Volts

Reed Hundt, CEO of the Coalition for Green Capital, discusses the merits of green banks and Biden's proposed federal green bank. They explore the role of a green bank in addressing climate change, the potential for public investment to catalyze private sector funding, and the funding needed for a federal green bank. They also assess Biden and the Democrats' actions, emphasizing the importance of addressing climate change.

Eric Hittinger, a researcher on grid-scale batteries and carbon emissions, discusses the current state of grid-scale batteries and their impact on carbon emissions. He highlights how most batteries on today's grid actually increase emissions and introduces Tierra Climate, a startup aiming to incentivize emission-reducing behavior in batteries through carbon offsets. The podcast explores the challenges faced by grid-scale batteries in reducing emissions, the lack of financial incentives for battery investments, and the differences between avoidance and removal offsets. It also discusses the price points for nature-based offsets and batteries, and the importance of carbon offsets in achieving sustainability goals.

Matt Sheffield, a prominent figure in right-wing media criticism, and David Roberts discuss the disinformation crisis, climate change, and their deep connection. They explore the importance of narrative and context in journalism, trust in science and environmentalism, tensions within fundamentalist Christianity, implications of climate change, ethics of billionaires, carbon capture technology, giving credit to progressive policies, benefits of wind energy in Sherman County, overcoming challenges in the energy transition, and the power of persuasion in driving change-oriented politics.

The podcast explores the progressive take on the permitting debate for clean energy infrastructure in the US. It discusses the impact of permitting on the clean energy transition and proposes reforms. The role of Independent System Operators and Regional Transmission Organizations in renewable energy development is examined. The frustration with the slow permitting process is highlighted, along with the need for coordination and planning for addressing climate change. The podcast also delves into phasing out fossil fuels and involving communities in economic development.

Australian comedian Dan Ilic and climate change advocate David Roberts discuss topics such as indigenous land acknowledgement, the upcoming voice referendum, small modular nuclear reactors, the impact of the Inflation Reduction Act, innovation in connected appliances, and their journeys in energy and climate.

Saul Griffith, an Australian inventor and MIT PhD, discusses a range of interesting topics in this podcast. From his involvement in rewiring America to Australia's potential as a hydrogen superpower, rooftop solar, trade jobs in the energy industry, and the moral dilemma of climate change. He explores the importance of leadership and the challenges faced in electrifying households. The podcast also touches on perception, financing, and breaking the notion of limited government funds.

In this podcast, David Roberts delves into the complexities of Australian climate politics. He is joined by Miriam Lyons, an expert who provides an overview of Australia's history with climate policy, clean-energy resources, and current politics. They discuss the tactics used by the fossil fuel lobby, the impact of the mandatory renewable energy target, Labor's political threats, Australia's role in the supply chain of critical minerals, and the need for bold actions in decarbonization.

Liza Reed, an electricity transmission expert, discusses the challenges of building transmission in the US. Topics include the dysfunctional planning system, lack of infrastructure, complex stakeholder disagreements, and the need for standardized processes. They also explore consent-based citing, regional planning, and the role of FERC. The speakers emphasize the importance of policy-level discussions and recommend reading a report for a deeper understanding of the issues and need for reform.

In this episode, clean grid expert Chaz Teplin demystifies interconnection queues.(PDF transcript)(Active transcript)Text transcript:David RobertsBy now, you’ve probably heard that tons of new renewable energy projects are “stuck in the interconnection queues,” unable to connect to the grid and produce electricity until grid operators get around to approving them, which can take up to five years in some areas. And you might have heard that FERC recently implemented some reforms of the interconnection queue process in hopes of speeding it up.It all seems like a pretty big deal. But as I think about it, it occurs to me that I don’t really know what an interconnection queue is or why they work the way they do. So I’m going to talk to an expert — Chaz Teplin, who works on carbon-free grids with RMI — to get the lowdown.We’re going to talk through the basics of interconnection queues, why they’re so slow, what RTOs and FERC are doing to reform them, and what remains to be done (namely some friggin’ regional transmission planning).With no further ado, Chaz Teplin. Welcome to Volts. Thank you so much for coming.Chaz TeplinThanks for having me.David RobertsYou know, as I said in my intro, it seems like the clean energy community at this point has heard the term interconnection queue enough times that they all know it enough to say it, right. We know on some level that interconnection queues are slowing things down and they're backed up and that's why we're not building renewable energy as fast as we should be. But I suspect that quite a few of my listeners are roughly where I am, which is that's basically where my knowledge runs dry. I can say the words, so I'm excited to talk to you about what the heck they are, why they exist, etc., how to solve them, etc.So maybe let's just start with why is it that all of a sudden everybody's talking about interconnection queues? Why has this come to the top of the pile recently?Chaz TeplinYeah, everybody's talking about interconnection queues and there's been a recent order from FERC amid the hullabaloo. Right. So I think it's a good news, bad news story. The good news is that there's currently two terawatts of generators asking to connect to the US grid. And almost all of that two terawatts is clean energy, wind, solar and storage. So for those of us that have been in the business for a while, this is unbelievably great news. That means there's so many projects out there of clean energy mostly there's some gas, but clean energy mostly that believe it's economic to connect to the grid and they're willing to pay a fee in order to ask to connect.David RobertsAnd how much is that relative to what's currently on the grid?Chaz TeplinYeah, it's not exactly an apples to apples comparison, but two terawatts asking to connect 1.25 terawatts approximately on the US grid today.David RobertsRight. So there's more waiting to get on than exists currently on the grid. Now, we know, I'm sure you're going to say, we're going to say probably 50 times during this pod, just because something's in the queue doesn't mean it will necessarily get built. So it's not like all of that two terawatts is real or inevitable, but still, the fact that more is waiting to get on the grid than currently exists on the grid is quite striking.Chaz TeplinThat's right. And every year more is asking to connect, right? So, yeah, absolutely, it's not going to all get built. But I think it's a fairly clear demand signal that generators and developers are giving. They want to connect to the grid. They believe they can make money doing so, so it's great news.David RobertsAnd yet they are stuck there.Chaz TeplinSo that's the good news. The bad news is twofold. First, say I'm a wind or solar generator developer wanting to connect to the grid. It's going to take me years after I ask, before I even find out if I'm allowed to connect. Three, sometimes even five or more years. It depends on the grid and some of the details, but it takes years. And that adds cost and obviously time to your project that you don't want. And that's unfortunate. And second, it's bad because a lot of times what the grid operator comes back with is a really large bill that could easily make it so that your project is uncompetitive, no longer makes sense.And so you see high dropout rates. So yeah, the queue is huge. That's good. It shows that there's demand, but it's bad because projects take too long to get through the queue and even find out what the cost is going to be to connect. And often those costs are high.David RobertsThis might even be too obvious to say, but I think it's worth emphasizing at the outset that it's just a little crazy. Anyone who's an investor or who's tried to manage a project or build a project, just imagine if you had to say to your investors, not only like, this is a worthy project now, but this will be worthy in three years, or it will be worthy in five years. How do you know? It's just an insane addition of uncertainty and risk to every single solitary project.Chaz TeplinRight. And you don't know how much it's going to cost. It's like this cost of my project is a dollar a watt, plus or minus $0.50. That's not really reasonable because you don't know what the connection cost is going to be.David RobertsI know it's just an insane business environment. Like we're not sure of what your costs are, not sure how long it's going to take, and then you're trying to talk investors into sort of sticking with you through this.Chaz TeplinOne thing I want to add on that is it causes problems for developers, for investors, but it also causes problems for the grid. And the problems sort of are in this reinforcing loop. Because developers don't know where to ask to connect or how long it's going to be. They tend to put in a lot of speculative projects. Because they are hoping that one of them is a good deal.David RobertsRight. Playing the table, right?Chaz TeplinThat's right, they're playing the table and unfortunately that doing that might be good for them but it puts a huge load on the grid operator to try and process all this and makes it bad for everybody because then it makes the process take even longer.David RobertsRight.Chaz TeplinIt's an example of the rule of incenting bad behavior and then the bad behavior cycling.David RobertsRight. So let's back up then and talk about what an interconnection queue is exactly, and why they exist. Like why do utilities need every project to stand in a single file line and be approved one by one? Why?Chaz TeplinSo, there are some very good reasons and then some arguable reasons for having an interconnection queue. The clear and very good reason, and we're all glad that they exist, is because the grid operator does need to ensure that a new generator on the system won't cause some cascading set of failures that could bring down a significant fraction of the grid. That's not likely, but it's possible. The way that that would work is you would study the grid under some set of scenarios and then the key thing is then you also ask so what if something else on the grid fails that would cause transmission or cause power to flow along the transmission lines in different ways.And if you, for example, overloaded a line or a substation, that would be bad. And so you might need to upgrade that substation to make sure that when this new generator comes online you don't cause a problem.David RobertsSo you're just ensuring for each individual project that that individual project will not be sort of the straw that broke some camel's back.Chaz TeplinThat's right. And it's important to understand though that's like one piece and every grid operator studies that to make sure that there's not going to be a problem. But there's a second piece which is making sure that the power from that generator is usually going to be deliverable to load, meaning you don't have to turn it off to keep things in safe conditions. And that's a little bit different. And that's related to how grid operators plan for resource adequacy, making sure that there's always enough generation to meet load. And different grid operators do that in different ways.But a lot of the different opinions about how we should do this come down to how much we should ensure that different projects are deliverable to the system. And it's related to how grid operators again think about making sure that there's always enough generation online at a given time.David RobertsRight, so that seems like a reasonable reason to have a queue. Is that the main one?Chaz TeplinThe one that's universal right is the making sure there isn't cascading failures issue. The one that is more controversial is the connection to resource adequacy because different grids do that in different ways. And then the other related issue is that in a lot of grids today, this is the primary way we invest in the transmission system is we ask the next generator to pay for upgrades to the transmission system.David RobertsYes, this is the part I always stumble over the craziest thing to me so I want to just spend a second on it. The analogy I always hear is like a line of cars waiting to get on the freeway. The freeway can only fit so many cars. So when the freeway reaches capacity we ask the next car in line to build a new lane of the freeway, basically. So the next generator in line when capacity is reached is on the hook for paying for new transmission which is as crazy as it sounds, yes?Chaz TeplinYeah, it's pretty much like that. So it's a competition to be the car after the person had to pay because then you sort of get to nominally free ride.David RobertsExactly. Or the car before or just like not be that car. You don't want to be like that one car who it's like a lottery almost.Chaz TeplinYeah. And it's important to recognize though that it's crazy in the current system to look at it that way. But when these roles were put in place it wasn't quite as crazy as it seemed. In a world where that we're in today, where we're seeing lots of new generation that is sort of geographically constrained. You want to put low cost wind farms where it's windy, you want to put solar farms where it's sunny and the cost to build is low. Those are sort of geographically constrained. In previous eras where load was flat and we were mostly building gas plants, you can kind of build a gas plant wherever it's convenient for the grid.Chaz TeplinAnd so to continue with the analogy, you can get to your destination through lots of different highways so you're encouraged to use an empty one. But that's no longer the world we're in now. And because, and this is the key thing, because we haven't been doing significant investments in transmission, we're in this place where all of the key highways are clogged or close to being clogged and lots of cars are waiting in line to get on that highway.David RobertsSo is it the case that if you are the project that just draws the short straw and happens to be in line or at the head of the line when new transmission is needed, two questions: One, how much additional cost is that to you, does it double your cost? How much is it for a developer to pay for new transmission? Is that sort of dispositive amount of additional money? And number two, if you are the unlucky person in that spot or the unlucky project in that spot. And you hear back from the RTO that, yes, you can connect if you build a new transmission line, can you then just say, well, never mind, right, and then drop out, and then the next project behind you is the unlucky project and then why wouldn't that project also just drop out?So who accepts these additional costs? It seems like you don't have to like everybody would be trying to avoid it.Chaz TeplinThat's right, everybody's trying to avoid it. Absolutely. You aren't required to build your project when you enter the queue. You might lose your deposit. So the cost can be very large. The queues that make it all the way through, often they are ones with manageable costs and so they do get built or they run into the next set of challenges, things like supply chains currently or permitting. But those projects that do make it through the queue often are the ones that chose a good place on the grid, if you will. Like I mentioned earlier, it's sort of a cascading problem if a project drops out, that also impacts all of the projects around you. So now somebody else becomes the second car, the second car becomes the first car. And so then the RTO needs to go and restudy and say, oh, we thought that generator A was going to be online, but they dropped out, so now we have to restudy the whole thing.David RobertsAnd those studies are what take years.Chaz TeplinThe studies themselves are pretty complicated because first you have to look at every possible failure on the grid that could happen and then you have to look at, well, okay, if that fails and something else fails, what happens? That's part of the interconnection queue study and they are processor and human intensive. And so, yes, they actually take a long time to do the studies. They're expensive in terms of having the staff and even the computational capabilities to run. And so they take a long time.David RobertsSo we can get a situation here that's trying to paint a picture where all these projects are in line. A project comes to the head of the line, the RTO takes years to study, comes back and tells the project, our study concluded that we don't currently have capacity to accommodate you, so you're going to have to build a new transmission line if you want to connect to the grid. And that project says, oh, that's going to double my costs. No thank you, I'm dropping out. And then the years long study process starts over again. That's like two years a pop, three years pop with nothing happening and nothing getting interconnected. That just seems like an insanely slow way to do things.Chaz TeplinYes. And so there's been lots of ideas about how to fix some of these process-oriented challenges and some RTOs are already doing that. And FERC has made some progress this week. We'll get to there I'm sure. But yes, that is a fairly close approximation of the existing process.David RobertsIs any transmission getting built this way? It just seems like the most inefficient possible way to build transmission, too. Are there projects that get stuck with this obligation to build new transmission who do it? And are we seeing transmission getting built through this?Chaz TeplinYeah, I mean, most projects will have some interconnection cost, right? And so they do make some improvements to the transmission system. So some developers are able to make it work and they'll swallow the cost and that benefits everybody else on the system.David RobertsRight.Chaz TeplinThey pay for it. So, yes, we are building a small amount of transmission in that way. Not very much.David RobertsAll right. And also, it seems worth pointing out that in terms of transmission planning, building each increment of transmission based on what the next project in line requires also seems like the most myopic possible way to be building transmission. Like, you're not planning for the future, you're just literally reacting —Chaz TeplinYeah, that's right.David Robertson a project by project basis.Chaz TeplinYeah. And like I said, it's not crazy in a world where you don't imagine the grid needs to change very much, but it'll never get us to where we need to go with the energy transition underway. And this has big implications. In terms of economics, as ACORE has pointed out, in terms of states meeting their clean energy goals, as NRDC study recently showed, and then even in terms of reliability, which PJM in the Mid Atlantic has shown, they're worried about retiring fossil plants and these problems and the lack of ability to get projects online, being out of sync and then having reliability issues. Not having enough resource adequacy to meet demand.David RobertsRight. So this process is not going to be fast enough for any of the things we want to do to hit our carbon goals, state carbon goals, utility, carbon goals, utility, reliability. All these things require some speed and agility, which this is standing in the way of. So why is it like this? How did it get this way?Chaz TeplinYes, I mean, the current system was set up in the 2000s where natural gas was the primary generation being added and could be flexibly cited. And so in order to try and set up the system in the way that made sense, FERC suggested that we have this participant funding paradigm where new generators pay for the transmission needs that they require. That's how we got here, and there's a lot of status quo bias towards keeping that system, and there's not a lot of appetite among many for changing it dramatically.David RobertsThis I don't understand, though, because I'm not a grid expert, but even just explaining it to me in this way, it's very obvious to me that it's not working. It's obvious from the results that it's not working. It's obvious from any description of the process that it's clearly not working. It's not working for anybody, for anybody's goals. Why isn't there more appetite for large scale change? Is it just the conservatism of the industry?Chaz TeplinYeah, you're putting me in a tough spot here, David, but I think there is a lot of hesitancy to change. Cost allocation is often a problem with — if we're not going to ask new generators to pay for the transmission, who are we going to ask to pay for it?David RobertsRight.Chaz TeplinAnd then there's disagreements between again, to go back to PJM the grid I perhaps know the best, between states that have clean energy goals that are excited to do this kind of transmission planning and states without that feel like they're being burdened with other states goals. I don't think that's a good argument necessarily for not building transmission because just the economics and reliability benefits from the transmission alone are more than adequate to make a great case.David RobertsTo make a great case for ratepayer benefit, for citizen benefit. But the utilities in those states with no targets, their narrow financial interests may not always line up with — they make a lot of money through the grid being congested is one of the dark secrets there.Chaz TeplinYes, of course. There are financial actors that have a spot on the grid where power prices are higher than they would be otherwise. And if you happen to own the generator there, you're making more money. And if you did the transmission and you had to compete with that's just unavoidably true. We would hope that the stakeholder processes and the RTOs and whatnot would take the broader picture about what's best for the full system, for the economics and everything. But it's hard to make those changes and it's always hard to make a change from the status quo, especially if it was — there were long battles in the 2000s about getting to this era, so folks are always hesitant to make that effort, to really look at what could be done differently.David RobertsYeah. So let me ask what might be a naive question, but what would happen if an RTO, a regional transmission organization that's responsible for the sort of wholesale electric market in a region, just threw open the door and let projects connect? First come, first serve as they show up? Without this extended single file line process, would things come crashing down? Is that even a possibility?Chaz TeplinWell, I mean, that is basically or has been at least the ERCOT model, which is in Texas. Right. So to be clear though, they still do interconnection queue studies. They just don't worry about deliverability to the same extent. They still make sure that new projects won't cause dynamic instabilities in the grid that could cause cascading failures. Everybody does that. What happens though is you put on the developer the risk that they just will have to be curtailed much more often.David RobertsRight, because of grid congestion.Chaz TeplinYeah, that's right. It's also tightly related to the different ways that in this case, ERCOT handles resource adequacy. In ERCOT, there is no effort to make sure that there's always enough power to meet demand. They trust that high energy prices will incent developers to build projects.David RobertsRight. For the nerds, this is an energy-only wholesale market. They do not have a capacity market alongside it.Chaz TeplinThat's right. And so, because in PJM, in order to qualify for the capacity market, PJM, quite reasonably wants to make sure that you can actually deliver power to load, otherwise you're not really helping much with resource adequacy. Though there's some details there. In ERCOT, there's no such concern. They just trust that developers will look for places on the grid where they think there might be high energy prices, because there's barely enough generation to meet load, and that that will incent development and so they don't have to be as careful with that kind of analysis. And so it speeds up the system.They put more of the risk on developers that their projects will get curtailed and so they're able to make their interconnection queue process go more quickly.David RobertsAnd it works?Chaz TeplinWell —David RobertsERCOT's had some troubles lately.Chaz TeplinTheir queues are much shorter and they are able to process applications much more quickly. Every grid has been having its challenges in ERCOT especially. I'm not sure I would blame the recent outages there on this problem. The other thing that in the past, ERCOT has done well and is the solution everywhere, as we've hinted all along, is the CREZ transmission planning effort made it much easier to connect a whole bunch of wind energy.David RobertsWhat's the CREZ?Chaz TeplinYeah, this was an effort that the state and ERCOT took to recognize renewable energy zones and plan significant transmission investments that made it possible to connect all of the amazing wind in the Texas panhandle.David RobertsRight. Proactively planning and building the transmission for when they show up, rather than waiting for them to show up.Chaz TeplinExactly.David RobertsAnd then building the transmission in reaction. So that sort of takes that bit of risk off the developer's back.Chaz TeplinRight, that's right. Or you do in places where there's been proactive transmission planning, there's a surge in projects in those regions with the new transmission and the interconnection costs are much lower.David RobertsRight. And what does CREZ stand for? I can't let this go.Chaz TeplinNow you're going to get me. It's something for renewable energy zones.David RobertsYeah.Chaz TeplinAnd we would love and many folks are calling for the same thing, that we need to do a lot more of this kind of proactive transmission planning for reliability, for economics, for reducing costs to customers and to help relieve the stress on the interconnection process.David RobertsYeah. I think this is a theme here, not only in this podcast, but on all of Volts and indeed all of the clean energy world. It is mind-bogglingly crazy that we're not doing large scale regional transmission planning when that is clearly necessary to shorten these queues, to improve reliability, to reduce costs, to meet our energy emissions targets. Just name it. If you look in these models, Princeton has done these models of IRA's effect, the Inflation Reduction Act's effect and how big the effect is depends almost entirely on how much transmission gets built. Like the modeling that shows big reductions from this depend on a ton of transmission getting built. And right now we just aren't doing it. It's crazy. I know I'm just repeating myself at this point, but it's so crazy, I feel like I need to just say it over and over again.Chaz TeplinAnd we can make the argument for that based on economics, benefits to ratepayers and reliability. As you've said, in other cases, the emissions reductions are just a bonus. I think it's also important to notice where progress is being made. For example, in PJM again, my favorite grid there is now the start of some regional planning. So there's going to be a huge opportunity there to look at what that looks like.David RobertsMaybe let's take a minute to focus in on PJM because PJM is sort of like the poster child for this difficulty, right? They have the biggest queue, the slowest queue. Like, this is the problem that's most acute there. So maybe tell us a little bit about PJM, like where it is and what it is and why it has this problem so badly.Chaz TeplinYeah. So PJM is in the Mid Atlantic 13 or 14 states, District of Columbia, it's the nation's largest grid operator with 150 gigawatt peak. They have 3000 queued projects, even though they stopped taking actually projects into the queue for some time because they just couldn't process it.David RobertsSo you can't even go to PJM now and set up a new renewable energy project, basically, like you can't even get in the queue at all.Chaz TeplinYeah, I mean, they've just restarted their process. I want to acknowledge the staff at PJM and the stakeholders at PJM have a really hard job to manage this large collection of politically diverse states. And they see their job as keeping the lights on and doing so economically, and they're balancing lots of competing things. So their job is hard for sure, but the queue process, they have not done any real regional transmission planning for some time. So they've looked at where transmission projects are needed to relieve, like, immediate congestion on their system and they do a good job of building those kinds of projects, but they haven't done any of these regional transmission projects for some time.David RobertsIs their queue notably slower than other queues? Like, do their studies take longer or are they just in a particularly large and busy place?Chaz TeplinNo, objectively, their queues have been taking longer to process, typically five years.David RobertsEsh...Chaz TeplinYeah. Compared to nationally, about three years. Again, the good news is that there's lots of projects in their queues.David RobertsI sort of wonder why, though. I start to wonder why, if you're the 2970th project in the queue, why bother? Like if it's taking five years per project, you're not going to come up for approval until like the year 4000 or whatever.Chaz TeplinIt's a good question. I think these project developers though, right, they have to take a long view. They know that in five years, if they still want to have work, they got to put projects in now. And so there's a lot of speculation about where good projects will be and where they'll be able to get generations cited. And so it's worth taking the risk and we'll get to the FERC piece, but there's relatively little cost to adding your project to the queue and it potentially could be a really valuable position to do so. Really profitable to build a project there.So people do still have a lot of appetite to put projects on the queue, even with a long time horizon.David RobertsAnd do they have unique reliability problems in PJM that are either exacerbating or being exacerbated by this interconnection process?Chaz TeplinOne thing that makes it easier in PJM, I'd argue, is there's very little variable generation on their grid right now. They have very little wind and solar, less than 5% of generation in PJM is from wind and solar, whereas it's much higher in many other parts of the country. It is true. PJM has done recent studies of their own where they are very concerned about in the out years, about resource adequacy, they're looking at upcoming electrification, they're looking at coal retirements and they're concerned that they can't get new generation online fast enough. The official take on it and others take on it places the blame at different places on the system and the solution at different places.What we'd like to see is transmission planning and reforms to the queue that makes it easier to get new generation online. We think that's the opportunity with the best economics and the most reliability and of course also the bonus emissions reductions.David RobertsAnd so isn't it the case that outside of ERCOT, no RTO seems to be really like killing it on this? But didn't MISO recently do some things to have some reforms that sort of sped things up somewhat? Aren't they? I thought they made news recently with some reforms.Chaz TeplinThere is progress around the country, not to the extent that we'd like to see. MISO's process is probably seen as one of the better ones. They've had a long stakeholder process and they've identified the first of four tranches of new transmission that they have approved at the RTO level. Right. So MISO is approved. There's also good things going on in California. California has identified that they need a lot more transmission to bring more generation in from out of state. And I mentioned PJM starting up a new process and of course, FERC is looking at requiring with a new rule that regional transmission planning be more holistic.David RobertsIs it one of the things MISO is doing? And this I feel like is one of the reforms, sort of the near term easy reforms I see tossed around a lot, which is at least approving projects in batches instead of one at a time.Chaz TeplinYeah. And this is perhaps the biggest deal in the FERC order as well. So most of the RTOs now are moving towards more of a batch process. So it's not like the example, the metaphor you used earlier with the cars in line, where the last car that gets tasked with the whole lane, instead they look at looks like there's twelve cars coming online in this freeway entry. We're going to look at what it's going to cost to add all of them at once.David RobertsAnd if it requires a new transmission, then the cost of the new transmission gets spread out over those twelve projects.Chaz TeplinThat's right. They also ask more of the developers in each of these so-called clusters. They want to do more to increase the financial and the siting, make sure that they actually have the land available to them, that they're serious projects. And so this first ready, first served approach where you look at clusters of projects and require the developers to show that they're likely to actually build the project, is hoping to fix a lot of the issues that we talked about. Not all of them, there's still going to be a lot more to do. But this is something that now FERC is requiring that MISO and PJM and their new process is requiring, I believe SBP does it as well in California.David RobertsThis batching?Chaz TeplinYeah, that's right.David RobertsIt seems like if nothing else, that would impose a little sort of discipline on the queue. Like you wouldn't get in the queue so casually, like you wouldn't get in the queue unless you're really ready to go.Chaz TeplinRight.Chaz TeplinAnd these clusters sort of progress together and it handles dropouts much more efficiently so that there's less re-re-re-re-studies, still some, but — the process should move a lot faster and more efficiently. With these best practice cluster studies.Do we have empirical evidence that these reforms are going to speed things up? Or is it just hope at this point? Has it been implemented anywhere long enough for us to judge its success?I wish I had great data on that. I don't. I know that MISO for sure has been doing this now for a little while, and I'd welcome a listener to comment somewhere on whether there's data there. But I think everyone agrees that this is best practice and we're seeing better results with the process moving along more efficiently.David RobertsRight, so let's talk about FERC then. So FERC, the Federal Energy Regulatory Commission, obviously this problem has been bouncing around for a while and people have been angsty about this and we desperately need reforms of this. The chance to do it legislatively came and went. So sort of all on FERC's back now. So what exactly did FERC take upon itself to do and what did it do?Chaz TeplinYeah. So FERC Order 2023, named obviously after the year was issued last week. It's a 1500 page light read.David RobertsYikes!Chaz TeplinYeah. So I admit I have not read all of it but can summarize what a lot of folks have been talking about. So perhaps most importantly, it moves to this first ready, first served approach and this cluster study approach which includes some more requirements from developers to show their projects are serious.David RobertsSo this has force of law now like RTOs have to do that?Chaz TeplinThat's correct. The way it works is that all the RTOs will have to say, okay, we see your order, we're required to do it in certain ways. This is how we're going to change our process and then FERC approves that. And a lot of the RTOs already have a FERC approved process. Likely a lot of them will have to over the course of the next few months, revise their already approved processes to comply with the new order or ask for an exception. There's going to be a lot of action there to try and make sure that the RTOs are as aggressive as possible in how they comply with this new order.David RobertsYeah, I'm sort of wondering if we can just kind of a timeout here, but I'm just curious what the sort of disposition of the RTOs is toward this. Are they looking at this as like, oh, here come the Feds imposing onerous restrictions on us or are they on board, do they want to do this? Are there any RTOs that are sort of like pushing back or recalcitrant on this type of reform?Chaz TeplinI mean, compliance is always a burden, right? But I think FERC's stakeholder process and comment process is extremely extensive and the RTOs get a large voice in that process. So the order itself is quite long. But the comments they got on the draft order, the notice of proposed rulemaking was even longer and so shout out to all the FERC staff that had to read all those orders and try and make sense of it and final rule. So the RTOs of course are going to like some things and dislike others and have to work hard to comply.And I think that FERC did a good job of balancing the needs. Of course we probably would have asked them to go further in some ways, but a lot of what they've done is really good.David RobertsSo what else is it? There's the clustering, first ready, first served.Chaz TeplinYeah, they now need and there are studies of like how can we solve the issues that we did identify. They now have to include what FERC called alternative transmission technologies. Right. So things like new ways of moving power on the grid and other tricks that we can play to get more out of the current system. Unfortunately — also they're called GETs, grid enhancing technologies — so a lot of these technologies are really cost effective, most studies show, but they're not always adopted. And so now we probably would have liked this ruling to be a little bit stronger. We think that the opportunities for these technologies is really great and the payback times are often measured in months, not years.And so we'd like to be adopted more aggressively. They're now required to at least consider and evaluate the option there.David RobertsThat's it though, they have to consider and think about grid enhancing technologies?Chaz TeplinYeah. We haven't, I haven't especially, gone through the detailed language in the order to know exactly how that's going to look, but I think a lot will come down to how the RTOs actually comply.David RobertsLongtime listeners will remember I did a piece on grid enhancing technologies a couple of years ago and a pod on it, and it's just sort of like advanced digital stuff, as you say, to get more performance, more throughput out of existing lines. And it always struck me that if we have these technologies available and we know they're available and we know they work, then RTOs are like utilities refusal to use them violates the sort of core utility mandate for just and reasonable rates. Like, you could lower rates by using these. So it seems like it ought to be more enforceable.It seems like something that you could sue utilities over, not just like a helpful suggestion.Chaz TeplinYeah. A lot of people have made the just and reasonable argument that these are cost-effective technologies and it's just crazy not to use them to the greatest extent that we can. There's always the balance that comes back on. Are they really proven? And we have to be very conservative because we don't want to risk the grid. I think the evidence is there that that's not a great argument. And so we have projects to really try and push getting more of these GETs technologies onto the grid to reduce interconnection costs and just use our existing grid more efficiently while we build out the transmission.David RobertsYeah, and when we say more efficiently, like getting 30, 40, 50% more out of it. These are not small numbers that these technologies enable.Chaz TeplinYeah, often. And they're fairly low cost and can be deployed a lot more quickly than building a new transmission line.David RobertsYes!Chaz TeplinThey make a lot of intuitive sense and most of the studies support that. There's always some devils in the details and so we're even doing some quantitative work there to try and show how much it could reduce costs and increase deliverability.David RobertsYeah, I need to revisit that. I need to revisit that subject on the pod. Okay, so FERC saying batch processing, you have to at least think about and consider grid enhancing technologies.Chaz TeplinWell, there is now some deadlines and penalties if the processing takes too long. So there is some stated rules about we expect you to process interconnection applications in a certain amount of time. I don't think this is like start to finish when you get in to when you get the final results of the study. It's more like how these cluster studies should progress as they go through. So we think that's good. The penalties, I don't believe, are extremely large by utility numbers, but it's still meaningful that they're there and I think it should be a way to encourage transmission owners and RTOs to move quickly.As an aside, I think this isn't in the FERC order, but just from a pure staffing perspective, it's really a challenge for the RTOs as well.David RobertsCapacity. Capacity. Capacity our favorite subject here.Chaz TeplinThat's right. Yeah. So you did a workforce pod and I don't think it was too much focused on this kind of issue, but yeah, the need for transmission engineers is far exceeding the supply. So all you engineering students out there, please go into transmission.David RobertsAll right. So that seems like those three things together seem like reasonable, incremental reforms —Chaz TeplinThat's right.David Robertsfrom FERC. So nothing bad. Is there more that FERC could have done? Like, I'm sort of curious about the kind of limits of its authority here. What would you like to see it do that it didn't do?Chaz TeplinYeah, I mean, I think the regional transmission planning and ideally even interregional transmission planning, I'd be remiss if I didn't say, like, please, we need to do everything we can to make that kind of transmission planning the default and the requirement. So that's number one, it's not a fast fix because it takes a while to build transmission —David RobertsYeah, I'm just curious whether FERC can do that because this was the whole debate over they tried to get it in the legislation and then that deal fell apart and it fell out of the legislation. And then people are like, well, we'll just go to FERC. And so I'm curious, I think a lot of people are curious whether FERC can do that to the extent legislation could have.Chaz TeplinYeah, I mean, they're not going to be able to do obviously legislation is more flexible. Right. But FERC does have a notice of proposed rulemaking on regional transmission that has been a huge focus and hopefully will come out over the course of the next year and hopefully require this transmission planning. It's definitely within their jurisdiction to my understanding, though. Though I'm not a lawyer to make that caveat.David RobertsYeah. I mean, it would just make so much more sense to go plan your transmission grid and then for the RTO to go out and say, hey, we're going to build transmission here. It can accommodate X amount of new energy bid for this spot on the grid. Right. So instead of backing into the future, you're sort of proactively filling out your grid according to your vision.Chaz TeplinThat's right. And that requires broad alignment, though, about everybody in the market trying to say, yeah, what is the future that we envision? It's not going to just be a — so it's a long and complicated stakeholder process that we're all excited to partake in.David RobertsIt'd be super nice, wasn't it, if we had federal, if we didn't have this patchwork of states with radically different visions about what they want to do and radically different targets. It'd be nice if we were sort of like everybody's on the same page and striving for the same goal. It is politically a super sticky wicket to do interregional transmission planning with states that are so heterogeneous.Chaz TeplinThe clean part of it is challenging politically but the reliability and the cost perspective isn't so bad. So the Hickenlooper bill that would have required more interregional transmission built does have bipartisan support, and we're hopeful that that will come back and there'll be a chance for a requirement there on the legislative side. But in the near term, and as for what we can do to fix these problems the FERC oder, perhaps order 2024 is really top of mind for everybody in this space.David RobertsSo FERC can do more and do you think wants to?Chaz TeplinI'm not going to guess what the current set of four commissioners are going to do.David RobertsRight? We're still lacking one, aren't we?Chaz TeplinWe're still lacking one. Yeah. So we currently, I believe, have four. Commissioner Danly's term I believe, is up or coming up but is able to stay on for, I believe, till the end of the year. So yeah, we may be down to three shortly. It would be great to have, as they say, a fully staffed and operational FERC.David RobertsYes, I'm sure Joe Manchin will find some way to screw that up and delay that appointment. I want to ask one final question, but first, I want to ask a second to final question because I forgot to ask about this earlier. This is something I've always been sort of curious about. Generation projects in the queue are one thing, but lots of projects these days will be combined generation and storage, and some projects now will be standalone storage. Are those also in the same queue and if so, are they studied the same way? Because it just seems like the performance of a storage project on the grid is going to be fundamentally different and its effect on the grid.It's going to be fundamentally different than the performance and effect of a generator. Do they all go mushed in the queues together? Are they all evaluated in the same way?Chaz TeplinThey are all in the same queue. They aren't always necessarily evaluated in the same way. And there were some reforms also in the recent FERC order about the assumptions we make about inverter-based resources which include storage, about how they're going to operate and the ability for developers to say what technologies they're using to make sure that they go well. And I believe there's some ability to change how you can add storage, like make your solar project a hybrid project. If that's not in the FERC order a lot of the RTOs are looking at or do allow you to make some of those changes.You don't have to go to the back of the line if you just add storage, which in theory should just make your resource more valuable and easy to control.David RobertsRight. I mean, this is what I'm saying. Intuitively it seems to me like a storage project is going to be good for the grid, almost categorically like, good for grid reliability, good for grid performance. There's no overloading the grid from storage. So it seems to me like storage ought to be either allowed to skip the queue or at the very least go to the head of the queue or if you attach storage to your project it seems like you ought to get some advantage in the queue.Chaz TeplinYeah, and I think another thing that RTOs can do that's really valuable is look at using retiring generation, citing things there and storage like natural gas, as I mentioned earlier, can be placed pretty much anywhere. So that's an obvious place. Hopefully, you can also connect wind or solar nearby to a retiring coal plant connection. Right. And as we repower that valuable grid connection and so storage can go there and there are fast track processes and fast track queues, if you will, for considering things like that. And a lot of the RTOs are looking at those processes and we really see that as a really valuable way to leverage the existing grid.There's a lot of fairness and cost implications and if you're a developer in the queue, you don't like to see anyone jumping the queue. So there's a lot of ways, questions about what the best way to handle that is, but yeah, that relates to storage for sure.David RobertsJust tell them like if you want to jump in the queue, add storage. It just seems to me like yes to storage as much as possible, as fast as possible.Chaz TeplinYeah. Certainly for short term duration resource adequacy challenges, there's no question that storage is an obvious solution.David RobertsFor sure. Okay, so by way of wrapping up then, let's just briefly talk about what's next. So FERC has issued this order as you say, these are good things, they're going to be improvements, they're going to speed things up a little bit. Do we think that this FERC order alone is enough to speed things up enough to catch us up where we need to be? And if not, what are the other tools in the toolbox here? What else can be done? What should sort of advocates be thinking about next?Chaz TeplinWell, there's no substitution for transmission. Okay, I know, keep being a broken record there but it's true. So leveraging gets as much as possible, leveraging the existing retiring connections as much as possible. And then the last one's a little fuzzier, but I think the RTOs have some flexibility on how they treat deliverability of resources and think about their resource adequacy. And sometimes I worry that we're overly strict about making sure a project is really deliverable. And so Commissioner Clements noted that there's something called energy only resources that typically have different, less strict rules for deliverability. So there's probably ways of getting projects on the grid more quickly by looking at some of the specific rules about how careful we have to be on deliverability.Those are going to be some complex conversations and possibly build on some long-used processes that RTOs have been using, but I think there's some flexibility there and we're excited, certainly to work with everyone to see if we can figure out ways to get more generation onto the existing grid quicker while we plan transmission.David RobertsThese all — except for maybe fully grasping and throwing ourselves into regional and interregional transmission, which is still not really on the table in any meaningful way — this all seems kind of incremental. Like, just intuitively to me it doesn't sound equal to the scale of the problem. So I'm wondering if you feel the same way. And I sort of wonder, given the need for grid reliability, as you say, the legitimate need to sort of study these things and make sure they're not going to screw up the grid, is it even possible to approve things to get on the grid fast enough to hit the targets we want to hit?Like, is there a process that moves fast enough even on the horizon here?Chaz TeplinWell, I'm an optimist, and if you look at how many gigawatts of power are likely that the RTOs themselves say are going to clear, then it's a large number, so we can actually move fairly quickly, but it's not as large as we want. And how many of those projects are going to get bogged down in really large network connection, costs are going to be hard, but perhaps there's ways to fund those. So yes, I'm an optimist that we can use our existing grid a lot better than we are today and get a lot more storage, wind, solar on the system. But yeah, it's going to be a challenge.There's no easy answer on expanding the grid to replace a lot of retiring fossil generation and grow it to substitute for the existing oil and gas industry. Right. That's a large ask to do very quickly.David RobertsIt's not something it's never been done.Chaz TeplinNo, never been done, but that's why we're here to do it for the first time.David RobertsAll right, well, thanks so much for decoding all this for us and picking apart these strands. And it sounds like as bad as this problem is currently, there are things happening, there is hope.Chaz TeplinThere is hope. The FERC order is a big deal and there's lots of dedicated stakeholders and advocates working really hard to try and fix these issues. So that's what always gives me hope.David RobertsAwesome. All right, Chaz Teplin of RMI, thanks so much for coming on.Chaz TeplinThanks so much. Always great to be here.David RobertsThank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf so that I can continue doing this work. Thank you so much and I'll see you next time. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.volts.wtf/subscribe

In this episode, influential climate blogger Joe Romm discusses whether carbon offsets are, per the title of his recent white paper, “unscalable, unjust, and unfixable.”(PDF transcript)(Active transcript)Text transcript:David RobertsCarbon offsets — whereby one party pays another party to reduce carbon emissions — are an extremely convenient thing to have for people, businesses, and institutions that have money to spend, want to do something green, and either won't or can't reduce their own emissions.So offset markets have flourished for decades, even in the face of investigation after investigation, exposé after exposé, showing that the emissions reductions they represent are dubious or outright fraudulent.Things may be coming to a head, though, especially as it slowly sinks in that the Paris Agreement in many ways renders the entire enterprise of offsets moot. If everyone is trying to get as close as possible to zero emissions by 2050, what is gained by trading those reductions back and forth?A white paper digging deep into these subjects was recently published by none other than Joe Romm. Romm has a PhD in physics from MIT and worked at the Department of Energy in the 1990s, but most people in my world know him as one of the earliest and most influential climate bloggers. He’s also authored numerous books on climate solutions.As of earlier this year, he is now a senior research fellow at the University of Pennsylvania Center for Science, Sustainability, and the Media, being run by climate scientist Michael Mann. His first report is on offsets, and it’s a doozy. I called to talk with him about the role offsets have played in the past, the reforms the UN is attempting to make to them, and their future in a post-Paris world.Okay, with no further ado, Joe Romm, welcome to Volts. Thanks so much for coming.Joe RommOh, well, thank you so much for having me, Dave.David RobertsYou know, it's funny. I'm sure you will resonate with this. Probably the number one question I get asked my entire friggin career is people writing in to say, "Hey, such and such, my utility or some firm or some company is offering me these voluntary offsets. Are they worth it? Is it worth it doing this?" And I've been meaning forever and ever and ever to do something squarely on offsets, because what I always want to tell people is, like, "No, they're kind of junkie," but I don't want to exaggerate or stereotype. And I thought maybe I was missing some nuances.So then I read your paper and realized I was missing a bunch of nuances, but they're all nuances. Showing that offsets are way worse than I imagined. Far worse than I had even dreamed. So let's get into it. Let's just start, though, in case any listeners out there don't know exactly what we're talking about. Just what is a carbon offset? And there's two basic kinds the sort of mandatory kind and the voluntary kind just run real quick through what an offset is.Joe RommSure. Well, I use a definition from the General Accounting Office: Reductions of greenhouse gas emissions from an activity in one place to compensate for emissions elsewhere. So a typical transaction is the developed country or a company, instead of reducing its own CO2 emissions, pays a developing country to reduce its emissions by an equivalent amount instead. And then if the buyer purchases enough offsets, they've been going around calling themselves carbon neutral or net zero. And I would say the interaction that most people have had with offsets, the most common one is when you're buying an airline ticket and you sort of have that option to spend a few dollars to offset your emissions, usually by planting trees.And the short answer is don't waste your money.David RobertsRight. But the idea behind it originally, and they go way, way back, the idea behind it originally is that it's kind of expensive to reduce emissions in developed countries and wealthy democracies, and there's lots of super cheap reductions waiting to be had in developing countries. So the idea was, let's flow some money from developed countries to developing countries. You'll help do some virtuous projects there and we'll reduce emissions. And it doesn't matter where you reduce emissions, right, because it's all one atmosphere and you'll get cheap reductions. That was the driving idea. And conceptually speaking, it's not crazy.It just kind of turns out that every particular turns out to be difficult to do in a rational way. So we're going to get to some specifically sort of modern or contemporary issues around offsets relating to the Paris Agreement and how that kind of changes the whole playing field. But before we even get there, let's just talk about the history of offsets and the issues that face them, the difficulties. This basic idea of like, I reduce emissions here and I sell it to you and then you count it against your total, the basic issues that they have faced.And I feel like every couple of years I see another big comprehensive sort of report come out saying, "Yeah, offsets are still mostly junk." So as far as I know, they've been junk from the beginning. But just talk about some of the basic difficulties facing offsets.Joe RommSure. And the phrase that there's this lots of super cheap emissions out there in developing countries. This is a very key phrase that we will come back to because it's that misconception that is really screwing up the way a lot of people are looking at how we're going to solve global warming.David RobertsRight.Joe RommBecause they don't exist. So the first offset was 1988.David RobertsOh, wow.Joe RommYeah, this is Mark Trexler worked on this. And this was a utility, was just trying to see could they do a project in another country. Because utilities, they figured they were going to be — they thought in 1988 they would be regulated sometime soon. So they wanted to check this out. So there was a voluntary market created and voluntary means it's unregulated. It is the wild, wild west. There is nobody out there who is saying this is a real offset and this isn't a real offset.David RobertsSo there's no government body that vets these in any way. It's all just private companies making claims.Joe RommExactly. And working with brokers or verifiers or creditors out there. And so that's sort of problem number one. Whenever you have a market that is completely unregulated, there is generally a race to the bottom. Which is to say, if I told you, "Hey, I can sell you a good carbon offset in Brazil for $20 a ton," but someone else says, "Oh, I'll sell you an offset for $5 a ton," who are you going to buy?David RobertsRight. And it's important, I think, to say here, too, like the seller has every incentive to sell as cheap as possible, the buyer has every incentive to buy as cheap as possible. Neither party in that buyer seller relationship has any incentive at all to maintain quality. There's no regulatory backstop, there's no penalty for low quality. So both have every incentive in the world to cheap out on this.Joe RommAbsolutely. And I was where you were at, at offsets until I decided to start really digging into them. So it took me like six or seven months of really looking closely to realize, "Oh, this is worse than I thought." But also it was tricky to explain, so I had to spend a lot of time trying to figure out how to explain it. And indeed there is an article, the scientific literature is like a nonstop assault on offsets. And there was an article back in 2001 that basically said, yes, one of the problems with offsets is that both sides have an incentive to exaggerate.Because the seller is getting paid a low dollar amount per ton, right? This is going to be a low dollar per ton market, right? So they have an incentive to inflate the number of tons and not even care if they're real tons or not. Now, in most markets, the buyer cares about quality and quantity, right? Caveat emptor. If someone says they're going to sell me ten real oranges but they sell me five rotten oranges, I'm going to object. But in the offset market, I'm not going to object because in fact, I'm paying a price, a fixed price.So for that price, I want to get as many — remember, this is sort of an imaginary negative quantity of things, right. So I want to be able to claim credit for as many offsets as possible for my money. And do I want to look under the hood and see if those are real offsets? I'll just say maybe some companies do, but in the vast majority of cases, nobody is really looking very closely under the hood.David RobertsRight. And you said something crucial there, too, which is what you're allegedly buying when you buy an offset is a unit of something not happening.Joe RommRight.David RobertsSo there were going to be greenhouse gas emissions. And because of this money you're spending, there won't be. So you're buying basically a hypothetical, like an alternate reality, something that didn't happen, which I think we should say, even if there were a regulator, and even if buyers and sellers both were extremely interested in quality, it's just intrinsically difficult to measure a hypothetical with precision. Right. It's difficult to say what would have happened.Joe RommRight. And this is the famous additionality problem. This problem has always been identified as one of the two or three biggest problems. How do you know that the money you're spending to fund this project, that the emissions reduction wouldn't have happened anyway? And this particularly comes into effect when we're talking about renewable energy, because a lot of offsets were renewable energy projects. Now, you've done many podcasts on these remarkable drop in renewable prices over the years, to the point where they, in the last decade, increasingly became the cheapest thing to do anywhere. So it became increasingly clear that offsets that were funding renewables, that the money from the offsets weren't making the difference.So in fact, the offset would have happened anyway, and so the buyer shouldn't get credit for something that would have happened anyway. Right. They didn't make any difference with their money. And there's another tricky feature here, which is there are two types of offsets. There's one where I pay you something that will actually reduce emissions. Like maybe I could pay you to shut down a coal plant, or maybe I could pay you to plant trees and pull carbon out of the air. But a lot of offsets, many of the most popular ones, are called avoided emissions.That's where I pay you not to cut down trees.David RobertsRight. And this raises so many issues. Like, for instance, if I own a bunch of trees, I could sell you not chopping down X parcel, and then I could just turn around and chop down Y parcel to compensate, right? So I end up chopping down just as many trees, but after you've paid me not to chop down these, I just turn around and chop down those instead. So the emissions, the trees are all the same.Joe RommThese all have names. That's the leakage problem. And you might even be good faith, maybe you're not going to. But the lumber company still needs the wood, right? The reason they're cutting down the trees, presumably not always, but in general, they're going to sell the wood. So the lumber company will just go to the next province. And the question is, how much leakage is there? And the answer is, as it turns out, there's a lot of leakage. Because, again, people aren't cutting down the trees for no reason. I mean, some people might be, but there's always a reason why they might be cutting down the trees to grow crops.But if they want to grow crops, they're going to grow crops somewhere and so, yeah, this is very, very difficult. Now, we all want by the way, we do want to stop deforestation, right? We do, in fact, want to figure out how to support ending deforestation as everyone committed. Not everyone, but a whole bunch of nations, as you know, in Glasgow made that commitment, and I think we all support it. The problem is just that you shouldn't turn that into an offset. An offset is — another way of thinking, an offset, it's a license for the buyer to pollute.I'm paying you not to pollute, so I can keep polluting.David RobertsRight.Joe RommSo you don't want to turn protecting forests into someone else's license to pollute. So there are lots and lots of problems. And indeed, there are countries, I won't name them, but there are countries out there that noticed who have a very good track record. They weren't deforesting and they realized no one was doing offset projects with them. The only way they could get offset projects, if they said, you know, we are thinking about doing some deforestation in our country, and so maybe we'd like — you know, what kind of deal that is.David RobertsYeah.Joe RommAnd people can Google that.David RobertsNice forest there. Be a shame if something happened to it.Joe RommExactly. And that's, again, paying people not to do something is — like not to grow crops, I mean, it's going to get you in trouble. And so, over time, these problems never went away. And the voluntary offset program ambled along. It was not very big through 2005. In fact, the total amount of offsets from 1988 to 2005 was about $300 million. So not a lot of money from a global perspective. Then came the Kyoto Protocol, the 1997 agreement, in which the rich nations committed to make some modest reductions by 2010, but the developing countries did not.David RobertsRight.Joe RommBut in order to make it easier for the richer countries to sign on to this protocol, it included something called the Clean Development Mechanism, the CDM. And the Clean Development Mechanism was simply an offset program. But this is a regulated offset program. This would know sometimes this is called a compliance market. It's used to comply with an agreement. And the problem was that the rich countries were buying these offsets from countries that didn't have any inventory that was tracked. They didn't have a baseline, so there was nothing to stop them from, yes, building a renewable plant and selling you that as an offset.But they could still keep building coal plants. And one of the points that I make in the paper is that between 2006 and 2022 and the CDM is still running, the Clean Development Mechanism is still running, the biggest seller of offsets was China. China sold half of all the offsets that were sold. During that time China added so many coal plants that it added almost the equivalent of total current US emissions. Right? So China simultaneously didn't develop cleanly, dramatically increased their CO2 pollution. And in the worst of all possible worlds, all the renewable plants that they were going to build anyway, they sold those to the rich countries, which then used them to actually not meet their target, right?So that resulted in net pollution. There are analyses out there in the literature which basically say the Clean Development Mechanism as a whole led to 6 billion tons more CO2 emissions.David RobertsAnd this, remember, is the regulated one. So it's not like bringing in a regulator can solve what are basically intrinsic problems. The mismatch of incentives is not something I mean, you would need the world's best regulator scrutinizing every penny and it would still be difficult. So even from the beginning of offset markets, the beginning of the voluntary market, and then accelerating with the CDM, like, I swear I've seen at least four or five massive literature reviews, reports, etc., saying all these markets are junk, the CDM market is junk, it's still junk, it's still junk, it's still junk.And that's been going on, as you say, now for over like 15 years. So are offsets finally starting to lose their luster? Are they starting to lose their reputation? And then, if that's true, what happens to companies or countries that are sort of staking their claims of emission reductions on offsets? And that's a lot of private companies at this point that are going around saying we're net zero because we bought all these offsets. What happens if the reputation of offsets finally collapses? Is it going to collapse?Joe RommIn the last 18 months since Glasgow, really, since November 2021, the price of nature-based offsets, those became the most popular. That was either planting trees or paying people not to cut down trees. And there are some emerging ones, but those are the big ones. They have collapsed 90% in price. And you are correct that there are a lot of these exposés. In fact, I have like 160 footnotes in this paper. And I mean, there are literature reviews, right, and there are major reports by independent bodies and then there's the media. And the media has been increasingly scrutinizing them.And anyone who fought Bloomberg, for instance, has been doing regular exposés and really basically calling them fake. One of the big decisive moments was in January, the UK Guardian, along with the German Die Zeit and an independent group called, I think, Source Materials. They had done a major nine-month research effort with scientists and they were looking specifically at what had been considered high-quality offsets were protecting the Brazilian rainforest. These are offsets that were bought by Shell and Disney and Gucci, and they found that 94% of them were worthless. And that 94, 95% number is not at all different, any different — there was a 2016 study of the Clean Development Mechanism by the European Commission, which looked at hundreds of the projects and they concluded that only 2% were high quality.David RobertsSo if I'm Disney, why should I care? I get to greenwash, I get to look green, I get Super Chief offsets. Maybe I just say, nobody reads these exposés, nobody cares. Everybody's doing well here. Why should Disney care about this happening?Joe RommYeah. And the answer is that finally, I would say the environmental community and the people who do care about this started using different tactics, which is to call out companies and to actually bring lawsuits. And there have been a lot of lawsuits in the last twelve to 18 months. The lawsuits are of two kinds. The most common kind is where you go to the regulator in the country, the advertising regulator, and say, this is false advertising. The Swiss regulator, for instance, ruled finally that the World Cup, the 2022 World Cup in Qatar, had been calling itself carbon neutral.That's FIFA, if I'm pronouncing it right, or FIFA, the soccer federation had been making this claim, and this was finally taken to the Swiss regulator, and the Swiss regulator said, this is all misleading. You haven't proven that you're doing anything, so please stop calling the World Cup carbon neutral. And if I can just make tell a 30-second story of just how bad that this is very symbolic of the voluntary market. As I said, renewables become so cheap, right, that it became very dubious that an offset could support a renewable project because it was going to happen anyway.So in 2019, the two biggest creditors in the world, which are Verra and the Gold Standard, they decided, we're not going to allow any offset project, we're not going to verify any offset project that involves funding renewables unless it's in a very, very poor country. But the overwhelming majority of them were not counting, so they stopped. But because this is the wild, wild west, guess what? Qatar decided it was going to launch its own offsetting verifying company, crediting company, which they did, and they said, we're going to take all comers, we will take any renewable project and we will credit it as an offset.And guess what? Guess who's going to be a big customer of ours? So yes, that is a large way that the World Cup became carbon neutral. And by the way, you can Google it, Saudi Arabia set up its own in the last couple months, they set up their own crediting firm and they are issuing offsets to their many polluting companies. So we're seeing a lot more of these lawsuits. There have been lawsuits in the Dutch court because Shell keeps trying to claim that its oil is carbon neutral or somehow good for the environment, and they've lost four times in a row.The British has something called the Advertising Standards Authority, and they've now issued guidance: Please do not use carbon neutral or net zero. Last fall Evian, if you buy a bottle of Evian water, it says carbon neutral on it. So they've now been sued for that. That is a trial that's undergoing and it has now gotten to the point where law firms, this year, law firms have been issuing memos to their clients saying, guess what, this is a very ripe area for lawsuits because this whole offset business is kind of dubious but environmentalists are like they're caring a lot more about climate change and these are starting to launch.And there was an advertising magazine, the Drum, which basically advised clients that suddenly you have to understand offsets are becoming a reputational and a legal risk. Some people may know at the end of June, a lawsuit was filed in federal court in California against Delta because Delta has been calling itself the world's first carbon neutral airline. And basically the suer said, you know, I bought this ticket because I thought you would solve the climate problem and now I learn you hadn't.David RobertsRight.Joe RommThis has started to have an impact because you may have caught the news that the very end of June, Nestle's publicly said we are withdrawing all the claims that we are planning to make about carbon neutral for Kit Kat and, guess what, Perrier water.David RobertsInteresting. So even if you're a company that doesn't care particularly about this as such, right, in terms of carbon emissions, you're going around buying these standard sort of voluntary offsets and making these claims, which is something that has been a herd activity, right. It's fine to do it because everybody else is doing it, but now the slower, weaker members of the herd are being picked off here. You're actually in some danger now of legal exposure basing the claims on these goofy offsets.Joe RommAbsolutely.David RobertsThere's two stories going on. On one hand it seems like there's a house of cards here that's about to collapse. But on the other hand, as you say, there are more and more kind of scammy people herding into this market to sell them. So it's tough to see how that shakes out.Joe RommNo one can stop that, really, because it's an unregulated market. We will get to, in a little bit, the one player who could make a real difference. But fundamentally, it is only going to be turning something that has been done for good PR, right — They were all doing this to try to say, "Oh, we're good environmental citizens. Why? Not because we're reducing our own emissions, but we're paying other people to reduce them for us." And that is now starting to lose its luster. Right. So as people start to realize and maybe get sued, maybe they'll get a group of environmentalists will write a letter saying this is a bogus claim. As that starts to become more popular.And I think that that is increasingly something that you're going to be seeing happening. It's going to become bad PR. And so it's going to be a reputational risk and a possible legal risk. And those two together, I think it's going to start dawning on people and I think one can say that no serious company should be purchasing offsets to make claims about carbon neutral and net zero. And I will say in the reverse, which is that any company that is, is not a serious company. And it's no longer just people like me saying this. The fact of the matter is that the Secretary General set up a UN expert group to look at this specific issue, which is offsets by non-government entities.And in Egypt, at Cop 27, they reported out and basically said, "No, please stop saying that you're using offsets to become net zero. You can't become net zero that way." And by the way, the biggest independent group out there working with companies to look at targets to see if they're real — you may have heard of them, the Science Based Targets Initiative — they have also said the same thing: You may no longer use offset. We're going to develop a plan for you to make a science-based target where you reduce emissions 50% by 2030 and get down very close to zero by 2050.But if you cut your emissions 50% by 2030, you can't go out into the voluntary market, buy the rest of those tons and say you're net zero. That doesn't count. So, yeah, I would say more and more of the serious players are walking away from this notion that offsets are real and can be used by companies to pretend that they're doing something.David RobertsLet's move on to what I think is an interesting, not new, but newer issue around offsets. So, as you say, the sort of explosion of the offsets began with Kyoto because developed nations were supposed to make reductions and developing nations were not obligated to do so. So under that regime, it makes sense for developing nations to sort of sell their reductions to developed nations, right? If you don't have to make them yourself, why not sell them to people who have to make them? Then comes Paris. So under the Paris agreement, the Paris framework, everybody is supposed to be making reductions, including developing nations.So then we get to an interesting problem of double counting. So if I'm a country, I reduce emissions by X and I sell those reductions to a company, the company claims the reductions via offsets, but then I also claim them under my Paris obligations. So it kind of seems like two entities are claiming them. Walk through how this works using the example used in the paper is one of Ørsted in Norway and Microsoft buying offsets from them, and then Norway also counting them. So just walk through how that worked.Joe RommYeah, absolutely. And I'm going to talk about it, not how it appeared in the paper. It took me a while to figure this out. There was a Bloomberg article in mid-May which reported on this, and it's only literally because I had been working on this for six months and had just gotten to realize that this particular deal was the problematic deal. Or, I will say, one of the two problematic deals, but the other one was solvable. And we'll get to that. So this deal in May, the Danish government announced that it was paying the bioenergy company Ørsted to put carbon capture systems on two biomass plants in Denmark, capture up to 450,000 tons of carbon dioxide a year and bury it under the Norwegian sea.And Denmark subsidized this with a fund it had set up for the very purpose of doing, you know, carbon removal and carbon capture. And so Denmark is claiming all those tons. It's putting them in its national greenhouse gas inventory.David RobertsAnd we should say quickly that unlike the tree stuff, unlike the forest stuff, these really are verifiable and verified emission reductions. That's not the issue here.Joe RommRight. Certainly this is a more quantifiable and also potentially more permanent. The other problem with trees and stuff is trees aren't permanent as we're living through more and more these days. And indeed, these were emissions that were coming from Danish power plants. Right. So these were official Danish emissions that they had agreed to eventually eliminate entirely for their meeting their pledge under the Paris agreement. And so that seems very reasonable. And if that had been it, it would have been a perfectly fine deal to announce. But Ørsted also announced that it was selling over half of the same exact tons that had just sold to Denmark, to Microsoft, which also threw in some money and is also claiming them to offset some of its corporate emissions.So the same tons are being sold twice and they're being claimed twice.David RobertsRight. So what you've got is Denmark claiming these tons under their Paris pledges, and then Microsoft claiming these tons under its private pledge to reduce its emissions. Both entities are claiming the tons. And if you ask Ørsted, I mean, it's not like this is a secret that this is happening. It's right there in the press release. If you ask Ørsted, they say, "There's no problem here. This is just two separate accounting systems."Joe RommYes. When I saw this, I wrote a letter email to the person who was in the press release for the Danish government at the Danish Energy Agency. I sent an email to Ørsted and I sent one to Microsoft. Twelve days later, the Danish government writes back and says, "We don't consider this to be a double claiming because there are two different inventories we're talking about." Now interestingly, the Danish press release never mentioned Microsoft. And basically the tone of the email was, "We don't really care what Microsoft does. We're claiming them officially in our national inventory to meet our climate targets, and we don't care what anyone else does."So Ørsted said, "Yeah, it's two different inventories." And ultimately Microsoft said the same thing. But some journalists asked me, "How could there be two different accounting systems?" And I said it's easy: One's real and one's pretend. And that's what is really going on here. The voluntary market is the pretend market. I think that that has become clear over the decades that what companies are doing is pretending to do something and then really taking credit for being a good environmental actor. But clearly what this deal shows, if you knew nothing else about the voluntary market, it's clear that Denmark has every right to claim those tons, right?It did subsidize them. The tons came from their country. They're putting them in their inventory and they are actually helping to solve the climate problem. Right? They made a pledge so that's clearly the real market, the one that is recognized by the entire world. So whatever Microsoft is doing here, they're not offsetting tons.David RobertsSo, you could say, though, I mean, just so people grasp the implications of this, given that every country in the world now has pledged emission reductions under Paris, every deal is going to be like this. Every deal in the voluntary carbon market is going to take this same shape. It's going to be double counting. So the question of whether that double counting is legitimate or not, the entire fate of the voluntary carbon market rests on that question. Because if it's double counting and illegitimate, then there just won't be any reason for voluntary carbon offsets anymore. Every country that hosts emission reductions is going to want to claim them for itself under its Paris obligations.And why would it want to sell them? So, is there any way to, I mean, as you said, you can't stop the voluntary market from coming in and just saying these things because there's no regulator and it can say whatever it wants. But as you say, the UN has sort of stepped in here and tried to draw a distinction. Now tell us a little bit about that, how the UN is trying to sort of square this circle.Joe RommIt is important to realize, and this took me a long time to understand enough to know where to look in the literature. This deal isn't just exposing the voluntary market. This deal actually undermines the Paris Accord and that emerged in the literature. Within a year of Paris, somebody wrote a paper for a German think tank and ultimately there have been multiple articles, there was a report to the German Environment Ministry. Paris was designed to get every country to make commitments to reduce their emissions and then to go about the business of reducing emissions. It's not a mandatory thing, right?There's no enforcement mechanism.David RobertsRight right.Joe RommThat's very important to remember about Paris. It is a good faith effort by countries, or some people may decide whether or not how good a faith it is. But fundamentally, the nations of the world came together at Paris and made these commitments. And there is now pressure on countries to meet these targets. And obviously, as the climate keeps getting worse and worse, it will be harder and harder, I think, for countries to walk away from them. The problem with this deal is if I'm a developing country and I've made emissions reduction target, I'm disincentivized from reducing my own emissions.Because I can just sit around waiting until some rich company comes in and says "Hey, I'll buy some of those tons from you, even though you're not selling them to me and do this deal." And basically, that's what the literature said. The literature said this deal, first of all, it's not an offset. The country had already agreed it was going to make these reductions, right. Therefore it was going to happen anyway.David RobertsRight. This is the hypothetical thing. Like in Paris, all the countries committed to reductions, therefore there's no hypothetical world anymore without the reductions. The whole premise has been wiped away.Joe RommYeah, these aren't offsets — and by the way, the Gold Standard and I emailed back and forth with the Gold Standard. The Gold Standard said this. It has written articles basically saying that this deal, anyone who does this deal cannot call what they own an offset and they're not going to sign off on any such deal being called an offset. So, yes, as you say, fundamentally, Paris was the beginning and the end of voluntary offsets. And people should have realized that. When the Paris Accord was signed, everybody knew — and the Paris Accord has something called Article Six — and I'm only saying this because I know your audience is sophisticated and I think they should understand this. So Article Six is the part of the Paris Accord that deals with carbon credit trading and carbon offsets. 6.2 is carbon credit trading, 6.4 is offsets. So that was part of the Paris Accord. However, it became clear that the deal that we're describing between a company and a country is one thing, but you clearly can't allow the double counting if it's two countries. So by unanimously agreeing to the Paris Accord, the world was saying, we are going to work out the details of this Article Six and offsets at a later date.But the literature was clear that there's only two solutions to the double counting problem. So what is the double counting problem? Let's use very simple math. Imagine that Brazil has 2 billion tons of CO2 emissions and the United States has 2 billion tons of CO2 emissions. And the United States says to Brazil, we want to buy half of your tons that are the easiest to reduce. And we're going to pay you this amount of money and you're going to sell them to us and they do this deal. Now, Brazil has actually physically reduced its emissions by a billion tons, right?So it actually has a billion tons of emissions, but the United States wants to claim that it also reduces emissions a billion tons. But clearly they can't both claim that because then they would each have 1 billion tons, but the world would actually have 3 billion. They combined would have 2 billion tons, whereas the world still has 3 billion tons. Because the United States actually has 2 billion tons. So there's only two solutions to the double counting problem. Either the buyer doesn't count the tons or the seller doesn't count the tons. Right? I think that's pretty straightforward.Now, if the buyer doesn't count the tons, then it's not an offset, right? They're just helping Brazil reduce its emissions.David RobertsRight.Joe RommAnd that in Cop 27, in November 2022, the world agreed that would be called a mitigation contribution emission reduction. That the rich country was helping contribute to a greenhouse gas mitigation, helping Brazil achieve its Paris agreement, helping the world reduce greenhouse gas emissions. But it couldn't take any credit for them itself could not be used as an offset.David RobertsSo you can have a reputational boost, you can get a little green glow, you can get some good PR, but you cannot claim to be reducing your own emissions when you're the buyer in this situation.Joe RommAnd you should know that the environmental community had been urging the voluntary market to move to that exact scheme for many years. Just don't call it an offset. You can keep doing what you're doing. Rich companies can help poor countries reduce emissions. Just don't call it an offset. Just don't pretend you're buying the same thing that they're not selling to you. I mean, it always seemed obvious to me that if the country that reduced the emissions is keeping the tons, then they're not selling them to you. So how could you be buying them? And by the way, the Gold Standard agreed to do this for the voluntary market in the last year or two.The Gold Standard is basically saying, you can't do not call any of our projects offsets anymore unless you meet very strict criteria, including that it doesn't involve the Paris agreement. So the other solution is the one that is complicated. It's not that complicated, but it's sufficiently complicated that no one understands what was actually the implications of what was agreed to. So the solution where it's a real offset and the selling country, Brazil, doesn't keep the emissions reduction, Brazil has to publicly announce to the world that it is giving up those tons and it is not going to count those emissions reductions in its own inventory because it's selling them to the United States.Now, there's only one way this can happen, is if Brazil adds back the billion tons to its official inventory. And that addition, that billion tons, that's called the corresponding adjustment.David RobertsCorresponding adjustment. So the idea then is you're selling the tons. You're literally selling the tons, which means you no longer have them. So in that case, the United States could claim to be reducing its emissions, but then Brazil could not claim to be reducing its emissions. It would still have the 2 billion tons on the books.Joe RommSo put simply, the rich country gets to pretend that it made emissions reductions, even though it didn't. And the poorer country has to pretend that it didn't make any emissions reductions, even though it did.David RobertsRight. And this is now a legitimate framework in the UN. You can do this.Joe RommWhen the final rules are written. All the rules have not been agreed to. But at COP 26, the nations of the world, when the nations of the world signed off on the Glasgow accord or agreement or whatever you want to call the final document, they were unanimously agreeing that they were going to set up something called an authorized offset. And in order for an offset to be authorized, it had to come with the corresponding adjustment. The developed country had to give up those emissions reductions. And as you might imagine, this deal doesn't make a lot of sense.David RobertsWell, it does make sense in one way. We should say the one way that it does make sense, which is unlike the old regime, where neither the buyer or the seller had any incentive at all to ensure quality, now, at least if I'm Brazil and I'm selling some of my emission reductions, and I won't be able to use them on my inventory anymore, I'm, by God, going to be sure that those are high quality. Right? Like, I don't want to be selling, I don't want to be giving up my ability to reduce emissions on the cheap, right?So at least now one party in the transaction has some reason to care about quality, right?Joe RommAnd this gets to the core issue, which is these offsets won't be cheap. And this is the thing that is the complete game changer that everybody needs to understand. It's one of the reasons why I wrote this paper once I figured it out. Developing countries must not sell these off cheaply. And the reason is pretty clear. If the developing countries let the rich countries skim off their cheap emissions reductions at a low price, those developing countries, because they're all going net zero, right? This is the point. Everybody's going to zero. Those countries are going to have to go back in the market later and buy those tons back, right?Because they have to pretend they didn't make those reductions. In other words, Brazil had 2 billion tons. It cut its emissions by a billion, but it gave that up to the United States. So it has to pretend it has 2 billion even though it only has one. So in order to come net zero, Brazil not only has to reduce the remaining billion, it has to offset the corresponding adjustment bill.David RobertsThe billion it sold.Joe RommSo the only way it's going to do that is with the expensive stuff, direct air capture, whatever is the price, towards the end of the emissions reduction period. And by the way, I had to use Chat GPT to help me find a lot of these sources when the developing countries were told that by signing the Paris agreement, they were going to have to give up the tons. They weren't happy. And when Brazil, people may know, if people who follow Paris know that Brazil and some other developing countries were the obstacle, they had refused to make this agreement until Glasgow.And when Brazil finally agreed to make this deal, they added a little hook. They said, yes, we'll agree to your dumb-ass thing, but we retain the rights to make the decision ourselves as to whether we keep the tons or give them up. Which is to say, we can decide. And no one has been able to tell me, by the way, when they get to make that decision, whether they can do it at the beginning or the end. But the point that I want to make here is that since the developing countries are going to have to go back into the market to buy those tons, they better not sell those tons for anywhere near the current market price for voluntary offsets.David RobertsYeah.Joe RommAnd this gets back to the point that you made at the very beginning. The one really bad thing about the voluntary market is that it left everyone with the impression that there was this vast sea, unlimited sea, of cheap emissions reductions in developing countries that they would be able to buy up instead of doing the hard work of reducing their own emissions. Right. Because fundamentally, offsets are a way of not doing our own renewables efficiency, electrification, et cetera, et cetera, right? We're going to pay someone else to do the hard work. So, because everyone thought that this was the case, I think it has fooled a lot of companies into making the same net zero pledge. Right?David RobertsRight. They think it's cheap.Joe RommYeah, we'll solve it cheap. But the whole point is, once the country has to give up those tons, then it has to say, what is the correct price of those tons? The correct price isn't how much it cost me to do this project, it's the replacement cost.David RobertsRight.Joe RommAnd so the World Bank came out in February with a paper which explained all this, because I was sort of figuring this out and I said, this can't be true, this is all ridiculous. So the World Bank came out in February with an analysis which basically said the following: These tons aren't cheap. First of all, the offset projects themselves won't be cheap because the offset projects were only cheap before because they weren't real. Right? So they didn't say that. I'm putting in some color commentary, but basically, these projects are going to be more genuine because, as you said, Brazil isn't going to give up tons.Right. In other words, if Brazil was going to reduce these emissions anyway, right. The additionality problem, Brazil's never going to sell tons it was going to do anyway to some other country, right. Because that's rendering the action meaningless for them. So what the bank said is first of all, the tons are going to be more expensive because they're going to be realer and there's going to be fewer in each deal because the seller isn't going to want to inflate them. So the point is, the deals are going to be more expensive, a), and b), there has to be a price for giving up the corresponding adjustment.And what the bank said is the actual price is going to be somewhere between the cost to the seller to purchase the last ton it needs to meet its 2030 target, right? Because it's adding those tons on at the end, right. If you see what I'm saying. So all of those tons are it sold off the cheap emissions reductions, tree planting, whatever you want to say, shut down some coal plants, whatever is easy, right? The hard stuff like steel or concrete, all that stuff, that stuff the United States isn't buying. So the bank said the actual price for these tons should be at a minimum, what it would cost the developing country to meet its last ton.But then it added the following, which is what I basically thought, which is in fact, the actual price isn't the marginal cost for the developing country to meet the last ton, it's the marginal cost for the rich country. And this is a very important point. Imagine a world where these authorized offsets are $50 a ton. But if you look at the models, and the World Bank published the results of a GCAM model that had been done, of what it would cost countries to meet the 2030 target, the marginal cost for the US is $155 a ton for the EU and Japan, it's more like $120 a ton.The EU Market, right, the closest to a real ton on the market is what's traded on the European trading system. It's a European Union allowance. And those are currently sitting around $90 a ton of carbon. They've been oscillating between $80 and $100 a ton for the last year or so. So that's closer to a real emissions reduction by a developing country. So the point is, if these authorized offsets were being sold by Brazil and developing countries for $50 a ton, and it cost the United States at the end, $155 a ton to meet its hardest target, it's just going to keep buying the authorized offsets, right?They're going to bid the price up until it's much closer to what it costs the rich countries, because otherwise it'd be insane for the rich countries to do it themselves for $150 a ton if they could pay another country $50 a ton. So the point is, once everyone realizes this, once everybody reads my report or really starts to think about it, they're going to realize that these tons should not be sold except at at least $100 a ton.David RobertsIf we could, just — to bring this full circle. So if you're selling reductions to another country, you're not double counting, you're verifying that they're long-term permanent reductions. If you're dotting all your I's crossing all your T's and properly pricing these things, that basically the buyer is going to end up paying as much as they would need to pay to reduce their own tons.Joe RommYeah, the final ton.David RobertsWhich gets you to the final conclusion here, which is what is the point of all this anymore? If the offset markets were rational, were not double counting, were high quality, were verified, they wouldn't really pose any price savings over just reducing your own emissions in the first place.Joe RommRight.David RobertsSo what is the point of having them at all?Joe RommRight, and that is the important point. This is the thing that should have been obvious once the Paris Accord started to be put into place. If everyone in the world has to go down to zero, then it doesn't make any sense for you to sell off any of your cheap tons, right? You've got to keep them for yourselves.David RobertsRight.Joe RommSo someone might say, oh, but there's going to be all these negative emissions tons out there, right? There's going to be bioenergy carbon capture storage. There can be direct air carbon capture and storage and then we can plant an unlimited amount of trees. And I'm working on papers on all of those and people just need to understand that none of those are scalable. Trees are not scalable. Direct air carbon capture storage is not scalable, certainly not by 2050. And bioenergy carbon capture and storage is not even a climate solution. And I love doing coming out of an analysis in September with some original modeling by one of the best modeling groups in the world that are basically going to show that bioenergy carbon capture and storage not only isn't a solution by 2050, it would probably warm things up.But in any case, there is no net zero. There is only zero. There's no free lunch. Everyone is going to have to reduce their own emissions and some may take longer and some may take sooner, but it doesn't matter. Anyone who sells off their cheapest emissions reductions now to anyone else is one of two things. Either they're making a mistake or they're not going to honor the agreement.David RobertsRight? So offsets made sense in a world where some people were reducing and others weren't, or some people had to reduce and others didn't.Joe RommRight.David RobertsBut in a world, in a Paris world where everybody's going to zero, it's just a shell game. Like you're just moving these things around. In the end they all have to be reduced. Like in the end the money is the money. The reductions are the reductions. Everybody's got to reduce to zero. So the whole justification for the shell game of buying and selling these reductions has kind of like vanished out from under the market.Joe RommIt has. And I just want to use a little bit of history. The reason I think people got the wrong impression for two or three reasons. One is when carbon trading was first set up, right, the famous acid rain program, sulfur dioxide program that was set up under George H. W. Bush, that was a 50% reduction. Right. Now, in a world where every company has to cut its emissions 50%, it makes some sense if one company can easily reduce down 60% to sell those 10% to another company, that can't easily get past its own 40% reduction.David RobertsRight, this is just trading. This is credit trading. It's the whole economic justification for credit trading in any context.Joe RommRight. That's the market efficiency. Right? This is the efficiency in the marketplace. That was why economists and corporations liked that. But again, if we imagine that the acid rain program said everyone had to take their sulfur dioxide down to zero and there was no way to pull sulfur dioxide out of the air, then it would have been, again, crazy, right, for some company to sell off some extra, easy — there is no extra emissions. Right. The point is, there's no extra.David RobertsThere's no such thing as extra. There's no away.Joe RommYeah. And in this sense, by the way, even the European trading system, people will come to realize, doesn't make a lot of sense. It's good for price discovery. Those markets are very good for price discovery. How much does it really cost? And there is a 2030 target, right? Everyone doesn't have to go to zero by 2030. But when you think about it, why should Brazil sell some tons to France to meet its 2030 target when by 2050 everyone's going to zero?David RobertsYes.Joe RommI mean, you might say, oh, well, by 2050 we'll have a lot of new technologies and maybe we will. And I'm not here going to tell you what is going to exist in 2045 or not, but I think the main message is that ultimately what Paris means is you got to reduce your own emissions.David RobertsAll right? So we've established here that in a world where everybody is going to zero, it doesn't make a ton of sense to shuffle around. It certainly doesn't make sense to sell your cheapest reductions when you have to get to zero, because then you're going to just end up having to make much, much more expensive reductions at the end, or do carbon DAC or something like that at the end, which may or may not even be possible. So the whole point of shuffling around emissions between entities has kind of lost some of or all of its rationale in a world where everybody's going to zero.So then, a question. Let's take it back to the beginning, because a lot of the reason the voluntary offset market exists in the first place is that there are lots of companies and entities who, with varying degrees of good faith, want to do good things on climate and are pushed to by their customers, by their employees, want to do something good. So if you're telling them going out on the voluntary carbon market, buying these offsets and then claiming you've reached net zero is BS, complete BS. It's physical BS, it's accounting BS, it no longer makes any sense anymore.What should entities who want to help and do good things, what should they do in light of this?Joe RommWell, it is a challenge and I've been asked that question. Certainly, one thing you can do if you really want to do, quote, unquote, an offset is anyone can go to a broker and buy tons on the European trading system and retire them. Just as people did buy into the sulfur, as you know, I'm sure you remember people did buy sulfur allowances and retired them. So yes, that can be done. I mean, I suppose if it were done a lot, then the European Union might limit it. But I would say yes, you can go to the market and do that.And do you know, companies like Microsoft are funding like direct carbon removal, except that's like $500 a ton. And the point is that at that price right now, for a few dollars a ton, right, a few dollars, you can supposedly offset your airline travel, right. If the price were $100 a ton, it would cost like a third of your ticket. So a lot fewer people are going to do that, needless to say.David RobertsRight. So you can buy verified actual carbon reductions in that they're burying them and sealing them in the ground permanently if you're willing to spend whatever, $500 a ton. So your plane ticket would then be, whatever, $10,000, right.Joe RommExcept of course, as we said, you can't do that if those tons belong to another country that has its own need to reduce its emissions. That was the mistake that Microsoft made, and I admire Microsoft because they made a leading-edge commitment. They committed not only to offset all of their emissions and go down to zero without offsets, I believe, but they said they were going to offset all of their emissions since the company was incorporated.David RobertsYeah, I mean, Microsoft, I think, is acting in good faith. That's like a good example here.Joe RommExcept the problem is, and I've talked to people about them, those tons don't exist. And I don't think Microsoft realized when they made the commitment. And I think somebody out there, hopefully someone knows, someone high up in Microsoft, they are stuck with this commitment at a corporate level. But those tons don't exist unless you do the double claiming stuff. Unless you do the stuff that's obviously ridiculous. And because Microsoft has said we only want to do high-quality tons, right, they did a whole RFP for tons and they rejected 98% of the projects that were proposed to them and said we are only to do high-quality offset and removals.And I will tell you, I spent weeks trying to convince Microsoft that this was not a high-quality removal project, but I'm hopeful someone else out there can persuade them to stop doing this particular deal. I think that is going to be a challenge. Yes. There are a lot of companies out there that have made a net zero commitment without realizing, thinking again, that there was this vast sea of cheap tons in the poor country. The notion that the rich countries could skim off the easy tons from the poor know that's like climate colonialism or climate imperialism.And the other thing I would say to your audience is, right now, Singapore, Switzerland and South Korea are going around to developing countries and buying up tons. And I would love to see those contracts because my guess is they're selling those tons cheaply and they may be agreeing to have them be authorized tons and therefore they may not realize that they are basically being ripped off. And I believe that, as I say, one of the reasons I wrote the paper is so everyone in the market needs to have full information so we can't arbitrage anyone's ignorance. But the other thing is, it makes no sense to rip off anybody in this market because, again, it's voluntary.And if a developed country in three years said, wait, you guys ripped me off, they could just say, I'm voiding the deal. Right?David RobertsYeah.Joe RommWe reduced our own emissions, you can't force us to do anything. So, yes, this is a collaborative effort by the entire world to get as close to zero as possible, as quickly as possible.David RobertsYeah. I mean, maybe this even goes without saying, but I feel like the answer to what a company or an entity of goodwill should do is just reduce your own emissions.Joe RommYes.David RobertsAny entity, any country. That is job one, two and three. Right? Like, do the hard work of reducing your own emissions. That's what everybody's going to have to do eventually. And all of this sort of financial shell game to put off that reckoning, I just feel like should be over at this point. Everybody should be reducing their own emissions. And the one thing and maybe we can wrap up with this is just these BS claims of net neutrality have been circulating so long and are so casually used and are used by so many companies now that the companies that do pivot to the hard work of reducing their own emissions are on an accounting level or a PR level, going to appear to be reducing less emissions.Right. So I wonder if there's any way to sort of give them the reputational boost they deserve when they reduce emissions the right way. Do you know what I mean? How do we incentivize companies to do this the right way?Joe RommThat is definitely the challenge. I think that we can certainly do the reverse, which is to publicly criticize the companies that are doing this the wrong way. I think I said that there is one body that could at least solve a lot of this problem, which is to say the UN Framework Convention on Climate Change in Egypt, the Cop 27. The nations of the world considered, or at least the group that looks at this, considered, the possibility of banning voluntary offsets of this nature that help someone achieve their NDC, achieve their Paris target and they punted. But the fact is that if the nations of the world got together and said, if you don't have the corresponding adjustment, you don't have a real offset, they could do that.I mean, again, people could ignore them. But at know my feeling is that the mere fact, and I think people have some people have caught onto this, the mere fact that the nations of the world unanimously decided to call something an authorized offset is a pretty good indication that anything else isn't real. I mean, you could call it an unauthorized offset, but the point is one of them is in the globally recognized inventory of countries working to actually solve the problem, right? That's the real thing. Anything else is pretend. And I recognize these are very tricky issues for the nations of the world to come to agreement on, but ultimately also it's up to developing countries.You may have seen in the news that Zimbabwe, I think, was a month or two ago, publicly announced that all future offsets, that no company or entity can do an offset deal with a company in Zimbabwe. They have to go through the government. The government's going to take half the money, a quarter of the money is going to stay in the country on the project, and only a quarter is leaving the country. And I think you're going to see as more and more countries realize what's going on here, they're going to have to stop any deal that doesn't go through the country, because it's only the country that really can officially sell one of its own towns.And this is what it comes down to: Ørsted had no right to sell those tons to Microsoft because they weren't Ørsted's tons, they were the Danish government's tons.David RobertsSo the take-home here is: Reduce your own friggin' emissions.Joe RommYeah.David RobertsJust quit looking around for accounting gimmicks and just reduce your own emissions. And if you want to help fund emission reductions in developing countries, which is a perfectly wonderful and virtuous thing to do, do so. Just do not claim that you are thereby reducing your own emissions.Joe RommRight. Just say you're making a contribution claim, mitigation contribution. You're doing a good thing. And as we both know, the rich countries really actually have a responsibility to help the poor countries.David RobertsYes.Joe RommLet's not forget that part of things.David RobertsThanks so much for this, Joe. As I said, I knew offsets were dodgy, but the depth of the dodginess was a revelation. So thanks for coming on and clearing all this stuff up for us.Joe RommThank you.David RobertsThank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at Volts.wtf. Yes, that's Volts.wtf so that I can continue doing this work. Thank you so much and I'll see you next time. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.volts.wtf/subscribe