‍

Navigating the voluntary carbon market is no mean feat. Who better to guide us through than a true pioneer within the carbon offset space.

Enter, Brennan Spellacy, CEO of Patch.

In this episode we talk to Brennan Spellacy, Co-Founder and CEO of Patch, an API solution enabling businesses and end users alike to neutralise their emissions via a variety of project types. Brennan Spellacy cuts through the noise and sheds some much needed light on this controversial topic and its scaleable potential to reconcile humankind's climate conundrum.

We dive into the murky space around carbon offsets; the role they play in reaching the world’s net zero goals, the opportunity that technology provides in accelerating this journey and how the space is evolving with increased demand and regulation.

Tune in.

Listen to the episode directly via Spotify here.

‍
Transcript:

‍Saif Hameed:
This is Altruistiq, where we speak with pioneers in the race to zero and unpack the lessons from their experiences for you, our community of impact professionals. I'm your host Saif Hameed, and in this episode we're going to talk about scaling up voluntary carbon markets. You may have followed the recent trends here, or you may be new to the topic. We're going to debunk the myths, cut through the hype, and understand the trends in our conversation with Brennan Spellacy. Brennan is co-founder and CEO of Patch.
‍
Saif Hameed:
Offsetting is a hot and also, at times, controversial topic, so really excited to shed some light on some of the trickier issues in this space. Brennan, really great to have you, super excited. Have seen Patch in action now, and again, really impressed. I'd love to hear, and I'm sure our guests would love to hear as well, what your view is on Patch, what the story is, how you came to this market, maybe just a bit of an introduction to you.

Brennan Spellacy:
Yeah, absolutely. Well, first and foremost, thank you so much for having me, Saif, I really appreciate it. As far as the story of Patch, we founded the company back in April of 2020. Beforehand, my co-founder and I were early employees at a hospitality business called Sonder, but I really started my sustainability journey when I studied chemical engineering at McGill. Always wanted to work in some sort of low-carbon energy system like nuclear or renewables, that ended up not working out and I ended up primarily doing software, et cetera, for the following seven years.

Brennan Spellacy:
The idea behind Patch is really all about focusing on making carbon markets and carbon removal more accessible to technology businesses. So, at a high level, we are an API-first marketplace for carbon removal, which means you have carbon removal providers on the supply side of the marketplace. These are folks like direct air carbon capture facilities, enhanced weathering deployments, as well as more traditional offsetting solutions like forestry, where you store carbon and biomass and make all of that capacity transactable by API. And, for those that don't know, an API is essentially how computers talk to one another, so you can write four to 10 lines of code and start taking carbon out of the air.

Saif Hameed:
And, Brennan, most of our listeners tend to be from the business community, so they'll have different levels of awareness and understanding of the market that you play in. If I take a step back and look at the carbon market as a whole, and the voluntary carbon market as a subset of that, how do you see the market as a whole and whereabouts do you feel is a great space for Patch today and potentially spaces for Patch in the future?

Brennan Spellacy:
That's a great question. So, there's what are called voluntary carbon markets, so these are companies primarily purchasing things like carbon removal or carbon offsets to hit some sort of either net zero or carbon neutral goal, and then there's the broader compliance markets. There's a very large compliance market in Europe, there's one in California, one in Quebec. Primarily the mechanism there is all about cap and trade systems, so more surrounding buying and selling the right to pollute versus purchasing the ability to remove carbon. Patch exclusively today works in the voluntary market. We decided that as being our quickest way to market, if you will. That being said, as the ecosystem around carbon markets mature, we actually expect voluntary markets and compliance markets to look more and more similar to one another.

Brennan Spellacy:
So, as these net zero goals get developed and more and more companies begin participating, we expect more regulation to be applied to voluntary carbon markets, and it's going to look more like just a larger carbon or a compliance carbon market, but there are going to be different types of securities or assets created within it.
‍
Saif Hameed:
That's going to be quite a shift, right? From today? Where, if you look at the last few years, the cap and trade market has been probably one in the several billion dollars of transaction a year versus, I think, the VCM market is probably $400 million or $500 million. Is that just a growth trajectory that has been sustained over the past few years? Or, is it more just a massive boom expected as a result of regulation coming into the space?

Brennan Spellacy:
So, we actually think the boom is being driven by consumer behavior. More and more we're seeing young people, millennials and Gen Z, begin to vote with their dollars and their feet, and these are the first two generations that are going to be materially impacted by climate change. Compliance markets, as we historically understood them, were primarily established during the Kyoto Protocol back in '97, I think. Don't quote me, I might be misremembering the year. However, the existing voluntary market is the evolution of that. So, what I'll have to say is we've seen a huge amount of explosive growth in 2020, 2021, where it's gone from about 400 million or so in 2020. It's actually going to break 1 billion this year and we don't see any reason for that to slow down.

Saif Hameed:
How much fragmentation is there in that market? Are there any dominant players with, let's say, even several percentage points or 10 percentage points of that space? Or, do you feel it's actually just highly fragmented across the value chain?

Brennan Spellacy:
Yeah, like most markets that caters to power laws, there are three or four really large offset developers in the world. South Pole is one of them, Element Markets is another. That being said, on the carbon removal front where it's primarily companies that have been started in the last five or 10 years, it's highly fragmented, and we're seeing new startups come into the space every day. So, we actually work with a lot of hard tech investors, not because they're investors in Patch, but rather they see all the new technologies that are going to be either on the bench stage or pilot stage, and the intention is to help them come to market in the long run. So, very lumpy with three or four players taking 80% of it, but there's a huge amount of fragmentation, especially in the frontier front.

Saif Hameed:
It must be incredibly exciting to be part of a new market rolling out before your eyes, right? And, I think we feel a bit the same at Altruistiq, where we focus on the measurement and the management side also growing massively over the last several months in particular. When you look at the carbon removal market, the direct air capture space has been around for a while and has been tested in different iterations. Would you say that carbon removal is, let's say, a subset of direct air capture or a macro set? And, how does it relate to those technologies?

Brennan Spellacy:
Yeah, absolutely. So, carbon removal is definitely a super set of the direct air capture, but that's one main chemical pathway where you can remove carbon where it's primarily large fans running CO2 through some sort of solvent. That's all that's typically proprietary, depending on the company. That CO2 stays behind, and pure nitrogen and oxygen come out the other side. But, there's other ways to take C02 out of the air, through things like mineralization or enhanced weathering, or in some cases people are genetically modifying trees so they grow at four or five times the rate of a normal tree, and so they're removing carbon through biomass. So, loads of different chemical pathways to remove carbon.

Saif Hameed:
And, in terms of the scale, if I look at number of tons per year that carbon removal is capable of today versus where you think that market is headed in three years, do you have a sense of that growth?

Brennan Spellacy:
It's tough to look into the crystal ball, and it's also really hard to, in my opinion, estimate exponential curves. It's a little bit unclear. We don't even do 1% of the carbon removal we need to be doing in order to hit our 1½ or even two degree goals by 2050, and so to give you a sense, we're doing hundreds of thousands of tons of additional manmade or human induced carbon removal right now, but we need to be getting to the scale of five to 10 gigatons per year. So, we're many orders of magnitude from where we need to be. The growth rate's going to be probably somewhere in between that, but if we're going to hit our climate goals, the category of the entire ecosystem needs to be quite high in order to hit where we need to go.

Saif Hameed:
I understand that you're technology agnostic to some extent within the carbon removal space, but is there any one type that you would bet on as the technology that is either the most tried and tested with the best potential, or just the one that if innovation could drive it forward would really be the winner in this space?

Brennan Spellacy:
I think that's tough, and I'm going to give a little bit of a non-answer and the reason primarily goes back to the fact that because this is such a massive problem, putting all of your eggs in one basket is probably not the approach you want to take. We want to deploy 10 to 100 times more capital into this ecosystem so we can try a bunch of different solutions. A lot of them aren't going to work out and that's okay, especially because if you only have 10 to 20 years to get this right, it's okay to have a couple misses because we really need to be optimizing for shots on goal. That being said, things like direct air capture are great because they store carbon for over 10,000 years. That's incredible, but they're incredibly energy intensive, so if you don't have a really great source of dispatchable renewable energy like hydrogen or geothermal, it's going to be a little bit tougher for that solution to work in a particular geography.

Brennan Spellacy:
And, maybe another solution so that it doesn't require a lot of energy to be in a lot different places like enhanced weathering, which is primarily using this material called olivine which reacts with the ambient air and sucks down CO2. Now, that requires a lot of energy in a very short amount of time to grind up that olivine into smaller pebbles, but then once you spread it out, you don't need any more energy investment. But, it's also very heavy on land use, and so each solution has their strengths and weaknesses and each country or geography is going to have its strengths and weaknesses as well, so it's tough to say which one is going to "win." I would probably guess, much like today with renewable energy, it's not going to be just one. We have wind, solar, geothermal and then nuclear fission, not on the renewable side, but on the renewable carbon side, and I expect something very similar. We're going to have four or five technologies at scale each with multiple gigatons of capacity eventually.

Saif Hameed:
And do you expect these to ultimately overtake the nature-based solutions category or be pretty much at the same scale or, or smaller?

Brennan Spellacy:
Yeah, it definitely needs to get to the same... Well, it actually needs to exceed the scale of nature-based solutions. The reason nature-based is great is because the tech is already here. It's been here for thousands and thousands of years, but it's only as permanent as that piece of nature, whether that's soil or biomass, in the case of trees, is there. And so, I think nature-based solutions are going to be a great bridge solution, where it can buy us a lot of time in the short term as we figure some of the other elements out. That being said, if you truly want to have the carbon permanently removed from the carbon cycle, trees are part of the carbon cycle, so it's more of a bridge piece of technology. Much like carbon removal in aggregate, really. Right? Ideally, Patch doesn't need to exist by 2100 because everything's renewable or fusion, or whatever that a no carbon future looks like. So, carbon removal as a whole is bridge tech by definition, assuming you think we're going to get to a fossil fuel less future.

Saif Hameed:
And, I think that there's also a bit of a movement and a desire to start loading ancillary benefits, like for biodiversity or water security, onto the carbon value to benefit from the same token. Do you see that taking off, or do you actually think that there's a need for separate tokens of some sort? Whether it's called an offset or another kind of credit that can achieve those ends, or do you... How do you think about non-carbon impacts or non-GHG impacts?

Brennan Spellacy:
Yeah, totally. So, coming from the background of being a programmer, there's this concept called the single responsibility principle, where if you have a piece of software that does a million things, it's probably not going to be good at any of them. So, I'm of the opinion that these things be highly decoupled from one another. Direct air carbon capture, incredibly good from an environmental benefit perspective, literally does nothing from a biodiversity, from water consumption perspective, and so I'm of the opinion that having separate solutions laser focused on particular problems is probably the best way to approach things. I'm always optimizing for focus on fewer things and do them better, so that's most likely the path I would take.

Brennan Spellacy:
That being said, I do think it's also worth championing the positive side effects or benefits, or typically called co-benefits of... Typically, it's nature-based solutions that have these. That being said, we shouldn't let those co-benefits allow the carbon sequestration drawbacks like lack of permanence or slower rate of sequestration because, again, the nature-based are typically limited by the rates at which nature takes place in. So, the growth rate of the tree is the limiting factor of sequestering carbon. So, biodiversity, water security, obviously incredibly important problems, but a lot of times I've seen people let those secondary attributes in the case of climate distract from having a larger climate impact.

Saif Hameed:
And, if I look at how pricing works in this space... And, sorry for peppering you with questions, it's just such an interesting topic and I think there are so many nuances, and there's also so much ambiguity in this space and so many different opinions, right? So, I think it's really good to have a rich discussion around the basic facts here. When you look at the pricing, and my understanding is that the nature-based solutions tend to gravitate towards something in the range of, let's say, €5, €6, €7, €10 per ton for example, whereas on the carbon removal side you can often get up into the several hundreds of euros per ton or more. Do you see that difference really declining? Do you see those two price points coming closer together? Do you think that actually they just need to be priced differently? How would you see that side evolving?

Brennan Spellacy:
Yeah, absolutely. So, I have a two-piece response to that. So, the first is if you look at just tons of carbon, the price is obviously quite different, the delta in price is quite different. That being said though, and this is something we focus a lot on Patch on, is the underlying metadata of that particular ton is incredibly important and not frequently enough talked about. And so, I mentioned the rate of sequestration earlier. This is a dimension where if you need to hit a net zero goal by 2050 but your forest is only going to sequester the number of tons you need by 2070, you're missing the mark there, right?

Brennan Spellacy:
The other element is the durability, where how long is that ton actually sequestered? Now, for direct air carbon capture, that's 10,000 years. For a tree it's typically 100 years, so that's basically 100 times more durable. So, if you're thinking about it through a ton a year accounting perspective, direct air carbon capture is actually less affordable than a nature-based solution is, which is really how we need to be thinking about things in the first place. Because, the ton will eventually get undone if you go further enough out, and as a result the positive climate benefit will also go away, so I think that's an important nuance to consider.

Brennan Spellacy:
A second element is all about cost curves. So, if we looked at the cost per megawatt or kilowatt hour of solar or wind 30, 40, 50 years ago, it was multiple orders of magnitude more expensive than fossil fuels, and today it's the inverse, right? Where, at least in California, wind energy is almost free in some cases because the cost is so low compared to coal, which has a lot of maintenance associated with lighting things on fire every day. That delta in price is primarily driven by production, right? Where you have this idea of a cost curve, and as production goes up, typically unit cost goes down. It happens with semiconductors, it happens with renewable energy, and we expect it to also happen with direct air carbon capture, where some of the only production facilities of direct air carbon capture are sequestering now tens of thousands of tons. There are no scale economies, there are no robust playbooks, so as production goes up, we expect price to go down over time as well.

Saif Hameed:
And, super interesting to look at the life cycle of these projects and how they differ. And my understanding, I may be mistaken here, is when you would do traditional, let's say deforestation avoidance or REDD+ style projects, you take something like a 30 year time horizon and then you'd structure the pricing over that period of time. And so, if you look at a lifetime of a thousand years or more for a particular project, do you actually work that into the pricing when you bring these costs to market? Is it actually that if you're buying into something that has 500 years of sequestration versus six or seven or 800 or 1,000, there is a difference in price on that basis?

Brennan Spellacy:
There is not currently, and so that's actually something I would advocate for. Now, pricing as a whole in the current markets is actually, in my opinion, quite inefficient. It's not like the stock market where there's a huge amount of visibility on why something's a particular price, there aren't a bunch of alternative options. Coming from hospitality as well, the efficiency of hotel pricing or airline pricing is incredibly sophisticated. Carbon markets are not remotely as liquid as those, and so as a result, you end up with a bunch of pricing inefficiencies as well.

Brennan Spellacy:
Patch does not set the price of the carbon removal. Actually, our suppliers set it, and as a result they're in many cases flying blind. Actually, even asking Patch for market data to understand, "Am I competitive? Am I not competitive? I'm covering my cost of goods sold, so how much should I be pricing this at?" And so, it's also a symptom of just the infrastructure surrounding the ecosystem not being built out, and that's actually something Patch spends a lot of time on which is, how do we build tools for our suppliers to understand where they are in market? What should they be charging? What should they not be charging? So, if we drive a bit of that efficiency. But, it's really just the symptom of lack of liquidity and lack of visibility and transparency in the market today.

Saif Hameed:
One of the things that I find really interesting about Patch's approach, and like I said, Altruistiq doesn't really compete in this market but we've seen a number of players in conversations we've had, and one of the things that we find really interesting about Patch is that you take a Shopify approach to the developer side. My understanding is that you try and provide a set of tools that make the lives easier for developers, basically. And, you're touching on one, right? Which is price discovery and support there, and I imagine there are other tools as well. What are the main areas that developers struggle with that actually could benefit from a lot of streamlining or simplification?

Brennan Spellacy:
The biggest one is international payments. So, a lot of these folks want to be selling internationally, but for the most part they might not even have a accounts receivable team. They're very small shops, typically, so how do you automate the collection in many different currencies? Patch is available in 100 different currencies. How do you automate the internationalization of your product? We're currently in England, everything's presumably in English. How do you sell it to people in Germany or to friends? Maybe your content isn't actually internationalized or localized, so how do we help you with that as well as inventory management?

Brennan Spellacy:
So, this is something we dealt with at Sonder a lot, where you had this idea of a channel manager, where you would load your inventory into one place and it would fan out to 100, 200 different marketplaces and locations. Patch does something very, very similar, where you can put a single ton in one location and get many, many, many different eyeballs looking at it, and once that ton is actually sold you only need to retire it again in one location and then none of those 200 different channels can book it or purchase it. So, those are the major pieces we're focusing on right now. Pricing international payments, localization and inventory management.

Saif Hameed:
At Altruistiq, our customers tend to be in the consumer space. Very often fashion, retail, food, grocery, this area. And, the reason we work with those customers is because the emissions number tends to be quite big, but often these sorts of companies will also be interested in the offset market, and I think that one of the themes that we see really coming out is that when they are looking for offsets, they're looking for offsets that can support and enhance their brand and their brand value proposition, and really fit with that thematically. How important would you say the narrative is here? Almost, if you had to quantify it, would you say that actually a great narrative can double the price of an offset versus a lesser narrative? And, how would you go about supporting some of the suppliers on your platform in getting that narrative right?

Brennan Spellacy:
That's a great question. So, with respect to changing the price of a particular ton, I think a lot of the conversations we have is, how do we get buyers to participate at all at this point? We're pretty much an any one for most corporates, in their both carbon management as well as carbon compensation journey, but we're always reframing the conversation.

Brennan Spellacy:
How do you make sustainability not a cost setter, but a revenue driver? Whether it's through your customer acquisition retention, we actually do a lot of things with fintechs and reward providers. So, we work with a company called Ascenda Loyalty, and they're actually allowing you to put your credit card points into different forms of carbon removal, so the narrative is incredibly important because we have a bathing suit brand called Laundry using Patch. They allocated most of their carbon removal dollars to seaweed because they're ocean adjacent. So again, if you want to make it a revenue driver, the narrative's incredibly important. The key, though, is to make sure the narrative is good and the environmental benefit is good. I don't think there's anything wrong with wanting to have a positive spin on something. As long as the climate impact is there, I'm very outcome oriented. If you decide to use some sort of permanent carbon removal because you think it sounds nicer because you're a PhD in climate science, I think both are awesome, but the key is to not let that narrative distract from the underlying quality of the tech.

Saif Hameed:
Of course, no, that makes total sense. You mentioned that we're in the first innings of this market. What today is the typical, let's say, average transaction size that you're seeing? And, do these tend to be forward-looking contracts for, let's say, the next three, four, five years or one-offs?

Brennan Spellacy:
Yeah, so the average size transaction, because we're an API business, is very variable, where you have some companies, if they're offsetting one credit card transaction at a time, I think that's scale of a few dollars and we have some folks maybe pushing their entire corporate footprint through Patch on the scale of hundreds of thousands of dollars on an account level. It's typically on the scale of hundreds of thousands to millions of dollars per year. That being said, we're going to see how that evolves.

Brennan Spellacy:
We recently announced a partnership with Afterpay, just in time for Black Friday. They do billions of dollars of GMV monthly, and so we'll see what they do on the carbon compensation piece. The $1 billion of GMV in their case is actually spent on goods, and so we're expecting maybe one or two orders of magnitude less on carbon removal, which still puts you in the tens of millions of dollars ballpark. So, we'll see how it all plays out, but we're beginning to see larger, primarily eCommerce and financial infrastructure players begin to enter the space and work with Patch, primarily because of our API-driven nature.

Saif Hameed:
One of the things we've noticed in our market is that the UK is very slightly ahead of Europe. I think in many ways, European policy is quite farsighted and quite sophisticated, but I think the UK has maybe perhaps brought it into practice a little faster, and the US seems a bit further behind Europe as well in terms of the practice. Would you say that the carbon offset market mirrors that, or do you find there's a different geographic emphasis right now?

Brennan Spellacy:
I think the macro is probably similar. For Patch specifically, because we're primarily selling to technology companies, these tend to be more progressive from an environmental perspective, though. So, we're not selling to maybe your traditional insurance or steel manufacturer. We're selling to companies that are again, primarily run by people who are going to be materially affected by climate change in their lifetime, by 40 or 30 year olds, and so as a result it tends to index a little bit more liberal, a little more progressive, a little bit more environmentally focused. So, for us, we've not really seen any particular slowdown. If anything, even in the US, we've seen an acceleration, but I do think that's because of a sampling bias that Patch has rather than the overall ecosystem within the United States.

Saif Hameed:
It makes sense. We talked a little about the regulatory framework for this market and how that can be one of the things that helps unlock growth. What would you say right now are the main structural barriers, and what are you expecting, let's say, out of this COP or perhaps next COP?

Brennan Spellacy:
There's two pieces. The first is because carbon markets are growing so quickly, and at least in the voluntary market, they're highly unregulated. For this COP, as well as the next couple of months, I'd expect have to see more ground rules put in place as how to behave or operate within voluntary carbon markets. So, we talked about earlier how now every ton is truly a ton. What's the structured metadata you have to disclose as an offset developer or a carbon rule developer to really help people understand, what are they actually buying? Patch, right now we're actually trying to do our best to work with the task force for scaling voluntary carbon markets, as well as a few other organizations, and are almost trying to play this self governing role where we're almost putting what we think the world needs to look like onto the suppliers and making sure they collect and report on this data. But, again, ideally there's neutral global organizations saying these are really the ground rules to operate in.

Brennan Spellacy:
The second piece, which will be a little bit more nation-specific I imagine, is I expect to see more financial incentives for developers as well as buyers. So, if we looked at what helped electric vehicles and renewables really kick off in a really dramatic way in the last two decades, it was tax breaks, right? In the United States, we have 45Q already in place, which essentially gives you $75 per ton sequestered in a very particular chemical pathway. What I would like to see is both that benefit expanding. What we pay per ton is about three times the amount for ED subsidies than it is for carbon removal, so at least get that equal, right? I think it's about $300 or $400 per ton of emissions abated in the United States, versus only $75 per ton for carbon remove.

Brennan Spellacy:
So, we have a bit of wiggle room from a budget perspective, and the second piece is expanding that to more technology types. Right now, I believe only direct air carbon is actually compensated, but how do you get bio, geo sequestration or enhanced weathering compensated? The technology's there and the chemical pathways for scale are there, but they're not getting the same love direct air carbon captures get.

Saif Hameed:
And Brennan, you mentioned the task force of scaling voluntary carbon markets and you're probably familiar with what's been happening over the last few days with Greta and Greenpeace. What are your views on that?

Brennan Spellacy:
Might be worth rehashing what is going on. So, at a very high level, and I'm going to be slightly reductive, is Greenpeace is advocating for not having offsets at all. They view it as a get out of jail free card, essentially. Usually when I hear anyone saying we need to stop all of anything ever, regardless if related to sustainability or not, I tend to have a... I don't want to say knee jerk reaction, but a hesitation. It seems to lack nuance, in my opinion. There is no pathway to avoid a degree and a half of heating without gigaton scale carbon removal, period. That does not mean decarbonization, and aggressive decarbonization is not also necessary, but to say we should not invest in carbon removal I think would be a pretty poor misstep.

Saif Hameed:
I think one of the main challenges is that the get out of jail free card is something that everyone will pretty much realize is ineffective, let's say, in 10 or 15 years time, but right now over the next five years it becomes a really easy way for heavy emitters to buy themselves more time. Your market is actually quite different, right? Your market is the technology space. Do you think there's actually benefit in having some sort of restrictions on who can and should buy offsets? When and how much they might have done in abatement or avoidance within their value chain before they're eligible to offset or use the get out of jail free card? Would you see that there's an avenue there?

Brennan Spellacy:
I think that is interesting. To be fair, at the cost permanent carbon removal is added, it's really not a get out of jail free card. It's quite expensive in some cases, but that being said, we have SBTi releasing their most recent guidance saying, I believe, not more than 5% to 10% of your footprint can be compensated with permanent carbon removal. Their major needs have come from some form of decarbonization.

Brennan Spellacy:
Now that's not specifying industry. That's just saying, you can really only be doing a 10% or 15% offset, if you will, which is honestly consistent with what most client model is having, where we do about 50 gigatons a year and we need a remove between five and 10. So, on the 50 gigatons, that's 10% to 20%. It's consistent with what SBTi said, so I'm a huge fan of the guidance they put forward, and I think that makes a lot of sense. Industry specific, the more rules you add, like tax code, the harder it is to stay compliant. And so, this is already good behavior that is not happening as frequently, and so I would encourage most policy makers not to make it harder to do the right thing. That being said, obviously some rules needs to be put in place, but the idea of doing nothing, I think, is not going to get us anywhere.

Saif Hameed:
And, how do you see Article VI playing into this? And do you think that there is a solution to the Article VI conundrum when it comes to double counting and maybe just to rehash the challenge, right? Right now, if you were to generate offsets in Brazil, you could both export those offsets, sell them basically to a foreign buyer, but also they'd be counted towards Brazil's NDC. Do you think there's a solution either expected out of these discussions happening right now? Do you think a solution's possible? Do you expect one to be coming soon?

Brennan Spellacy:
I think it's definitely a solvable solution. I expected it's most likely to be solved through technology. You can't double buy a share of stock in a company, so I can't imagine why we can't solve this problem with carbon credits as well. They're both digital securities that exist, it's just a matter of the market being immature, where there have been hundreds of billions of dollars investing in financial infrastructure and maybe billions, if that, invested in the infrastructure associated with climate environmental markets. And so, I think it's just a degree of maturity. The idea of this double counting problem is massively problematic, and will result of us only hitting half of our goal in the most extreme case, and so more investment definitely required, but I'd most likely rely on software in this particular case. Software is very good at making sure something only gets done one time, and you have a bunch of people trying to in spreadsheets account for things and effectively what's happening right now, It's going to be bad. There's going to be huge problems associated with that.

Saif Hameed:
Given the substantial potential for nature-based solutions in the global south. Do you think that there's a risk that these economies become very effective exporters of their MVS capacity? Would that mean they're effectively left carrying the emissions for the world 20 years on, or do you actually think that this balances itself out either through a software solution or otherwise where it's a more equitable split?

Brennan Spellacy:
Yeah, that's interesting. If we can actually use software to make sure things aren't double counted, I think the nations themselves ought to have the autonomy to understand, does it make sense to have net exports or net imports from a cargo perspective? Now, I'm not going to think to be a geopolitical mastermind, so I'm not sure what makes the most sense for Latin America and Africa. So, we'll see how that pans out, but at the end of the day we probably should focus on, let's prevent deforestation in the south right now.

Brennan Spellacy:
This claim just came out the other day, where we're going to try ending deforestation by 2030, so let's try not burning the Amazon. Let's start with that, and then is there enough land to actually have nature-based solutions in addition to arable land for growing crops and things like that for these nations? I'm not sure, I haven't done that land study yet, but that's why you can't put all your eggs in that one basket. Going back to the point I was making before, it might make sense for Iceland to have a huge number of direct air carbon capture facilities in the North that sell to maybe these nations where they can leverage their geothermal electricity up there with not much arable land.

Brennan Spellacy:
It's not noted for their ability to harvest crops versus air in the south. So, I think there's a couple of solutions. We'll see how the Tetris comes together, but again, it starts with understanding what each nation needs and having that true system of record to prevent this double counting problem you're describing.

Saif Hameed:
Every now and then, Brennan, someone mentions blockchain in the context of offsets. I'd love to get your perspective on that, right? When you talk about a software solution that can actually manage for this double counting and create this transparency, I think blockchain comes to mind for a lot of people. Would you say that's part of the answer?

Brennan Spellacy:
Yeah. I'm a bit torn, and the reason for that is that there's two big problems with accounting for carbon. The first is this software record, or ledger, if you will, and blockchain is obviously really well positioned to solve that problem. For which who are unfamiliar with blockchain, it's a decentralized way to account for different types of digital assets, and one of those digital assets could be carbon credits or carbon removal capacity. Now, going back to my point on making it easy to do good things, international governments are not really known for their software savvyness. So, if we haven't even able to get them onto Web 2.0, are we actually going to get them on Web3 tech? I'm not sure, it feels like an opportunity to build a lot of things and have a really tough time rolling it out.

Brennan Spellacy:
That being said, I've been proven wrong many times before, and I'm personally a big crypto bull myself, so we'll see how that pans out. But, the second piece, which crypto really doesn't address, which is the other component especially with nature-based solutions, is this physical to digital mapping problem, which is really all about understanding how much carbon was actually sequestered and then getting that into any sort of ledger, centralized or decentralized. Now, with direct air carbon capture, it's very basic chemistry to understand. You put in something with a certain concentration an, outside different concentration comes out, and it's very easy to measure. If you have hundreds of thousands of acres of forest growing, it's very hard to detect how much carbon is being sequestered. So, there's also the issuing problem of how many tons ought to be issued for a particular piece of land, which blockchain does not help with at all. And so, we'll see what happens, but with the double counting piece, I do think blockchain as well as just any sort of relational database that everyone has access to could both be solutions.

Saif Hameed:
This market is clearly growing fast, right? You talked about basically a doubling of transaction volume over the last 12 months, obviously with this massive opening up of the carbon removal side of the market. Would you expect that it's likely to be five new players, five Patches or three Patches or two Patches coming out and really establishing themselves in this space and ultimately being a new asset class and the intermediaries here? Or, would you say there's likely to be quite a lot of fragmentation with lots of different niches at play here? How do you see the market evolving as a whole in your space?

Brennan Spellacy:
General software infrastructure, whether it's SMS with Twilio or payments with Adyen and Stripe, tends to consolidate and be a winner takes most ecosystem. There will always be many competitors, but they typically get scooped up with the players that achieve scale the fastest, and so I would be really surprised if in five to 10 years from now, there'd be more than three or four dominant Patch-like players in the ecosystem. But, between then and now there's going to be many, because successful ideas attract many other successful ideas, very similar to carbon accounting. I think I have a spreadsheet of 100 carbon accounting tools that I'm tracking. They're not all going to be around in two or three years, right? Some are going to be more successful, some are going to raise and acquire and consolidate others, and so I expect something very similar to be happening in this space.

Saif Hameed:
Fantastic. Brennan, this has been a super interesting conversation. Is there anything else that you'd want to share? And, again, just to emphasize, right? Our listener community tends to be business-centric. They tend to be from the retail, grocery, fashion, food, heavy-emitting complex value chain, complex supply chain sector. Are there any final messages you'd want to leave them with?

Brennan Spellacy:
I think the biggest thing to keep in mind is, going back to the point I was making earlier about making it easy to do good things. The only way to get 1 billion people to do something is going to be with a computer, where they don't actually have to do it and it's automated and just built into the fabric of, in this case, commerce. If you need some way to be sustainable and that something is going to be going to some sort of separate application or store or essentially changing behavior consistently, I think that's going to be a really difficult sell versus...

Brennan Spellacy:
Just like today, you swipe your credit card and you know your identity is not going to get stolen because of PCI compliance. We believe the next version of that is going to be when you swipe your credit card, any negative environmental externality associated with that transaction, whether it be carbon, water, plastic, biodiversity will be compensated on your behalf and adjust while, again, these companies focus on mitigating their impact in the first place. So, my message will be focus on making it such that consumers don't have to change their behavior in a meaningful way, and you change it for them on their behalf.

Saif Hameed:
Brennan, thank you so much. Really appreciate having you, super exciting conversation. Obviously, this is a topic that we're going to see coming out more and more. It's going to be more and more dominant, whether you back nature-based solutions or carbon removal, whether you think that Article VI is solved or not, clearly this market is not going anywhere but up in the years to come. Thank you so much again for taking time out for us, looking forward to having more conversations in the future. Thank you.

Brennan Spellacy:
Awesome. Thank you so much.

Saif Hameed:
Thanks for listening to today's episode of This is Altruistiq. Now, for some shameless self-promotion. Altruistiq provides global enterprises with the technology infrastructure needed to measure, manage, and abate their sustainability impact. Please get in touch if you want to find out how Altruistiq can help your business to profitably improve your impact on the world. You can reach us on hello@Altruistiq.com. The notes from this episode are available in the show notes below, and you can find more episodes of the This is Altruistiq podcast on Spotify, Apple Podcasts, and Google Podcasts. Thank you.

‍