Diego Saez-Gil, Pachama & Sam Gill, Sylvera
Diego Saez-Gil, Founder/CEO at Pachama
Sam Gill, President/Cofounder at Sylvera
Forestry carbon offsets were designed as a financial tool to provide an economic incentive for landowners to make alternative decisions, to pay landowners to keep their forests intact in the case of deforestation avoidance credits or to orest previously damaged land in the case of reforestation credits. The money for this economic incentive comes from large actors who can then take "credit" for their action and apply it against the carbon footprint of their own organization. This is a carbon offset. In the simplest terms, if part of a company cannot decarbonize quickly, but still aims to achieve net-zero emissions, they can pay a forest landowner to preserve their forest and take an agreed upon amount of carbon off their balance sheet accordingly. And it’s a relatively new thing. Forestry carbon offsets have become a popular product over the last decade, and like any maturing industry, it has challenges.
Diego and Sam are here to walk us through why forests matter, the history of offsets and how they work, some of the challenges highlighted recently, and what they think the path forward looks like. Regardless of what you think of carbon offsets, this is a crucial problem to solve. Without an economic incentive to maintain and regrow the world's forests, any thought of avoiding the worst effects of climate change is out the window.
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Episode recorded on January 31, 2023.
In this episode, we cover:
Diego's background and intro to Pachama
Sam's experience and an overview of Sylvera
Forests in the world today and why they matter for climate
Risk of deforestation and the Amazon becoming a self-reinforcing negative feedback loop
How the story of biodiversity has changed from a forestry perspective
Economic levers at play with regard to forests, including reforestation and afforestation
The link between forest credits, offsets, and carbon markets
Problems associated with deforestation credits and managing illegal activity
The voluntary market for deforestation credits, who's buying and why
How deforestation credits are measured now and historically
Measuring reforestation and afforestation projects
Diego and Sam's thoughts on a recent article in The Guardian claiming that most forest carbon offsets are worthless
How Sylvera assesses forest projects and its reaction to The Guardian article
Pachama's approach to creating synthetic baselines and validating the uncertainty of predictions
Overcoming challenges through collaboration
Predictions for the future of forest carbon markets
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Jason Jacobs:
Hello everyone, this is Jason Jacobs.
Cody Simms:
And I'm Cody Simms.
Jason Jacobs:
And welcome to My Climate Journey. This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms:
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help.
Jason Jacobs:
We appreciate you tuning in, sharing this episode, and if you feel like it, leaving us a review to help more people find out about us so they can figure out where they fit in addressing the problem of climate change.
Cody Simms:
Today we have two guests, Diego Saez Gil of Pachama, and Sam Gill, no relation, of Sylvera, and we're talking all about forestry carbon offsets.
Forestry carbon offsets were designed as a financial tool to provide economic incentive for landowners to make alternative decisions, to pay landowners to keep their forests intact in the case of deforestation avoidance credits, or to reforest previously damaged land in the case of reforestation credits. The money for this economic incentive comes from large actors who can then take "credit" for their action and apply it against the carbon footprint of their own organization. This is a carbon offset. In simplest terms, if I have parts of my business that I can't figure out how to decarbonize quickly, but I want to get to net zero, then I can pay money to a forest landowner to not cut down their forest and take an agreed upon amount of carbon off my balance sheet accordingly. And this is a relatively new thing, climate change as a known global concern, well, it's only a few decades old. And forestry carbon offsets have become a popular product over the last decade or so, and like any maturing industry, it has challenges.
Diego and Sam are here to walk us through why forests matter, the history of offsets and how they work, some of the challenges that have been highlighted recently and what they think the path forward looks like. Regardless of what you think of carbon offsets, this is a crucial problem to solve, because without an economic incentive to maintain and regrow the world's forests, any thought of avoiding the worst effects of climate change are pretty much out the window. So let's dive in. Diego, Sam, welcome to the show.
Diego Saez Gil:
Thank you, Cody, for having us.
Sam Gill:
Thanks so much.
Cody Simms:
So we're here to really talk about what's going on in forestry and there's been a absolute tidal wave of news lately about problems with forestry offsets. And what I want to do today is first help us understand broadly the nature of forestry offsets, and then spend some time on the solutions like MCJ. We're not here because, hey, climate change is this insurmountable problem. We're here because we believe there are solutions. We believe that collectively we can innovate and we can have some optimism about the future. So I personally recognize there are challenges in this space. I generally don't think challenges are intractable.
Why don't each of you just give us a brief personal intro and just a brief kind of one liner on what each of your companies are working on as well? Diego, let's start with you.
Diego Saez Gil:
All right, let's do it. My name is Diego Saez Gil, I am co-founder and CEO of a startup called Pachama. Our mission is to help restore nature to solve climate change, and we use technologies such as satellite data, machine learning, cloud computing, and the internet to help modernize the world of forest carbon. And my background is that I was born and raised in the north of Argentina, surrounded by the beautiful Yunga Forest. I saw deforestation in South America growing up, and then life brought me to Silicon Valley. I became a founder, I spent 10 years helping build technology companies in the travel industry, actually. And then I had my climate awakening, I had my climate journey, and I ended up becoming very passionate about the problem of how do we help unlock this very important solution, which we're going to talk about? So four years ago, started a company from California and we have been building a lot of cool technologies since then.
Cody Simms:
And Diego, I think one personal story that probably is notable is you've even suffered personal loss due to wildfire. That was after you started Pachama, but I do think probably worth noting for people.
Diego Saez Gil:
Yes, I have several moments of personal contact with climate change and the environmental crisis. One was seeing deforestation in the Amazon rainforest on a trip that I did before starting the company and just seeing the impact firsthand. But the second one is, you're right, we actually started the company from a cabin in the Redwood Forest of California, and in the 2020 fires, my house burned down, which was very meaningful and ironic, and it made the climate crisis very, very personal.
Cody Simms:
Wow, and obviously still so sorry to hear that, and nothing like working on a problem that has incredibly personal connection points, so thanks for sharing all of that. And Sam, how about you and Sylvera?
Sam Gill:
So yeah, I'm Sam, one of the co-founders of Sylvera. Companies with net zero targets or carbon neutrality targets use Sylvera's ratings, carbon credit ratings and assessments, to make sure that the carbon offsets that they're investing in are high quality and have good integrity. So in the nature-based space, when we're looking at nature-based offsets much of the technology and the techniques that Diego and the team are working on, we're using very similar techniques and spending a lot of time thinking together about how we can innovate and drive transparency in the carbon credit markets.
My climate aha-moment was actually back when I started my career as a lawyer. So I used to work as a hedge fund lawyer, actually, so I used to set up hedge funds, specialized in financial regulatory law. A few years into that, I had a bit of a existential crisis, no offense to hedge fund lawyers out there, but I kind of felt like I wasn't making the world a better place, and so started a focus on funds that were investing in ESG type problems. And whilst I was doing that, I actually worked on a couple of carbon offset transactions and actually, it was working on those transactions that exposed me to the issues with transparency, the issues of data integrity that were kind of driving a lot of the issues in the market. And so it was that experience that led me to found Sylvera with Allister, my co-founder, back in 2020.
Cody Simms:
Well, great. Thanks, guys, for that quick intro. Let's start with just a bit of forestry 101.
Diego Saez Gil:
So the climate crisis is of course produced by humans doing activities that put too much CO2 in the atmosphere. And of course, the main source of CO2 is fossil fuels. We've been burning fossil fuels to produce energy, but the second source is that we've been burning and destroying forests, which are carbon sinks, right? We all know that when trees grow, they sequester carbon, they separate CO2, produce oxygen and convert carbon into biomass and sequester that in the ground. We used to have twice as much forest cover in the planet as we do today. But since the industrial revolution, we have deforested millions of hectares and we continue to deforest tens of millions of hectares every year. In 2022 alone, we lost 11 million hectares of rainforest.
So it's a very exciting opportunity for restoration and regeneration. And then of course, we need to drive deforestation to zero. Without doing it, we are not going to be able to achieve the targets of the Paris Agreement, which is to not warm the planet more than 1.5 degrees. So it's been recognized at the UN and at every climate convention that stopping deforestation and starting a massive reforestation movement is a critical solution to climate change. And if, Sam, you want to add anything to add?
Sam Gill:
I mean, the only thing I'd add is actually both Diego and my team here at Sylvera, we're using LIDAR data to try and increase our understanding of the planet's forests. What we're finding with our data, it'd be interesting, Diego, if you're seeing the same, is that actually at the moment we're underestimating the amount of carbon stored in these forests. So not only is it already, with our current scientific understanding, a completely vital part of the puzzle, we're probably underestimating both the emissions from these ecosystems, but also the potential for these ecosystems to contribute to the solution. So it really can't be overstated how important it is that we crack this piece of the puzzle.
Cody Simms:
And as I understand it, just to give us a sense of scale, that the Amazon today by itself is absorbing roughly just under 10% of all atmospheric carbon, right? So it is by itself, just the Amazon rainforest, one of the largest carbon sinks in the world, somewhere in the neighborhood of two gigatons per year of CO2 absorption. And yet, now we humans in the last century have deforested getting close to 20% of the Amazon, and there's some tipping point there that we're not too far off of, up toward 25%. And maybe let's talk about what this tipping point means, where all of a sudden the Amazon might move into a negative feedback loop from fewer trees producing less water, which basically cause forest drying, which accelerate deforestation, et cetera. Either one of you want to talk through a little bit of the risk of deforestation, not just from the, hey, there are less trees today that are absorbing carbon, but that actually it becomes a self-reinforcing negative feedback loop?
Sam Gill:
I think the basic principle here is that the forests themselves actually have a huge amount of influence on the local climate in which that forest is present. So they actually make the climate much more moist. So the very presence of a forest creates, on a simple level, it creates the conditions that make that area suitable for the forest to thrive. So it's actually very much possible that ecosystem, if you remove too many trees, you get to the point where actually there's not enough trees to maintain that moist, rainy environment that allows the Amazon to thrive and be so productive. And so if we remove enough trees to the point where we get to that tipping point, actually it'll flip to starting to be, firstly like a savanna area, and then the bits on the southernmost tip will become more like a desert, actually. I don't know, Diego, do you anything there?
Diego Saez Gil:
Yeah, no, it's a critical point. There wasn't a lot of scientific studies until recently about those tipping points and the interconnection between other planetary boundaries. And if anybody's interested in this, I recommend the work of the scientist Johan Rockström. There's a Netflix documentary about planetary boundaries in which they expose all the studies that are being done, and the problem with climate change and the environmental crisis is that one thing connects to the other, warmer temperature in the planet leads to more fires, more fires leads to more loss of the forest. And again, the tipping point is that at some point, it can start to become a savanna.
And if we lose the Amazon rain forest, not only as a carbon sink, but as a producer of clouds and river that have other implications on agriculture around the world, so we're talking about a very, very interconnected series of relationships are the planetary scale. And that's why Sam was saying, I think, that it's underestimated the carbon and climatic impact of deforestation and forests. And another thing about that is that most of the data that we have about forests was developed in the north, right, in the US and Europe, based on boreal forests. A lot of the forestry science that is taught in universities in the US is based on boreal forests. And now there is a lot more findings about, again, the carbon capacity, the potential that these ecosystems have to rebound and also the weaknesses that they have. So it's important to continue contributing to the science to understand the full impact on climate of tropical forests.
Cody Simms:
So I think one thing that I think is important for us to not lose sight of is obviously negative feedback loops and the potential for devastation are awful. And yet, also the opposite is true, which is there are positive feedback loops that emerge from caring for our forests the proper way. One of the things, to me, that's most exciting about forests, thinking with my technologist hat on, is forests scale by themselves, they scale exponentially. A healthy tree begets more trees if it's in the right place. Think about that compared to direct air capture where every time you want to expand the capacity, you have to build a new direct air capture facility.
A forest, if it's healthy, multiplies, it's a biological process. And so part of the goal here, in addition to carbon sequestration, to me, is the biodiversity importance of ensuring that the forests are healthy and can self replicate. When I was a kid, which was in the 80s and 90s, the conversation about the Amazon rainforest wasn't about climate change, it was about biodiversity and ensuring biodiversity continuation. How has that story changed from a forestry perspective over the last couple of decades?
Diego Saez Gil:
Yeah, I guess I can comment that indeed, I mean, biodiversity is incredibly important for humans and for the Earth system in and of itself. But more recently was brought into awareness, the importance of the climate impact of tropical rainforests. And you're right that when you protect a forest, you allow for its regeneration, which removes carbon. So it's not just keeping the carbon sink, but it's also removing additional carbon from the atmosphere. There are many tropical forests that are degraded and they can rebound to their full potential. And then of course, we also need to do, as you were saying, reforestation all over the world, boreal forests can also be restored and they can also very quickly expand and remove huge amounts of CO2 from the atmosphere.
Cody Simms:
So let's go into the economic levers at play that help support this. We've talked about preventing deforestation, we've talked about reforesting areas that have been cut down. There's also the term afforestation, which maybe one of you can define for me. And maybe you can help walk through these sort of different categories of products that are currently being offered to the economic marketplace today to achieve some of these goals?
Sam Gill:
So the way I kind of split reforestation and afforestation is basically about are you restoring an area which used to have forestation on it? So it used to be a forest and it's been degraded for some reason, usually by human activity, or are you looking at an area which previously wasn't a forest and you're establishing a new forest? So that's afforestation, and then reforestation would be the restoration piece. So yeah, that's the difference between the two.
Cody Simms:
Great. And then same on carbon and inset offset.
Sam Gill:
Sure. So the difference between an offset and inset is basically whether the activity that's taking place, that it happens within the value chain of the company that's claiming the climate impact. So for example, if you were to look at Nestle, Nestle has a huge land management footprint. It has hundreds of thousands of farms all over the world that are supplying it. And so if they undergo activities, for example, reforestation or afforestation activities within their value chain, I'd call that an insetting activity. Whereas if they're purchasing offsets that have been accredited by a external standard and then they're basically netting those off within their carbon accounting exercise, those are offsets. So they're basically importing climate activity from outside of their value chain.
Diego Saez Gil:
And if I can give more context on the link between forest and carbon crediting and carbon markets. So as we all know, the United Nations started creating conventions to bring the countries together to agree on targets and to drive action to solve climate change. So very early on, on some of these climate conventions, it was recognized the importance of forests as part of reducing emissions and removing CO2 from the atmosphere. So actually 10 years before the Paris Agreement, the idea of REDD+, of Reducing Emissions by avoiding Deforestation and increasing regeneration was introduced and it was proposed that countries and land stewards who intervened the land to avoid emissions from deforestation and for removals for reforestation should be credited, and that should be accounted as part of contributions to the targets of the Paris Agreement.
And then from there it emerged that not only countries had the responsibility to measure, reduce and compensate, but also corporations, of course corporations are big contributors to emissions and landowners are contributors to emissions from deforestation, right? So it was proposed also in the United Nations that for markets to participate on financing these carbon reductions by intervening on the land. And the voluntary carbon markets emerge by which, if a project stops deforestation and you can verify the additional carbon that is going to be kept on the ground and not immediately to the atmosphere, you can be credited for that. Or if you reforest, you can be credited for the additional carbon that you remove. And then companies can finance that as part of their compensation of the climate impact and is the only realistic way in which a net zero can be achieved at a planetary scale within time to achieve the Paris Agreement.
And that is the genesis of this idea of forest carbon offsets, forest current credits, which again, today are at this pivotal point in which we need to use technology to ensure the integrity, transparency, and the reliability of this mechanism for the long term.
Cody Simms:
And it would seem to me that preventing deforestation is a very different problem. It's all solving the top level goal of slowing climate change, but preventing deforestation has a different set of things you need to measure, a different set of negative feedback loops you're trying to prevent than reforestation, which has a completely different set of measurements and outcomes, at least in the near term. Is that a correct assumption on my part?
Sam Gill:
I think so. I think that there are some ways though in which you have to assess these similarly. So when you are looking at a deforestation project, so an avoided deforestation project, the really key thing here when you're quantifying the impact of these projects is understanding what's the business' usual scenario. So what would've happened if the project hadn't been in place to protect the forestry? And the way you quantify that is really important because if you overestimate the risk to the forest, then you end up issuing far too many credits. But if you underestimate it, then you could end up issuing too few credits and you actually underfund the project. So it's important that you quantify that correctly.
Cody Simms:
So just to make sure I fully grok that. So with deforestation, the credit is sold primarily as an incentive for the landowner to not cut that forest down, not get paid by someone else more money to cut the forest down. They are getting paid as a landowner more money to just leave the forest doing its thing. That's the ultimate goal, is that correct?
Sam Gill:
That's exactly right. And I think the problem at a planetary scale we have is that at the moment there is no way to reward or even value the services that a forest, a standing forest, gives to us as humankind. So all of the water benefits, all of the carbon storage, all of the biodiversity benefits the forest gives to us, that is essentially worthless if we were to measure them in GDP terms. But if you cut that tree down, suddenly there's a huge amount of value in that timber. You can then use that land to farm cattle, for example. And so suddenly that land goes from being worthless to being incredibly valuable. And so at the moment, the only mechanism we have to provide economic value to that landowner, and it's not to say it's the only mechanism possible, but the only mechanism we have at the moment is to use the carbon markets to pay that landowner for the benefits that that forest is providing, essentially storing carbon, providing water, protecting biodiversity.
Diego Saez Gil:
If I can add to that, so deforestation in tropical forests happens sometimes legally and sometimes illegally. So when it happens legally is that the government has given a concession or a permit to exploit the forest, and therefore the landowner can extract timber, can do agriculture, and in those cases we need to create an alternative to that economic activity that they are legally allowed to do. But in many cases, actually the majority of the deforestation is illegal. These are illegal operations that come into the forest in areas that are protected, theoretically, extract timber, do illegal mining, do illegal cattle ranching. So sometimes you also need to finance efforts to stop that illegal deforestation, to surveil and to help the local communities get empowered to stop deforestation and to create other economic activities that would make the communities sometimes know illegally to not do it. And that is a very complicated problem. It requires a lot of stakeholder engagement and community collaborations, a lot of different players on the ground that need to come together to make these efforts happen.
Cody Simms:
And I'm assuming these illegal actors on the land aren't going to be ones that all of a sudden are signing carbon offset contracts either, right? That's part of the challenge is this is happening regardless of how that land has already been designated in some way, shape or form. The offset mechanisms aren't supporting them.
Diego Saez Gil:
Well, but the carbon finance there can finance interventions by governments and communities to do more to stop that illegal deforestation, more rangers on the ground, more again, surveillance and monitoring tools to know where the deforestation is happening and going and reacting quickly. Otherwise, you don't know sometimes, the Amazon rainforest is so vast that deforestation comes from different corners. So you need that finance to help stop illegal deforestation.
Cody Simms:
And just to point out as well, because I don't want to have glossed over it, when we were talking about negative feedback loops previously, you also mentioned one of the primary reasons that the Amazon is deforested is for cattle, which has the double whammy negative feedback loop of not only cutting down the trees but then creating a large methane footprint to that land from the cattle grazing, as I understand it.
Sam Gill:
Yeah. And also when the land's converted, it actually isn't very suitable for cattle grazing. So also, the thing you find is that the land will be used for one, two, three years, and then it'll get to the point where it can no longer support the cattle. And so even further land has to be degraded in order to keep that sort of cycle of grazing going on. So the other thing we see is that deforestation begets deforestation. So when you see deforestation, it sort of builds up this head of steam, and so you get this exponential effect where even a small encroachment into the forest by whether it's the local community, illegal cattle ranchers, illegal deforesters, it will create a kind of inroad into that forest which will speed up and cause this exponential issue.
Cody Simms:
So with deforestation credits, then on the other side of the equation, who's buying them and why are they buying them today?
Diego Saez Gil:
The voluntary current markets emerge by which corporations are voluntarily committing to reaching net zero, and net zero done right means that you measure your scope one, two, and three. You invest heavily on reducing what you control and influencing your supply chain to reduce your supply chain's emissions. And then you compensate, you take responsibility for the CO2 that you put in the atmosphere. And how you do it, how do you compensate it? You can tap into this instrument called a carbon credit that can finance the reduction of an emission somewhere else in the planet or a removal of a ton of carbon from the atmosphere. And there is new rules being made by organizations such as science-based targets on when can you use avoided emissions, when can you use removals? But that instrument has been created so that company can then, as they are decarbonizing, which is going to take a long time to start having a positive impact on the atmospheric levels of CO2.
Cody Simms:
And most deforestation credits, we're preventing this tree from getting cut down, this forest from getting cut down. So that has avoided, I mean it's not avoiding the release of emissions, but it's avoiding the non-absorption of emissions, I guess is the way to think about it. Is that correct?
Sam Gill:
It's also avoiding the release of emissions because when you cut the tree down, essentially the carbon that's stored in the tree then oxidizes and is released into... And there's also wider effects because the carbon that's stored in the soils is then also released into the atmosphere. So you see this general degradation of this land that previously may have stored above 400 tons of carbon per hectare can sometimes drop into single tons of digits tons per hectare, so significant emissions.
Cody Simms:
And so the primary offsets that are being sold today for forestry fall in which of those categories? Is it attempting to avoid the release of the degradation of the tree and the carbon it releases back into the atmosphere? Or is it funding the avoidance of cutting that tree down in the first place to ensure that it's continuing to absorb carbon? To me, it feels weird to try to, yes, both of those are very beneficial, but from a financial perspective, it feels like you need to be really clear on what you're purchasing, at least from my perspective.
Sam Gill:
That's a really good question. So the majority of the credits out there at the moment are basically financing the avoidance of the emissions that comes from degrading that ecosystem. And interestingly, it's quite rare to see in the carbon accounting and inclusion of the ongoing environmental services that that forest provides to the planet. So whilst that piece of forest, if it's protected, does actually keep on sequestering carbon, that's actually not usually factored into the accounting for those projects. So what you're actually financing is the avoidance of the emissions.
Diego Saez Gil:
And what I would say is that the majority of credits on the market today are from avoided deforestation. The second category I would say is what's called improved forest management, which is another type of project in which what you're doing is you're delaying the harvesting or reducing harvesting of working forest generally in North America or in other geographies, non-tropical forest. And you can get credit for the additional carbon sequestration that these working forests will produce as a result of these more sustainable practices. And then finally, the smallest category today, and we hope that that changes in the future because we need a lot more, is reforestation, regeneration, agroforestry, which effectively removes CO2 from the atmosphere. I believe that we need the three types of projects, we need an exponentially higher number of projects of all the categories above. And then of course, which is a topic at hand, we need to make sure that for any of these projects, one ton is effectively one ton of CO2 that is not in the atmosphere as a result of the interventions.
Cody Simms:
We're going to take a short break right now so our partner Yin can share more about the MCJ membership option.
Yin:
Hey folks, Yin here, our partner at MCJ Collective, want to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019 and have since then grown to 2000 members globally. Each week we're inspired by people who join with differing backgrounds and perspectives. And while those perspectives are different, what we all share in common is a deep curiosity to learn and bias to action around ways to accelerate solutions to climate change.
Some awesome initiatives have come out of the community, a number of founding teams have met, nonprofits have been established, a bunch of hiring has been done, many early stage investments have been made, as well as ongoing events and programming like monthly Women in Climate meetups, Idea Jam sessions for early stage founders, climate book club, art workshops and more. So whether you've been in climate for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to Mcjcollective.com and click on the members tab at the top. Thanks and enjoy the rest of the show.
Cody Simms:
All right, back to the show.
This is super helpful and thanks for bringing it back to reforestation as well, certainly an area that we wanted to come back to and make sure to explore. Before we dive more deeply into that, Diego, just making sure I understand then from a measuring avoided emissions perspective, how is it measured? What is the mechanism? MRV measurement reporting and verification, I believe, is the phrase that gets thrown around a lot. How do you measure a plot of forest and the assumption that if it were cut down, this is how much CO2 would be released from this plot of land?
Diego Saez Gil:
[inaudible] go to what's called baselines. You need to establish, as Sam mentioned before, what is the baseline of business as usual? What is expected to happen if you don't intervene to stop deforestation, right? And here we are getting into the very tricky field of predicting the future, right? You need to make a prediction of what will happen if you don't intervene, and then that's how you project how many credits a project will receive. And then you will verify over time the actual avoidance of deforestation and what is the carbon impact of that to issue the credits. Now, there are different ways that you can do that. In the past, methodologies had guidance, but projects had some space of work to define what is the expected deforestation in an area based on local drivers of deforestation, local realities of the region and so forth. We have been proposing that you can today, with the technologies that we count, we've come up with an algorithmic dynamic way of coming up with those baselines.
We can use historical satellite data, we can use artificial intelligence to select reference regions around the project, considering the key drivers of deforestation such as elevation, slope, vegetation type, closest to roads, closest to rivers, closest to economic activity. And then that algorithm can objectively create a prediction of what will happen. And then a year passes and the algorithm revisits what's going on in the region and re-establish the baseline. And we think that that is the way forward for these baselines of deforestation, which again is a key driver of the crediting volume. And right now, the industry's at this turning point in which this market started 15 years ago when we didn't have satellite data, we didn't have artificial intelligence, we didn't have cloud computing, and therefore we didn't have the tools to ensure a more high certainty way of establishing baselines.
Cody Simms:
And so how was it historically, or even probably today, in most cases actually measured?
Sam Gill:
Yeah, so historically what you'd do is you'd select an area which you would say with the best confidence possible was representative of the project area. So it had exhibited similar topographical features, similar deforestation drivers, similar forest type, similar proximity to roads or similar proximity to habitation. And you would use the deforestation scenario or the deforestation scenario that was exhibited in that project to predict what you think would happen to that project area. But that's quite easy to game, and that's been some of the issues historically that the market has faced because it's not necessarily easy to find an area which acts as a good proxy for the project, we know one might not even exist.
But if you were being cynical, it would actually be quite easy to choose an area which might actually exhibit much greater deforestation risks than the project itself. And that's actually been some of the historical issues that we've sort of seen spoken about. So I think one of the advantages of what Diego's describing is it's much more objective, and it also takes into account the fact that some of the deforestation drivers in the actual deforestation risk exhibited in the project area might not actually reflect completely identically the deforestation risks in another area of the forest. So these synthetic baseline techniques actually allow you to, with a much better degree of accuracy, synthesize the risks that the project is actually exposed to, and then so more accurately set the likely deforestation scenario for the project.
But it's also really important to look at other factors as well. So geospatial data and satellite and technology give us a huge part of the answer, but you also need to understand exactly the activities that are being implemented by the project to stop the deforestation because that will give you a good sense of whether the project is actually responsible for a change in pattern. You need to understand the socioeconomic drivers and sometimes understand some of the local context. And you also need to understand the policy and regulatory and legal context that the project's taking place in. So there's lots of factors you need to take into account when you're trying to understand the actual risk that a project's faced with. And ultimately you are answering a question that we can never know whether your answer is right. You can't predict the future, but what we're able to do is do that with a lot more confidence than some of the previous techniques.
Cody Simms:
We're going to come back and spend almost the rest of the conversation on this topic and sort of the solutions to this. Before we do, I just want to close the chapter on reforestation and sort of come back to that and how is that measured as we finalize conversations about measurement? You plant a tree or a set of trees, what are you looking for over the next five, 10 years in terms of being able to sell that as a valuable credit?
Sam Gill:
I think interestingly, there's a similar problem in reforestation. I think when people look at reforestation, they think, "Hey, surely this one should be completely simple, surely planting a tree is always going to result in climate impact, and the finance that goes towards is always going to be responsible for the climate impact." But actually, you have to ask a similar question when you're looking at a reforestation or afforestation project, you need to understand is this planting, tree planting, is it net additional planting? Would this planting have happened before anyway? So a lot of the projects out there are actually commercial plantations that would've gone ahead without the revenues that the project has commanded through the climate finance. So you really need to understand is this actually net additional planting? A good indicator is often that the project is biodeverse restoration and it's restoring the project back to being biodiverse forestry.
But sometimes you can get agroforestry projects that are additional, but you do need to assess that counterfactual with the forestry, so that's actually a really important piece. And then the other two pillars you need to understand are, is this project doing what it said it is? So that's where the MRV comes in, you need to understand and track and monitor, has there been, for example, some mortality issues in the planting? So have the saplings died off or are they continuing to grow and are they healthy? And then you need to understand the long-term risk that that forestry project is exposed to. For example, is the project situated in a moist area where there's good rainfall and the project is going to be sustainable in the long term? Or are you investing in a project that actually is at high risk of drought or fire? So there are issues that you need to monitor with reforestation projects too, but they tend to be more simple at an abstract level.
Cody Simms:
And in both cases, are monitoring these things over time, like requiring humans to be walking among the trees and sort of measuring and sampling and looking at things?
Sam Gill:
Yes. So with the MRV, the technology that is now capable in terms of tracing these projects is really quite incredible. So in the most part, you don't actually need humans on the ground to verify what's going on. In the early years, it is helpful and it is quite difficult to monitor very, very young saplings, for example in the first two years. But even that is possible with very high resolution satellite data, specifically if you rely on synthetic capture radar to supplement optical data. So these days we're in a point where actually we can rely mostly on the technology to verify what's going on.
Cody Simms:
Great. Okay, so this is super helpful, just base-lining it. It's a complicated topic. It doesn't seem like it should be complicated, but as we've just spent 40 minutes unpacking, it's a complicated topic. And so let's add to it where some of the media recently has highlighted where some of these complications seemingly are causing large problems. So The Guardian in the UK recently came out with an article that said that 90% of rainforest credits, [inaudible] and rainforest offsets that are sold through Verra, the largest broker of these types of offsets are phantom credits. They said that only a handful of these projects showed evidence of deforestation reductions, meaning that many of these projects were being sold even though the forests wouldn't have been cut down in the first place, according to The Guardian, and that the threat of these forests being cut down was overstated by 400% plus. So what is causing this? A, do you agree with the findings? I'm sure you both have spent a lot of time digging into what they've reported on, and B, what are your reactions and takeaways there?
Diego Saez Gil:
I guess first and foremost, I believe that it's a very positive thing that this topic is getting more attention and attracting investigative journalism and scientists who want to spend more time researching how to measure, how to establish baselines and so forth. So yeah, The Guardian article came out based on some scientific researchers that were published recently. I think that if you only read the headlines, you walk away with a very misguided representation of the state of the market. But I do think that the article and the studies point to real problems, which we were talking about, which is that first generation of avoidable deforestation projects, it was difficult to establish high certainty baselines with the tools that we had at the time. And as a result of that today, there is an alarming number of projects that can be characterized as over credited, and that is a problem. That is a problem because we want to make sure that all claims on net zero and climate action are correct.
But what we also like to say, I mean, Pachama has evaluated dozens of projects that are actually correctly credited or under credited, projects that were very conservative on their baselines. So I think that it's very important as the phrase says, not to throw the baby with bath water, there's a lot of incredible projects that took a lot of effort to establish and causing a very positive impact. But we also think that these articles are a great spark to brainstorm together. How do we move forward and how do we embrace these technologies that are available today to improve the methodologies and to improve the techniques by which all projects in the future get credited? If you think about carbon markets, the future is much more important than the past because in the future we hope to help remove and avoid hundreds of millions of tons, so it's incredibly important that we establish very solid tools and methodologies for newcomers into the market.
The studies that were published use the same techniques that we're talking about, using algorithmic reference regions and trying to come up with an objective human out of the loop type of baseline. And we think that these techniques are valued, there are other techniques that are being proposed, and there is also the idea of making sure that projects are nested into national accountings and coming up with country level risk maps of deforestation. So overall, I would say that this is a great conversation to be had today because there are many groups such as Sylvera, Pachama and many others who are working very hard to bring the solutions forward.
Cody Simms:
Yeah, double-clicking on that, having a national level view of risk maps as an example, great suggestion there, Diego. One of the researchers in the article that was quoted is a professor of ecosystem science at University of Oxford, and he basically says the challenge isn't around measuring carbon stocks. The measurements, the technology's there today, as you guys have both said, to properly measure the carbon stocks in these forests. The challenge is about reliably predicting the future, what would've happened to this forest in the absence of the offset? And he says, peering into the future is a dark and messy art in the world of complex society's politics and economics. Sam, your job at Sylvera is assessing these projects as an unbiased third party. How do you do that? How do you look and predict the future of what would have happened to this particular plot of forest?
Sam Gill:
That's a really good question. So the way we assess these projects is by deploying a plethora of different tests. And I think it's really important to highlight that in some areas those tests will be very telling and in some areas that those tests won't tell us a huge amount at all. And I think that's the really important thing about this type of analysis. So for example, when we assess a project, we'll look at, for example, if it's used a proxy area, how has it selected that proxy? Has it done that well? On what basis has it justified that proxy? If they've projected deforestation, we'll look at the deforestation exhibited in the reference region or that proxy region that they've selected. We'll also look at the deforestation rates surrounding the area. We'll also look at the activities that the projects is implementing. We'll look at the, for example, the deforestation trends around it, the agricultural practices.
So we deploy over a hundred different tests to assess a project and to really get to the detail and really understand what's happening in that particular local context, you really need to go to that level. So I think the really interesting thing about the study that was released and what's highlighted by the guardian is that it's actually deploying one of the tests that we use and it's a very helpful test to apply. And they're actually using a fairly similar technique to that which Diego was highlighting, so essentially using a synthetic baseline to highlight whether the projected baseline of the project is accurate and justifiable.
But I think, as Diego said, when you are synthesizing a baseline, it's very important to look at which factors you're selecting. So for example, you could look at the forest type for the project, you could look at its proximity to state capital or a large population center. You could look at its proximity to other frontiers of deforestation because we know proximity to another frontier of deforestation is a very, very strong leading indicator of deforestation. You could look at things like the agricultural practices in the area, you could look at the topographical. So there's lots of factors you can select when you're creating your synthetic baseline.
I think the interesting thing about what the study that the article focuses on is it selects a few very interesting and pertinent factors put into its modeling. And then the study identifies a series of projects, which when you apply those series of factors, it appears that the project is overstating deforestation. But that's not necessarily the be-all and end-all and an unequivocal answer for all of the projects considered. So in some areas it will reveal that some projects have been overstated, but for example, the model doesn't include proximity to frontiers of deforestation. So we actually published a article where we kind of identified and dug in a little bit into the claims in the article. And we actually showed a project, which when you look at it geo spatially, so you look at it with the satellite data, you can actually see all around the project, it's surrounded by deforestation, it's just eating and it's just this little patch of intact forestry.
Cody Simms:
So Sam, let me double-click on that, make sure I understand. So most of these offsets are sold today, assuming human-based deforestation, it's going to be cut down for timber, it's going to be cut down for cattle grazing, it's going to be cut down for agriculture, et cetera. You're saying, "Hey, wait. We already have these negative feedback loops where forests are drying out, they're causing sort of nature-based deforestation, and many of the credits that are sold or that The Guardian's article and research were sort of claiming as being potentially false credits might not have been taking into account, just this natural deforestation that's starting to occur because of climate change." Is that correct?
Sam Gill:
Not quite. So I think what I'm basically saying is when you're looking at the factors that they're taking into account when they're basically determining whether the deforestation would've occurred or not, they're not actually taking into account the local factors that are displayed around the project area. So for example, the project that we highlight on our blog when we are looking at this, the project has actually got deforestation all around it. But because the study basically selects a alternative like a synthesized baseline area, it shows up and the area that they select doesn't have a huge amount of deforestation. It makes it look like that project is massively overestimating the deforestation scenario the project is exposed to. But when you look at the project and you look at the local context of the project, you can actually see there's a huge amount of deforestation around the projects, and so it's evidently highly threatened.
So I think what I'm trying to highlight is the fact that if you use these synthetic techniques, that actually can be very, very helpful in getting an understanding of the deforestation dynamics that are at play around the project. But you shouldn't, and you have to be careful not to overstate the conclusions that you can draw from applying that test. You have to use a multiplicity of tests to really understand what's actually going on in that project area. So that geospatial test alone isn't going to tell you everything. So I think it's really important that when we're assessing the extent of the problem, that we actually use a variety of methods and a variety of techniques so that we get the whole picture.
Cody Simms:
So, Diego, you're out originating projects directly. How do you assess? What's your methodology internally for determining that this is a good project to go after?
Diego Saez Gil:
Yes. I want to add to what Sam was saying is that as you use these algorithms to create these synthetic baselines, you also need to try to validate the uncertainty of the prediction that you're making. So we are using a technique that we call placebos in which we basically apply the same algorithm to areas where there were no projects versus areas where there were projects. And then we validate what is the efficacy of the treatment. This is something that we kind of take from drug development, the idea of placebos and controls. And that is a technique that allows you to get a sense of the level of uncertainty of the prediction, and then you can account for that uncertainty as you're using that baseline. In short, I think that what's important for people to walk away with is there is all these technological developments, all these scientific research that is being done today, which point at solutions, at ways in which projects can objectively set baselines for the future of crediting.
And yes, Pachama is doing a lot of different things. We're mostly a technology company building these tools to evaluate projects that then we can highlight and bring to off-setters. We are developing projects in which we act as a partner to new projects that want to ensure that their current accounting is right. We started with reforestation, but we're preparing to also start avoiding deforestation projects in which we are going to use these techniques from the get-go to establish the current accounting.
And we are also collaborating with Verra, which is the main issuer and registry of avoided deforestation credits. They are the ones who are under criticism by The Guardian article. And what I have to say is that they are working hard to update their methodologies, and we are collaborating with them on an initiative that we called a DMRV pilot, a Digital Measurement Reporting and Verification platform that would allow for projects in the future to not have to come up themselves with a baseline or a carbon accounting, but upload their shape file of their land, and then get this software to establish the carbon accounting and then submit the data digitally to the registry so that the issuance can happen automatically. That can help really unlock a future of current crediting that is efficient, high integrity, consistently scalable and so forth.
So the registries, the different standard bodies out there, and there are many beyond Verra, all are working hard to incorporate these new technologies and to update their methodologies based on that. So again, there is a bright future, I think that if we all work together to bring the solutions forward.
Cody Simms:
I mean, that sounds like completely changing the way the system works today, Diego, which is a significant financial market that is liquid and flowing. That sounds like a challenge in and of itself. What are the steps to take in order to help move the market in that direction?
Diego Saez Gil:
Yeah. And by the way, this is something that is happening in every industry, in every sector of the global economy. Every economy has been digitizing. Banking started digitizing in the eighties and travel digitized in the 90s and 2000s, right? And it's not easy to move from a legacy paper based, manual, analogous system to a digital data driven system. So it's going to take the same challenge here. And I think that how do we do it is with a lot of open collaboration, and that's why Sam and I are exploring collaborations and we are collaborating with Planet, we're collaborating with other academic institutions, we're collaborating with the registries.
And here is what I believe is very important too. Yes, let's talk about the challenges, but let's talk about who is building different pieces of the puzzle, of the solution? And then let's share data, let's share knowledge, let's share algorithms. And together, I believe that all these different players can actually bring the solutions forward. And then let's move fast because again, climate change and the drivers of deforestation are not slowing down. So we need to move fast, we need to try a lot of different things like Silicon Valley technology startups do. And I think that's how we bring the solutions forward.
Cody Simms:
And Sam, what are your predictions for the next five years or so on how these markets are going to change?
Sam Gill:
So what we're seeing is because these new technologies are now available, what we're able to do at Sylvera is retrospectively apply these techniques and understand the state of the current market, and also help the market to surface and understand and see good work when they see it. So for example, the work Diego's doing, we are able to surface and verify and show that that's really high quality work. And the great thing about that is it allows the market to course correct. So my first kind of main prediction for the market is that it's going to course correct. If you look at our client list, it's a list of people that really care about getting this right.
And that's the thing that I find heartening is the market cares about getting this right. The people that are buying and putting money into these projects, they're doing it because they want to make a difference. They're not doing it because they're trying to delay action, they're doing it because, for many people, because of their residual emissions and the state of decarbonization, the state of the technology race we're in, in terms of the net zero race, they're having to rely on these markets to decarbonize their residual emissions and they want to do it well. So because we have these tools and because entities like Sylvera and Pachama are able to highlight good work and provide good work, we're facilitating and empowering those that want to make a difference to do the right thing.
So I think the market's going to course correct, and as it does that, I think we'll see just a kind of exponential growth and momentum behind this movement, because Diego and I both spend a lot of time with the policymaking community and we're sorely off track. And I think that's the realization that's happening collectively. And so there's this real need and want to get moving. So I think as soon as the market's able to course correct and kind of coalesce around a definition of what quality looks like, and also give clear signals to companies around what we expect them to do, we'll see this momentums of growing.
Cody Simms:
Diego, how about you? What final predictions do you have for how the world is going to change in this area over the next five years to a decade?
Diego Saez Gil:
Yeah, I guess as an entrepreneur, I am an incurable optimist. I choose to be an incurable optimist because we don't have a choice, and I do believe that we will figure this out. Humanity has figured out other intractable challenges before, and this one is complicated, but we can come up with solutions that allow us to drive funding to effective carbon sequestration. We can save the tropical forests and we can actually leave a planet with many more forests than we found when we were born, and in doing so, help solve climate change.
But as I said, I think that we need more funding for startups, we need more funding from governments. We need more collaboration between academics, the United Nations and other international institutions with journalists and with registries and with corporations. And I put on Twitter the other day this meme, the little dog that says, "This is fine," and there are three ways in which you can react to a crisis. One is to deny, say, "This is fine." The other is to despair or go desperate. And then the third one is to say, "Okay, we have a responsibility to act. Let's see how each player on the ecosystem can contribute, and let's all come together as a system to actually bring solutions forward." So I'm actually optimistic that we can get this one.
Cody Simms:
Sam, Diego, I'm so appreciative of you for coming on today and jumping right into the fray on this and helping us understand how this can be a very productive climate solution and some of the changes that do need to happen in order to realize that, that need to happen because our forests are so critical and economic factors otherwise would see them continue to shrink. So, guys, thanks for your time today.
Sam Gill:
Thank you. Thanks for having us.
Diego Saez Gil:
Hey, you got to keep out the good work.
Jason Jacobs:
Thanks again for joining us on the My Climate Journey podcast.
Cody Simms:
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem-solving capacity. To do this, we focus on three main pillars, content like this podcast and our weekly newsletter, capital to fund companies that are working to address climate change and our member community to bring people together as Yin described earlier.
Jason Jacobs:
If you'd like to learn more about MCJ Collective, visit us at www.dmcjcollective.com. And if you have guest suggestions, feel free to let us know on Twitter @mcjpod.
Cody Simms:
Thanks and see you next episode.
