation, its market strategy, a detailed explanation of why this project needs to exist, and more. Ours is close to sixty pages at present, and still growing as we get closer to releasing it publicly. The version we discuss in the podcast was for attendees of Nori’s Reversapalooza event a few weeks ago in Seattle, where we brought together over one hundred attendees interested in participating in some capacity in the Nori marketplace. It’s been my responsibility as the principal editor of the white paper to make sure we hit the mark. Klaus is here to check Nori and make sure that we’re on target and can dodge any big pitfalls he sees.
Here’s an abridged list of what Klaus thinks we get right, and what we get wrong:
Thumbs up from Klaus: No additionality test
Additionality is a set of two requirements in carbon markets one must pass in order to list a carbon credit in an offset market for avoided emissions. Say you are a utility company building a new power plant. You were going to build a coal plant, but decide instead to build a solar facility. You would be able to list that credit for not building a coal plant. Now, the question really is, were you actually going to build a coal plant, or were you just saying so to get the offset credits approved? Moreover, were it not for selling carbon offset credits, would you be unable to be profitable? Additionality requires both the counterfactual test and the profitability test. This requires a fair amount of compliance and regulation to make sure this is not abused, but still faces some tough questions both practically and conceptually.¹
Nori doesn’t mess with additionality tests because we only deal with carbon dioxide removal (or other GHG-equivalents). We have the advantage of dodging this complicated system, and Klaus gives a stamp of approval. The elegance of the Nori model is that for every tonne of carbon dioxide emitted, another one can be put away. We’re enthusiastic about projects finding other ways to stack benefits and become profitable. In fact, we want carbon removal to be as profitable as the market will bear. If you only accept projects that would not be profitable if not for selling carbon credits, you will only get marginal projects and miss all the best ones. Our goal is to build the infrastructure necessary to monetize this ecosystem service.
Raised brow from Klaus: Permanency
We discuss permanence primarily in relation to soil sequestration via regenerative agriculture practices in the podcast. What happens if someone sequesters carbon dioxide in a soil, but then releases it through a change in their practices? What happens currently is that farmland that receives credits for sequestration must covenant their land for a century agreeing not to rerelease that carbon, which means that anyone who buys the land during that time must agree to abide by those same practices. This limits flexibility and thus harms the resale value of this property for the duration, which is a huge turn-off for farmers.
Nori’s initial model is for a decade only, but we are debating ways to allow buyers to purchase additional guaranteed time that the carbon will stay sequestered. Klaus challenges us on this and fair point, because we’re trying to find the optimal solution here that is not such a burden on farmers wishing to join, but also protects buyers from the carbon they paid to sequester leaking back out into the atmosphere. Regenerative agriculture has natural momentum for it once practiced thankfully as it requires less (or even no) fertilizer, nor does it require petroleum for plowing, but it is still a risk.
We discuss a lot more in the podcast, covering compliance issues, the free rider problem of climate change, the valley of death in development before an enterprise is profitable, how bad the front end is for most things crypto, we argue about value-based pricing and decide against a field trip to Home Depot, and perhaps most importantly, Paul Gambill explains for the first time Nori’s strategy to make carbon removal an activity that occurs almost entirely in the background. Check it out!
¹ This isn’t to say that mitigation markets should not pursue that path. Avoided emissions credits as a financial instrument should require some version of the counterfactual test (though not so keen on the profitability test), and they were developed at a time when mitigation could carry more of the weight of addressing climate change, and before carbon removal technology was ready to be deployed at this scale.