Nori’s open letter to the Taskforce on Scaling Voluntary Carbon Markets

On June 21, 2021, Nori submitted an open letter response to the Taskforce on Scaling Voluntary Carbon Markets. The letter is published below in full.

https://www.iif.com/tsvcm

June 21, 2021

To the Taskforce on Scaling Voluntary Carbon Markets:

I write this letter as the CEO and cofounder of the Seattle-based carbon removal marketplace, Nori. We were founded in 2017, and are a marketplace that connects purchasers of verified carbon removals with suppliers who credibly remove and retain carbon dioxide from the atmosphere.

Our company’s mission is nothing short of reversing climate change. Our work will not be complete until the atmospheric carbon balance has been restored to 300ppm.

We are building on the shoulders of giants. Much of our business model design is based directly on observations and experiences with legacy carbon offsetting schemes. As we came together in 2017, we took a first-principles approach and asked ourselves: if we were going to build a scalable carbon removal marketplace to reverse climate change, how would we do it today, knowing what has been tried in the past?

There are two components to this that drive Nori’s focus and progress: Nori’s core values as an organization, and Nori’s chief design principles in developing a marketplace. In this letter, I will first briefly address Nori’s core values as a means of level-setting, and then address the chief design principles of our marketplace in greater detail.

Core Values

At Nori we are intentional about the values we share and observe as they shape not only our culture, but also our business strategy. They are:

• Honesty above all else. We value transparency in everything we do, from internal to external communications. We state things how they are, with radical candor (a style of communication that is both caring and direct). We will be honest about both what we are capable of doing, and what we are not.
• Assume best intentions. We enjoy working together on a joint goal with internal and external partners. We agree to always assume the best intentions of another and ask clarifying questions to troubleshoot and define problems.
• Limit work in progress. We continuously strive to limit the work in progress we have at any given time. We aim to do one or two things at a time. This means we will commit to deliver a set of developments that we believe are achievable and have the highest impact.
• Act with the end with mind. Anything that we do must be aligned with our end goal: enabling global reversal of climate change and climate restoration.
• Continuous improvement. We endeavor to continuously improve across all aspects of our business, from marketplace design, to team collaborations and communications. Feedback and continuous learning are key aspects to this. We will continue to challenge ourselves and the status quo in order to offer the world the best carbon removal marketplace we can.

Chief Design Principles

In order to achieve our mission, we’ve designed a marketplace specifically for:

1. Enabling climate change reversal by focusing exclusively on the removal of excess carbon dioxide from the atmosphere.
2. Scaling carbon removal to the gigatonnes scale by building a marketplace that makes it affordable and as simple as possible for suppliers of carbon removal to get paid for credible carbon removal by buyers.
3. Ensuring that projects are providing real, additional, and credible carbon removals using science-backed and innovative quantification methods and methodology requirements.

We described the initial design for the Nori marketplace in the Nori White Paper, originally published in early 2018. Since then, like any nascent company, we have iterated and achieved several important milestones:

• In 2019 we published our first (of many to come) methodology for measurement and verification of carbon removed in the form of our US Croplands Methodology.
• Also in 2019, we launched our marketplace for the first time with sales of Nori Carbon Removal Tonnes (NRTs) from the first farm project that completed quantification and verification with our methodology.
• In the summer of 2020, Nori raised a $4 million funding round from venture investors, providing us the needed resources to expand our team and grow our marketplace.

As of publication date of June 21, 2021, we have accounted for over 60,000 tCO₂ removed and verified, and have sold over 28,000 of those NRTs. This data is publicly available at nori.com/registry.

The Taskforce is doing important work. I am especially interested and curious in the outcomes defining corporate ESG approaches and in what cases enterprises should be allowed to purchase carbon offsets or carbon removals with respect to their own decarbonization efforts. Nori takes no official stance on this issue other than to share that our company tagline is “Emit less, remove the rest.” We simply supply carbon removals to buyers who wish to purchase them. We leave certification of statements like “net zero carbon,” “carbon neutral,” and similar to other parties.

In the remainder of this letter, I would like to expand on those core beliefs above to describe the distinctions Nori takes with respect to scaling a global carbon market.

1. Enabling climate change reversal

If humanity were to somehow wave a magic wand and decarbonize the entire world to the point where no new human-caused carbon emissions occurred, there would still be far too much CO₂ in the air. We believe the UN’s 1.5 degree target is not ambitious enough. We want to restore the carbon balance to 300ppm. Doing so requires removing a massively large amount of CO₂ (over 1.5 trillion tonnes) from the atmosphere, in addition to all of the decarbonization efforts that are underway around the world.

In the past, many influential figures did not want to embrace carbon removal and sequestration because of the potential moral hazard of enabling large emitters in avoiding their own decarbonization efforts. The sentiment here is correct, and this is why I look forward to the results from the Taskforce’s work on corporate offsetting.

But as the 2018 IPCC report acknowledges, it is now too late to solve this problem entirely through decarbonization. Carbon removal is necessary.

As Steve Jobs once said, focusing is about saying no. Nori focuses exclusively on carbon removals, and does not allow carbon avoidance or reduction projects to be sold in our marketplace. We leave those to others.

2. Scaling carbon removal to the gigatonne scale

The carbon removal industry is fundamentally supply-constrained. If we wish to draw down over one trillion tonnes of CO₂ from the air, we must design systems that make it as affordable and simple as possible for carbon removers to do business. Thus, we must commoditize carbon removal by providing more accessible market-based pricing and a global commodities industry for carbon removals.

The original designers of the Clean Development Mechanism and carbon trading in general had the best of motivations. In order to build a robust economy of carbon trading, it is important that there be a tradable commodity asset. The obvious choice at the time was to set the carbon credit itself as this asset.

By our observations this is the lifecycle of a typical carbon credit:

1. A project developer does some sort of carbon offset project that adheres to a protocol standard developed by one of the existing carbon registries.
2. The registry issues carbon credits to the project developer.
3. The developer typically sells those credits to a broker.
4. Then the broker resells them, often to another broker.
5. The carbon credits trade hands many times over.
6. Some of the time — but unfortunately not very often — the credits are purchased by an end-user who chooses to “retire them.”

After this lifecycle, very little of the total amount of money spent on that carbon credit has ended up in the hands of the original project developer. Liquidity and derivatives products and so on are important for commodities markets, but just imagine how much faster we could be solving this atmospheric carbon problem if all purchases of carbon resulted in new carbon coming out of the air!

This has also exacerbated some well-known issues, particularly the enforcement of Article 6 of the Paris agreement. It is still the case today that if a credit is developed in Country A, and sold to a buyer in Country B, then both Countries A and B count the credit as an emissions reduction. And what then if the credit is sold to a buyer in Country C, and D, and so on? How will this be accounted for? The answer is double-entry bookkeeping, but thus far the nations of the world have not been able to agree on a common ledger.

Nori takes a more systematic approach to solving these problems. In our marketplace design, we have separated the carbon certificate (the NRT) from the tradable commodity asset. We have introduced a second asset called the NORI token, where the cost of one NRT will always be one NORI. The price of NORI will fluctuate based on supply and demand.

When a supplier sells an NRT to a buyer, the NRT is immediately retired, and the NRT can never be resold. Simultaneously, the buyer is required to inform Nori in what national jurisdiction that NRT will be retired. Reporting for Article 6 from the Nori marketplace is trivially easy, and the double-entry bookkeeping is automatically enforced. We publicly share a dashboard and map of global retirements of NRTs on our registry page.

We introduced the NORI token because we believe there still needs to be a tradable commodity in order to get the benefits of commodities markets, such as price discovery and forecasting. It is our intention that the floating price of NORI become a reference price for the value of 1 tonne of CO₂ removed and retained from the atmosphere.

In our current pilot phase of our go-to-market strategy, the price of NRTs has been set arbitrarily by the suppliers, and the buyers have paid in cash. Later in 2021 we will be launching the NORI token into circulation and transition to NRT price being determined by the prevailing price of the NORI.

3. Ensure that projects are providing real, additional, and credible carbon removals.

Additionality and its different forms

Historically there have been two types of additionality tests applied to carbon offsets: baseline and financial additionality. The baseline test is to ask, relative to the counterfactual, would CO₂ have been emitted if not for this offset project? Or in the case of removal projects, has CO₂ been removed and sequestered relative to a starting baseline?

The financial test asks: would this project have happened if not for the payments received from selling the carbon credits associated with the project?

We completely agree with the baseline test, and we reject the financial test as counterproductive to scaling a global carbon commodities market. By definition, the financial additionality test precludes projects that would be otherwise profitable. In a world that is constrained on supply, it seems absurd that we would restrict ourselves to only unprofitable projects. That cannot possibly scale to meet the demand that exists already, let alone future carbon removal demand.

Nori is committed to only supporting real and credible projects that are measured as carbon net removed from the atmosphere relative to a baseline established during project enrollment. We have written more about this at https://nori.com/credible-carbon-removal.

On permanence, and how best to achieve it

Established carbon offset markets, consistent with ISO 14000-series guidelines, introduced the concept of carbon sequestration “permanence.” The life of a CO₂ molecule in the atmosphere is roughly 100 years. So, the concept goes, for removing one tonne CO₂ from the atmosphere and storing it in a natural or man-made reservoir to be equal to avoiding one tonne of CO₂ discharge, the captured carbon must be retained (not released back to the atmosphere) for at least 100 years.

The key problem is that, whether recovered carbon is retained in trees, lumber, soil, or deep saline reservoirs, there are continuing monitoring, reporting, and management costs associated with ensuring that the solid (organic or mineral) carbon will not return to the atmosphere before the end of the 100-year permanence term. Without continued revenue to pay for these services, projects will eventually result in carbon reversal before the 100 year term is complete.

Thus, if permanence for these 100-year terms are dependent on these services, the costs of these services through the 100 years must be paid. That is to say, the only way to truly achieve permanence is for carbon markets to generate repeated payments to land and building stock managers who deliver recovered carbon retention services.

Upon inspection, it does not appear likely that claims made by project developers and carbon offset registries of 100 years of permanence are likely to be met. We elected to take an alternative approach that we believe will be more successful in keeping that carbon in the ground.

Nori NRTs are based on 10 year requirements of permanence. Suppliers must re-verify their continued carbon retention every three years, and at each verification, they may elect to sell new NRTs that have been removed in the preceding three years. That then triggers 10 more years of permanence requirements, so what was originally 10 years becomes 13 years, then 16, then 19, and so on. In this way, the supplier is receiving continued operating income, and is far more likely to retain that carbon in the ground on a long-term basis.

We have written more on this at https://nori.com/achieving-permanence.

The tonne-year as a standard unit of account

We view it as important to accomplish two goals while creating a global commodities market for carbon removal:

1. Create standard units of account so that capital may move freely and create new and increasing investment into the space.
2. Account for the difference in value to buyers and Earth between methods of removal that are more easily stored for longer periods of time.

Nori’s standard unit of account is the NRT. One NRT is one tonne of CO₂ removed and sequestered for a guaranteed period of 10 years. We say guaranteed because we actually offer a 100% warranty to buyers that if there is some sort of carbon loss in those 10 years of maintenance requirements, we will purchase new NRTs on behalf of the buyer from a new supplier.

Thus, we think it important to introduce a time element into the unit of account itself, and the NRT in fact represents 10 tonne-years.

This method of assigning 10 years permanence to the NRT has worked well for our US Croplands Methodology. In the future, as we add support for additional methodologies, there are likely to be carbon removal methods that more easily store sequestered CO₂ for longer periods of time, e.g. mineralization.

In those cases, the methodology will define the expected permanence of that method, and for every 10 years of permanence, one NRT will be issued per ton. For example, assume a hypothetical methodology is acknowledged as having 100 years of permanence. For every one tonne of CO₂ removed, that supplier will generate 10 NRTs. 10 NRTs multiplied by 10 tonne-years is 100 tonne-years.

Since the price of one NRT will always be one NORI token, it can then be inferred that the reference price of the NORI token will represent the value of 10 tonne-years removed and sequestered.

Conclusion

In this letter I laid out Nori’s design choices we have made in building our carbon removal marketplace and the core principles that have guided them. We offer these ideas to the Taskforce in the interest of collaboration and improving the ability to quickly and credibly scale up voluntary carbon markets. We welcome your feedback and look forward to continuing this conversation.

Sincerely,

Paul Gambill, CEO of Nori