The Hardest Engineering Problems for Carbon Markets
I think about this conversation I had with Paul a lot. It kicked off what has now been over three years of imaginative, grueling, wonderful, painful, mind-blowing and confounding work — all of which took place alongside the minds of amazing co-founders, teammates, and advisors. But — and this is hard to admit sometimes — I was dead wrong.
I wasn’t wrong about what I said there, at least not about what was written. The idea is simple, and building something like that was straightforward. In fact, we’ve done just that. At the end of 2018 we launched a marketplace using our first carbon sequestration methodology (U.S. agricultural soil-based carbon sequestration), listed the first supplier’s 10,000 tonnes of soil carbon, and watched as buyers made their first purchases of a next generation commodity. Rather, what I was wrong about was that you could keep it that simple and expect it to scale without having to roll up your sleeves and dig a bit deeper. And so, for those of us who enjoy the adventure of embarking upon novel and complex problems, I come bearing great news — a list of the hardest and most immediate unsolved engineering problems for carbon markets today!
Problem #1: Quantification
In order for us to accurately model annual soil carbon fluctuations we need a lot of data — twenty years of data to be precise. To break down that requirement, for us to run preferred carbon quantification models, we need ten years of historical land-use data and ten years of current and future land-use data. But, this data is oftentimes extremely difficult to gather. If we really want to scale the supply side of a market, we need to get creative about how we provide quantification to suppliers. Or, in lieu of that, we need a way to get farmers excited enough about enrollment such that this grueling data collection effort doesn’t prevent them from wanting to enroll.
Problem #2: Scaling Enrollment
Even in the most optimistic case where you have such meticulous records and you get farmers past the enrollment barrier, you will almost never have farmer records in the format or precision needed to run credible quantification models. So, what do you do? You standardize the data, and do the best you can to build transformers to take in data from different sources. But, how can you expect this to scale? Well, you simply can’t. Instead, we need a different approach. One that uses every tool we have available to find, set, and predict land use records to reasonable defaults. At Nori, we’ve begun novel work on this front. We call it “Smart Defaults”, but it has a long road ahead of it.
Problem #3: Data standardization
Agricultural and crop management data exists in many different forms and in many different places — from publicly available datasets to crop management software used by farmers to manage their practices today. The problem, however, is that this data almost never exists in a way that is consistent across data sources. For instance, one farmer might know a fertilizer by one name, whilst another knows the same composition by a different name. There is some work being done already to create open source translation tables, but we’re still a long ways away from having something that works universally.
Problem #4: Permanence
How do you deal with changes in land use year over year? What about changes in model inputs like the substitution of real-world weather events for projected ones? How about changes in intended land use plans? Or, if you solve all of those, what do you do when land ownership changes? Right now, the best bet is to issue to farmers on an annual basis so that you minimize over-issuance and make adjustments on an annual basis when given more concrete estimates. In the case that the soil carbon does not achieve permanence, penalties can be applied to balance out the variance. There’s so much more work to be done in this problem space. Getting it right could unlock additional funding mechanisms for sustainable agricultural projects. Getting it wrong could nullify the value of your entire marketplace.
Problem #5: Verification
Independent verification of carbon removal is paramount to establishing a credible marketplace. That said, verifying 20+ years of crop management practices is no small feat. For now, the best approach is to require an independent third party to submit an attestation for the project. To make this attestation more credible and scalable, future approaches to verification might include incorporating things like satellite imagery, soil sampling, or even integrations with agricultural data platforms in an effort to create verifiable trails of data.
Problem #6: True Price Discovery
This problem has roots in so many areas, including those as simple as transparency and accounting or as complex as modern day economics using token models. There’s a lot of work to be done in this space still to get this right. But, I believe modern day tools can get us all the way there. Check out this post for more information on Nori’s approach.
Problem #7: Additional Carbon Sequestration Methodologies
There are so many different ways to remove CO2 from the atmosphere. The majority of this post however talks solely about soil carbon sequestration. For carbon removal markets to truly have an impact on climate change, we’re going to need to solve these problems using everything we have in our arsenal. This means taking on climate change using things like direct air capture, afforestation, blue carbon, and everything in between. Furthermore, for each approach, we’re going to need to re-engineer solutions for every problem defined in this post.
Problem #8: Scaling Demand
Now, imagine it’s the future and you’ve solved all of the problems to scale the supply side of next-generation carbon markets. Fantastic! But what about the demand side? I believe that the only way for a marketplace to have a significant impact on climate change requires a solution on the demand side that is seamless and universal. But how do you do that when the marketplace goods are disconnected from resource consumption, corporate operations, and everyday consumer purchases? You can’t. But, you can achieve success if you come up with a way to bridge the gap using an approach that integrates directly into the background of everyday things. Imagine taking a Lyft and getting a prompt that notifies you that your ride has been offset on behalf of your favorite brand. Or, imagine you’re making a purchase on Amazon and you can check a box that flags that you want to offset the carbon impact of the item you’re buying. The solution space for this problem is vast and ripe for innovation.
A Call to Action
Do any of these problems excite you? Nori recently closed a round of funding that will allow us to hire additional engineers, designers, and supply account managers to assist us in our fight against climate change. Check out the job postings today!
