Case Studies in Greenwashing webinar transcript
EcoEngineers dove into even more case studies involving decarbonization and greenwashing in our latest webinar that aired on Sept. 28, 2021. Our hypothetical characters, Sarah and Roxby, moved up in the world, took on Washington, D.C., maximized on the emerging electric vehicle market, and more.
Lyndsey Nielsen (00:00):
Hey everybody. My name is Lyndsey Nielsen and I’m the Marketing Coordinator at EcoEngineers. We’ve received so many requests to bring back this topic after our first decarbonization webinar. Welcome to Case Studies in Greenwashing. That’s what everybody’s been colloquially calling it, so we decided to just continue the theme. I want to go over a few housekeeping issues before we start. We will have a Q&A session in the last 20 to 25 minutes, so feel free to type your questions into the question chat function during the presentation, and we’ll try to answer as many as we can. As usual, the webinar is recorded and it’ll be shared automatically in an email once the event is over. We’ll also post a blog with the video in the weeks following the event.
Lyndsey Nielsen (00:45):
You will receive a link for a feedback survey in that same email after the webinar, so please fill it out and let us know what you thought. And if you have any other suggestions for future webinars, let us know that too.
Lyndsey Nielsen (00:57):
Introducing our panelists for today. This is our list of presenters and experts. You’ll be hearing from Shashi Menon, our CEO, and Sarah Caswell is our resident policy expert. And Dr. Roxby Hartley is our Compliance Management Team Lead and LCFS program expert. And of course, I will be reprising my role as narrator for our case studies.
Lyndsey Nielsen (01:18):
Before we get started, I wanted to play a short video that intros EcoEngineers and how we fit into the clean energy economy.
Carbon is the biggest disruptor of the 21st century, and the world as we know it is changing. EcoEngineers can guide you to make the best decisions as you navigate toward your clean energy goals. Our diverse team of carbon analysts, engineers, scientists, auditors, and regulatory specialists are trusted advisors of the clean energy fuel sectors worldwide. Clean energy regulations are a maze. We simplify them with an unbiased approach and fully manage your compliance. Modeling your carbon reduction is complicated. We quantify your emissions with a rigor based in science. Together we can create markets that will protect and grow your investment. We create sustainable solutions for a better tomorrow. We are EcoEngineers.
Lyndsey Nielsen (02:26):
All right. Here’s Shashi to talk a little bit more about EcoEngineers.
Shashi Menon (02:30):
Thank you. I’m Shashi Menon, CEO of EcoEngineers. That video is EcoEngineers in a nutshell. We are a team of scientists, engineers, lawyers, [inaudible 00:02:39] auditors and consultants all with a deep expertise in fuels, technologies, and carbon policies. Two of our services, the training and education, regulatory engagement, life cycle analysis, asset optimization, compliance management, and auditing. Three services we provide at 360 approach to the clean energy transition. And we have found that ultimate success of law carbon fuel projects depend on our areas of expertise.
Shashi Menon (03:06):
A little bit about this webinar. Why greenwashing? It’s really because we are at the heart of an energy transition right now. From our vantage point, we see all kinds of projects happening at the ground level. We are witnesses net zero goals being made and we are seeing ambitious policies being drafted. At the core of this transition is the carbon accounting framework. Understanding carbon accounting and how carbon markets function is key to successful transition to a net zero economy.
Shashi Menon (03:37):
What is carbon accounting? Carbon accounting is counting emissions, reductions, and sequestrations. It’s a set of credits and debits. And placing the right amount of credits in the right column, in the right ledger, in the right book is important to the overall integrity of a net zero claim. And the uniqueness of carbon accounting sometimes makes this challenging. Today Lyndsey is going to lead us through some case studies that illustrate some finer points of carbon accounting and the importance of getting it right.
Shashi Menon (04:08):
But first, I want to invite Sarah Caswell to give us an overview of used carbon policy as it stands today. Sarah?
Sarah Caswell, Esq. (04:15):
Thanks, Shashi. This fall there’s a lot of actions on both the federal and state levels that could significantly impact the low carbon fuels industry. Today’s webinar will focus on examples of greenwashing to illustrate that these legislative and regulatory actions are carefully crafted to promote investment, innovation, and development of low carbon fuels, so that they may continue to be a key ingredient in efforts to reduce harmful greenhouse gas emissions.
Sarah Caswell, Esq. (04:53):
However, first I do want to quickly run through a few of the key legislative and regulatory developments that are happening right now. First, the 2021 and 2022 proposed RFS rules. The official version of the proposed rules are not expected out before October fourth, however, as many of you probably know, late last week the potential proposed volume levels were leaked. In summary, for years 2020 through 2022, these leaked volumes would propose to reduce ethanol blending down to actual annual blending levels, taking into account overall reduced gasoline demand. And then the proposed volumes would increase blending of advanced biofuels, including biomass-based diesel and cellulosic fuels.
Sarah Caswell, Esq. (05:51):
We’ll have to wait and see if the leaked proposed volumes are the actual proposed volumes, but already stakeholders from all sides are starting to get engaged in this. And I think we can all expect a lot of activity during the rulemaking process.
Sarah Caswell, Esq. (06:13):
On the infrastructure bill, Congress is still haggling over the cost and the content of President Biden’s major infrastructure policy proposal. The House of Representatives is scheduled to debate the proposed 3.5 trillion dollar spending bill this week. Individual House committees have already voted on their pieces of the infrastructure legislation. And some of those pieces that have passed out of committee and could be included in the House version of the infrastructure package include incentives for renewable energy technologies, energy storage, electric vehicles, charging infrastructure, energy efficiency, and other technologies that reduce carbon emissions. The package also will likely include a lot of extensions of current renewable fuel tax incentives.
Sarah Caswell, Esq. (07:11):
Several industry experts believe that a final version of the infrastructure package probably won’t be passed until later this fall or winter. It must also be passed through the Senate, where some of you might’ve read some moderate Democrats have already expressed public concern over the high cost of the bill in their opinion.
Sarah Caswell, Esq. (07:35):
On CARB, the California Air Resources Board, has begun holding a series of informal public workshops on specific topics that will likely be included in the agency’s proposed rule, expected out next year, which would update the state’s low carbon fuel standard regulation.
Sarah Caswell, Esq. (07:55):
All stakeholders are encouraged to sign up for CARB LCFS email updates through the agency’s website, and to fully participate during this informal part of the process. It’s important. CARB staff are proactively seeking stakeholder feedback to inform the nature of the updates that will be included in the proposed rule, which will start that formal rulemaking process.
Sarah Caswell, Esq. (08:21):
CARB staff’s likelihood to include stakeholders proposals, of course, increases with stakeholder participation, and the staff accept written comments for two weeks after each workshop, so I really encourage everyone to provide those comments as they see fit.
Sarah Caswell, Esq. (08:41):
On the state level, several states beyond California are continuing their efforts to craft and pass state low carbon fuels, bills, and regulations, including, but not limited to Washington, New Mexico, Illinois, Minnesota, Iowa, and Nebraska. These efforts are important as they are designed to promote innovation and development of renewable transportation fuels. Also, they will likely impact any effort to craft and pass any national low carbon fuel legislation, just as state laws impacted the RFS, which was passed in 2005 and again in 2007.
Sarah Caswell, Esq. (09:25):
Finally, with respect to recent elections, as you know, California governor Gavin Newsom and Canadian Prime Minister Justin Trudeau have both survived their recent election challenges. The outcomes are especially significant with respect to our industry because they’ll allow California and Canada’s carbon reduction regulations and legislation to move forward without too much change. It will just ensure the smoothness of that process.
Sarah Caswell, Esq. (09:58):
As I’ve already mentioned, the status of the California LCFS Regulatory Update in Canada, for instance, the government can continue with the policy to enact the Clean Fuel Program with a likely release of the formal regulation for comment later this year. In addition, at the state level, British Columbia intends to conduct a review of its current LCFS law this fall and winter, and propose new legislation to update it as necessary next spring.
Shashi Menon (10:36):
This is super exciting to see all this legislative movement, but can you talk a little bit about the timing of the RFS RVO? How does it work? The OMB and the EPA have to agree on the RVO number, then they have to release a proposed rulemaking, and then there’s 30 or 60 days for comments, and then they finalize? What are we looking at? When will we have the final numbers?
Sarah Caswell, Esq. (11:01):
That’s a really good question. And of course, I can’t give definitive answers because nobody has seen the actual language of what EPA has sent over to OMB for consideration. The process is that EPA has sent its proposed rule or rules over to the Office of Management and Budget, which is the administration. And then that begins a 30 day review process, at least 30 days, at OMB, where they go back and forth with the White House and EPA, and they come up with a final version of the proposed rule sent over by EPA. Usually it doesn’t change much, but we’re not sure this time. It seems to be taking longer than most of us would like and longer than most of us would expect.
Sarah Caswell, Esq. (11:55):
OMB periodically posts updates on its website, in terms of the timing of the process. Last week there was an update that that agency would not be releasing the EPA proposed rules for RFS until at least October fourth. What will happen once the proposed rules are finalized in that process, the formal rulemaking does not start until the proposed rules are published formally in the federal register.
Sarah Caswell, Esq. (12:30):
Once that happens, that starts the clock in terms of the comment period. I think a lot of us think it will be a 45 day comment period, not a 60 or a 30, but we’ll have to see. I can’t make any promises. As they do every year, during that formal rulemaking process, EPA will have a separate public hearing on the proposed rules, where stakeholders will have an opportunity to present oral testimony to EPA officials. Usually the testimony is limited to two to three minutes, just because usually there are a lot of stakeholders who want to provide oral input during that written comment period as well.
Sarah Caswell, Esq. (13:24):
It looks like, by statute, EPA is supposed to finalize the following year’s RFS rule by November 30th, so that would be for 2022. They haven’t obviously even proposed the 2021 rule, so as far as timing, if the proposed rules are released around October fourth, theoretically you could get to November 30th, but I think it would be pretty tight. I think we’re looking to late this fall, early winter maybe. But of course I don’t have a crystal ball. I wish I did. I think that answers your questions in terms of timing and what the process is going to look like.
Shashi Menon (14:13):
Thank you, Sarah.
Lyndsey Nielsen (14:15):
All right. Are we ready to get started here with our case studies? This is actually a good segue because our first case study has to do with the Better Clean Fuels Policy and which one is more likely to succeed. Here we go.
Lyndsey Nielsen (14:30):
Congratulations are in order. Sarah has been elected as the 48th president of the United States on an independent ticket. Despite now being a politician, she is still very true to her concerns about the climate and wants to put in place some strong policies to achieve net zero emissions from transportation by 2040. Her popularity is so high she can do just about anything she wants. Her first order of business is to hire EcoEngineers Climate Scientist, Dr. Roxby as her Climate Czar, and he gets to work.
Lyndsey Nielsen (15:01):
Roxby is charged with ultimately presenting three policy options to achieve Madam President’s goal. The first one is to electrify everything with transportation sector. The second option is to establish and mandate a new low carbon fuels policy. And the third is to put money toward the problem and invest in clean fuel infrastructure. Let’s take a look at each of these options individually.
Lyndsey Nielsen (15:26):
The first one, electrify everything. He proposes that the country case manufacture and sales of internal combustion vehicles and transition to entirely electric vehicles by 2040. His second proposal is to mandate a national low carbon fuels policy that drives emissions down over the next 20 years. This policy would be fuel neutral, technology neutral, and performance-based. Again, it would have a net zero emissions goal by 2040.
Lyndsey Nielsen (15:58):
The third option that Roxby presents to Madam President centers around clean fuel infrastructure investment. Over the course of 20 years, the government will put money into clean fuel public transportation, highways, low carbon fuel production, and electric vehicle charging infrastructure. And this would all be completed by the 2040 deadline.
Lyndsey Nielsen (16:20):
Madam President now has three options to choose from for clean energy goals and it’s time for her first poll question. Which of these policies is more likely, do you think, to achieve net zero emissions in the transportation sector by 2040? Remember, it’s option one is electrify everything. Option number two would be a low carbon fuels policy. And option three is to invest in that clean fuels infrastructure. I know we’ve seen all of these options in the news in some way, shape, or form, so here are the results.
Lyndsey Nielsen (16:52):
It looks like an overwhelming majority of our audience thinks that the low carbon fuels policy is the way to go. What do you think, Roxby?
Roxby Hartley, Ph.D. (16:59):
I think the majority of people are right. Option two is the most likely to succeed. It has a goal to get to net zero. Neither of the other policies did. In option one, it would work as long as there’s another policy that will make the grid net zero, so that it takes away all the emissions from the grid. And option three would reduce emissions from transportation, but there’s no goal to get to net zero. You could argue that you would need option three anyway, and you’d have to go ahead with improving the infrastructure. Yes, but the audience generally got it right. Option two is the way forward.
Sarah Caswell, Esq. (17:42):
Roxby, I just wanted to add, that’s exactly right. Option three is a part of the solution, but it doesn’t address a comprehensive solution to get to net zero emissions. And you’re right, it doesn’t have any carbon measurement or reduction goals. And that would be a key part of any legislation that would actually achieve net zero.
Sarah Caswell, Esq. (18:06):
In addition, I feel like in option one, if we electrify everything, and even if we get a net zero electric grid, it doesn’t recognize the improvement and emissions that’s capable within the existing incumbent internal combustion engine vehicles on our roads today. Only a comprehensive policy that would recognize that those vehicles are still going to be on the road today, but trying to target lowering emissions in the liquid fuels going into those vehicles would complement the electrification efforts as well.
Roxby Hartley, Ph.D. (18:56):
I think that’s what you get for appointing a Brit as a climate czar.
Shashi Menon (19:00):
Right. I think the main takeaway, the main point of this case study is that any net zero goal or any set of policies that are driving towards net-zero must be accompanied with a science-based measurement system that measure carbon reductions, measures life cycle analysis of fuels, measures emissions and sequestrations. It must have a system to measure these things. In the absence of such a system, it’s just an empty claim.
Shashi Menon (19:30):
In that context, and I kind of want to circle back to you, Sarah, and your commentary earlier on U.S. and Canadian carbon policy. It seems that there’s a lot of talk on option one and option three. There’s a lot of talk about the infrastructure bill that will invest in all kinds of clean emissions, clean transportation and infrastructure, which is all great. The more they do, the better. And there’s also a lot of talk about electrifying everything. But what I don’t hear is a lot of talk about a low carbon fuels policy. I know Canadian policy is an actual low carbon fuels policy, and cab has done it. British Columbia has done it. Oregon and Washington are doing it. But what is the chance that we can potentially achieve a national low carbon fuels policy in the U.S.?
Sarah Caswell, Esq. (20:12):
Thanks for the question, Shashi. I’ve noticed that as well. As we’ve talked about within EcoEngineers, we really do need such a policy to achieve the lofty goals the Biden administration, for instance, has put out there to achieve net zero by a certain date. In my opinion, the focus on option one and option three is probably the easier lift in terms of getting passage in Congress, or in state legislatures, because option one and option three address one part of a solution, not a comprehensive solution. It might be theoretically easier for policy makers and elected officials to gain the necessary public support for once piece of a policy instead of an omnibus comprehensive policy, if you will. Because the more complicated a policy, there’s arguably more opportunities to take issue with one part of it or more.
Sarah Caswell, Esq. (21:37):
I think that in the biofuels industry, at least, and I think in others as well, there’s a recognition that after next year it will be really up to EPA to set the volumes for the different categories of biofuels including ethanol. For a lot of folks in the industry, there’s talk that that would not provide the kind of policy stability and predictability necessary to drive further investment and innovation in the industry, to the extent that it’s possible.
Sarah Caswell, Esq. (22:23):
There’s beginning to be a lot of conversations about how could we potentially extend or replace or something a national policy that could drive further innovation in biofuels and other renewable fuels designed to reduce carbon emissions, to then achieve the president’s goals for net zero.
Sarah Caswell, Esq. (22:52):
Within those conversations, there’s a lot of support, I’m finding, for a national low carbon fuels policy, because the success in California is just so obvious. It’s driven innovation and new markets, and that kind of predictability that nascent industries like ours need to get off the ground and achieve the kind of widespread results that public policy right now is looking for in terms of net zero.
Shashi Menon (23:31):
Thank you. Talking about biofuels and policy, let’s get ready for case study two.
Lyndsey Nielsen (23:36):
We are definitely ready for case study two, talking about biofuels and policy and scope one emissions. Here we go.
Lyndsey Nielsen (23:46):
Some years later, after Sarah has served her terms as president, Roxby establishes a software company in Silicon Valley. We all know how deeply concerned he is about the environment, and he decides he wants to focus on eliminating is scope one emissions. He recognizes that all of his scope one emissions are from burning natural gas for space heating and he wants to eliminate his dependence on natural gas in favor of more renewable resources, so he transitions to landfill methane as a new source of heat.
Lyndsey Nielsen (24:22):
The project is super successful. Roxby declares zero scope one emissions in his annual report, and most of his shareholders are super happy to see it. His stock price goes up, but not all of his shareholders are so convinced. Sarah is one them. And as we know, she has some background in climate issues. She’s concerned that Roxby is just greenwashing the statistics in order to make his annual reports look good, so she hires EcoEngineers to conduct a life cycle analysis of the renewable fuel Roxby says he’s now using for his heating needs.
Lyndsey Nielsen (24:57):
They find that landfill methane has an average carbon intensity, or CI, of 45.29 grams of carbon dioxide equivalent per megajoules. And then Sarah comes to the conclusion that based on the positive CI analysis, burning those gases cannot be zero scope one and she’s pretty upset about it, as you can see. Sarah files a lawsuit that says that Roxby is misstating material information in the company’s report. And according to Sarah and the filing, if the fuel has a positive carbon intensity, Roxby cannot claim zero scope one.
Lyndsey Nielsen (25:31):
What do you guys think? Here’s our next poll. Does burning renewable fuels result in zero scope one emissions? It’s a yes or no question, but you can say it depends if you’re unsure. I do wonder how much heat a software company in California needs in general, but I suppose this is our hypothetical situation.
Roxby Hartley, Ph.D. (25:53):
Lyndsey Nielsen (25:56):
Maybe. Wouldn’t you need cooling, then?
Roxby Hartley, Ph.D. (26:00):
Lyndsey Nielsen (26:03):
All right. I’m going to close the poll here in a couple seconds. Kind of … A lot of people did the it depends. But kind of split. I don’t know. What do you guys think?
Roxby Hartley, Ph.D. (26:15):
I’m right. Roxby’s right in this. It depends on the definition.
Emissions in scope one are burning fossil fuels. Since I’m no longer burning fossil fuels, I don’t have any scope one emissions. I have to report the RNG use, the emissions in the RNG use, but it doesn’t count in my emissions Scope 1.
Roxby Hartley, Ph.D. (26:40):
CO2 emissions from combustion of RNG, ethanol, etc. Are all treated by CA-GREET. That’s the model that we use for fuels in California. Are zero, because the CO2 in the fuel originally came from the atmosphere. It’s effectively recycled. And scope one is a very broad brush if I’m burning renewable fuels all of the CO2 is recycled and therefore I have zero scope one emissions. Do not contribute to the atmosphere.
Roxby Hartley, Ph.D. (27:18):
But the CI score, even though the CO2 isn’t counted, the CI score is aggregate emissions from production and distribution, which are all upstream activities, and may be reported under scope three, but not under scope one.
Shashi Menon (27:34):
To refresh everyone’s … Scope one, two, and three. Scope one is emissions from combustion and emissions that’s within my control.
Roxby Hartley, Ph.D. (27:45):
Shashi Menon (27:45):
And scope two is purchased electricity. And scope three is everything indirectly related to our operations, such as vendors and upstream activities.
Roxby Hartley, Ph.D. (27:55):
Shashi Menon (27:56):
In this context, if I am … The key point here is burning renewable fuels or biofuels is releasing carbon that was absorbed from the atmosphere, and then say it’s recycling carbon. Again, carbon that’s already up in the atmosphere. You’re not taking out any fresh million year old carbon from fossil sources and releasing into the atmosphere. And that concept is really key. It’s a key concept to carbon accounting and how fuels should be treated under a fuels policy.
Roxby Hartley, Ph.D. (28:30):
I’ll just say it’s interesting as well. Say I am burning fuels in my fleets of cars. I own a fleet of cars. I’m burning fuel. That all counts under scope one. But if outsource that fleet, if I hire the cars, it doesn’t count towards my scope one because it’s somebody else’s responsibility.
Shashi Menon (28:52):
We can probably do a whole other webinar on just the loopholes that are available to push your scope one into someone else’s scope one and make into your scope three. But we will save that for later. There’s a whole bunch of contractual loopholes that can be structured to make that happen. But the key message here is that the biofuel is just not … Even though they have positive carbon intensity, they don’t necessarily result in a positive scope one. But they do result in a positive scope three.
Shashi Menon (29:30):
Maybe circling all this back, it’s probably fair to say that if my … If I can achieve zero scope one, can I claim net zero? That’s a follow up question to it. By doing this, can you claim net zero?
Roxby Hartley, Ph.D. (29:47):
No. Scope one emissions are very … As I said, very broad brush stroke. There’s no real carbon accounting going on. We’re not measuring all the emissions that the carbon is making. I think it’s very dangerous to equate scope one with net zero.
Shashi Menon (30:04):
Sure. What is a net zero claim? Is a net zero claim zero scope one? Zero scope two? And zero scope three?
Roxby Hartley, Ph.D. (30:12):
Yes. You have to … If you’re at zero scope three, then you will be at zero scope one and zero scope two, if you get to zero scope three, because that counts all your emissions from upstream and downstream activities.
Lyndsey Nielsen (30:23):
That’s a good segue, because now we’re talking about some scope three emissions. We ready to move on, guys? All right. Here’s our scope three case study. Again, I didn’t mention this at the beginning, but I want to make sure that everybody knows that all of our characters and entities and scenarios appearing this case studies are examples and purely hypothetical.
Lyndsey Nielsen (30:45):
While the lawsuit is still pending, Roxby still wants to do something to lower his emissions beyond scope one. But he wonders what he can do, and he decides to ultimately focus on scope three emissions from sources not directly owned by his company.
Lyndsey Nielsen (31:05):
He decides to build 50 electric vehicle charging stations in the office parking lot, hoping to encourage his employees to drive electric vehicles.
Lyndsey Nielsen (31:15):
Even though he’s in California, it turns out Roxby has a hard time getting his employees to be excited about driving EVs. But he did remember that the California Low Carbon Fuel Standard actually offered credits for unused charging capacity.
Lyndsey Nielsen (31:32):
Roxby hires EcoEngineers to help him generate those credits. He knows that they can be an impartial third party. And EcoEngineers helps Roxby secure a pathway to generate credit. He is ultimately awarded 50,000 carbon credits because there is a lot of unused infrastructure on his building’s property.
Lyndsey Nielsen (31:54):
Roxby decides he wants to sell those credits, so he sells them for 10 million dollars, which is quite the boom. And it’s nearing the end of the year. Roxby’s feeling gracious, so he decides to donate his money to his friend Lyndsey’s charity for homeless beagles. He’s thrilled with these developments. Roxby puts out another report that he generated all these credits, drastically lowering his scope three emissions. And then he also mentions the cool 10 million dollar donation to tout his charitable giving on behalf of the company. His shareholders are stoked again, and he sees another stock bump.
Lyndsey Nielsen (32:30):
But here is your next question. Do the carbon credits generated from Roxby’s EV infrastructure effectively lower his scope three emissions or not? Let’s launch poll number three. Another yes or no.
Lyndsey Nielsen (32:49):
It looks like most people say that no, they don’t actually lower his company’s scope three emissions. 69%.
Lyndsey Nielsen (32:58):
What do you think, Roxby?
Roxby Hartley, Ph.D. (33:02):
I’d just like to say love beagles, so good job.
Lyndsey Nielsen (33:05):
Roxby Hartley, Ph.D. (33:06):
I sold the environmental attributes, therefore, I can’t claim those against any emissions reduction for my company. Whether I sell those environmental attributes … A good way of thinking about it is when I sell them, I buy the emissions from other people who bought them to offset their emissions. And that’s basically double counting. I can’t claim those emissions and sell them.
Roxby Hartley, Ph.D. (33:33):
As a side point, it’s an interesting policy that CARB has where they credit on capacity rather than dispensing of fuels. That capacity crediting doesn’t actually lower the transportation emissions in California. The policy is there to help people build dispensaries to increase the number of dispenses. In the long term, it will help California as we pointed out already in the first case study. Those aren’t real emissions offsets I am claiming as well.
Shashi Menon (34:04):
It’s really a double whammy here. For one, you never really reduced emissions. And two, you saw something you didn’t do, and you made a bunch of money out of it.
Roxby Hartley, Ph.D. (34:19):
Shashi Menon (34:20):
Okay. That sounds like many strikes.
Roxby Hartley, Ph.D. (34:21):
I’m obviously not a good person.
Shashi Menon (34:23):
Two strikes against you.
Lyndsey Nielsen (34:24):
I made money from it too, though, so I guess it’s not all bad.
Roxby Hartley, Ph.D. (34:34):
That’s right, actually. It’s both the point that … If you’re going to sell environmental credits, you could claim putting in the charges. That’s how California meets its goals. But it hasn’t helped my company lower its emissions as a whole. I think it also illustrates a point that you really shouldn’t … When you set up an LCFS, you shouldn’t manipulate the credits to compensate for people for doing things that don’t actually reduce emissions.
Shashi Menon (35:07):
Right. As much as all these policies have good intentions, they will result in some good as well, because you let more infrastructure available for EVs. But fundamentally, there’s a flaw in it if you’re giving credit to somebody for something that they’re not doing. And this is an example, it’s a great example, of where carbon accounting and actual credits and debits in the ledger is so important to have integrity behind a net zero claim. It’s very easy in this current environment for someone to make a claim based on some credits they have generated, and where as an effect, one there never were any actual reductions. And then like you pointed out too, they went ahead and sold it. And then it’s no longer theirs.
Shashi Menon (36:06):
There’s scope one, two, and three and carbon intensities and policies. They’re enough to drive me crazy. What kind of words of advice do you have to our listeners on how to make sense of all of this and stay on top of the energy transition that’s happening around us? And just to make matters worse, we’re even seeing … It’s not just policies. It’s not just claims. It’s not just unverified claims. It’s also the courts. I believe recently a court in Europe … Roxby, you may want to talk about this a little bit more. But a court in Europe told Shell that they are responsible for downstream emissions, which is neither scope, two, nor three.
Roxby Hartley, Ph.D. (36:56):
Shashi Menon (36:58):
How does that fit in the framework of carbon accounting?
Roxby Hartley, Ph.D. (37:03):
If you’re selling petroleum credits, you would think you have to move the point of obligation to the person who’s responsible for burning the fuel, rather than from extracting it. Say you sell your fuel to a power plant. Who should be responsible for all the emissions? You wouldn’t think you would be the person supplying the fuel. You would think you’d be the person actually combusting the fuel. That was a very interesting judgment that they would make responsible for their downstream emissions for other people using that fuel. I was quite surprised.
Shashi Menon (37:47):
Wait, so what that is really suggesting is that a unit of fossil fuel, once it’s extracted from the ground and refined, it has an inherent tax on it, and that tax can be passed downstream to another body, to another entity. There’s someone along that supply chain ultimately responsible to pay that tax. In this case, the judge combined all of that and made the refiner, that obligated party, to pay the tax.
Roxby Hartley, Ph.D. (38:22):
Shashi Menon (38:23):
Is that how we are interpreting that?
Roxby Hartley, Ph.D. (38:26):
Shashi Menon (38:27):
But this is sort of like a precursor to a tax on carbon.
Roxby Hartley, Ph.D. (38:36):
Right. I think that’s a good way to look at it. I think that you’re actually taxing the carbon by enforcing the judgment on the company.
Shashi Menon (38:46):
As said a few minutes ago, scope one, two, and three, carbon intensities, court rulings, carbon taxes. It’s a whirlwind of jargon and terms and definitions. I know we are running up against the hour and we want to leave some time for questions, so Roxby and Sarah, what last points do you have to make to help our readers navigate these complexities?
Roxby Hartley, Ph.D. (39:16):
I would say that when you’re measuring carbon and you’re measuring your emissions, make sure that your claims that you make are within the bounds of the system you use to measure the carbon. If you’re using the California system, make sure that you’re using the California regulations. If you’re using another system, then make sure your claims are clear about what system you’re using.
Sarah Caswell, Esq. (39:43):
I do think that it’s important for policy makers and elected officials who are crafting these policies and regulations to ensure that scientists are a part of their team. This really is scientific and it’s so important to get it right to create the best policies that will achieve the net zero goals in the most effective and efficient way without double counting, which we’ve seen can happen even unintentionally.
Shashi Menon (40:25):
Absolutely. Policies ultimately create markets, and markets need good accounting. And markets without good accounting is ripe for fraud. Once you have fraud, then the policies take the blame for it.
Sarah Caswell, Esq. (40:39):
Shashi Menon (40:40):
And it just leads a vicious circle, a downward spiral-
Shashi Menon (40:44):
Shashi Menon (40:46):
Saw some of that in the RIN markets 10 years ago, and we absolutely do not want to repeat anything like that.
Sarah Caswell, Esq. (40:54):
No. All participants in the system need to have faith in the system. Obligated parties, for instance, under the RFS … Even if they didn’t have knowledge of fraud, they were going to be liable for it at some point. It’s so important that the rules of the policy set up a program where there’s the least likelihood of fraud and double counting, et cetera, et cetera, so that everyone in the market knows the rules, has faith in the rules, and participates in it.
Shashi Menon (41:41):
The question was asking can you comment on a carbon accounting standard and creating one that perhaps is nationally or internationally acceptable so we can have a changed system for trade?
Roxby Hartley, Ph.D. (41:59):
Right. That’s a very interesting question. There is a standard for measuring carbon. The ISO standard exists for how do to carbon accounting. That is available. Making everybody agree to a regulation based around those rules would be a lot harder left. There’s no point implementing a regulation unless everybody has to abide by it and it is verifiable. And the auditing is a very heavy lift. I don’t know what you think, Sarah, to how that would work.
Shashi Menon (42:43):
From what I’m perhaps hearing you say is that it’s possible to set some sort of an international standard that everybody can agree on, but getting everyone to abide by it would be almost an impossible task. Did I understand you correctly?
Roxby Hartley, Ph.D. (43:00):
Right. Yes. Without penalties for companies that don’t comply or for countries that don’t comply, it’s going to be extremely difficult to drive the world towards net zero goals.
Shashi Menon (43:15):
In the case of the airline industry, we are seeing a little bit of that. It’s possible to set national standards or regional, perhaps, or even bilateral agreements between countries. But it’s very difficult to set an international standard and expect every country to abide by it. If we can extrapolate from that and apply that to all goods and services being traded internationally, then we will run into the same problem.
Shashi Menon (43:45):
What do you think of the legality of a border tax to address this issue? Is it possible of a country doesn’t abide by a certain accounting standard, it’s a country, let’s say the U.S. or the European Union, could set a border tax to penalize the country that’s not abiding by it?
Roxby Hartley, Ph.D. (44:07):
Right. I think that would be possible. I don’t know how that works in the … Is it WTI?
Sarah Caswell, Esq. (44:15):
I was just going to say that the problem with … Even if you could do it, the enforcement would be the tricky issue there.
Roxby Hartley, Ph.D. (44:24):
I think it’s something that we might have to head towards, because as we want to sequester more and more emissions. As countries say, “We’re in net zero. And if we want to report goods from country X …” Country X has these emissions, then you would assume that the import is going to have to pay for the sequestered emissions. There will be a tax, which is equivalent to how much carbon has to be sequestered on the imported goods. That implies that we’re measuring emissions of all the nations, and we understand supply chains extremely well.
Shashi Menon (45:04):
Lyndsey Nielsen (45:04):
Did we answer … I know we talked about how complicated it is to determine those carbon accounting standards. Did we talk about how the stakeholders can help the decision makers?
Shashi Menon (45:15):
Sarah, do you want to take that?
Sarah Caswell, Esq. (45:19):
Sure. I touched on it a little bit in our presentation, but for instance, in terms of CARB, for instance, they’re working to update the California LCFS. There is an informal part of that process and then a formal part of the process. And the informal part of the process will be informing what comes out in terms of a proposed rule during the formal part of that process. I would just say that it’s so important for stakeholders to follow the regulatory actions in the places that they plan to be involved in, so California. The U.S. would be the RFS regulatory process. And to take every opportunity possible to provide comments to the regulators, either via oral testimony like a public hearing, or written comments in response to a proposed rule making. Or in the case of California, written comments following the workshops that CARB staff are having right now, a series of them on specific topic areas that will be included likely in the proposed rule.
Sarah Caswell, Esq. (46:36):
Staff, the regulatory level or even on the hill, or in legislative bodies, are only as good as the information that they receive from stakeholders, because they’re in a policy role. They’re in a regulatory role. And they might understand business, but they don’t understand what’s happening on the ground in business in our industry unless they’re hearing from folks in the industry. Those comments and that involvement really makes a difference between an effective policy or one that falls short of its potential for effectiveness.
Shashi Menon (47:20):
I would add that part of our objectivity in continuing this webinar series is to empower stakeholders to be knowledgeable and express how carbon accounting and net zero goals at the supply chain level can ultimately impact net zero goals at the policy level. I guess what I’m saying is that you must be heard and you also have to understand the finer details of carbon accounting to be effective in your comments and to help shape policy. One of the things that I am seeing is that there’s more and more movement in the food industry for carbon labeling requirements and carbon accounting. There’s going to be … That requirement that’s coming from the large food manufacturers are going to be driving down and hitting the supply chain, and they’re going to look to how to transform the supply chains to be net zero. The more the supply chains are empowered in the process of the carbon accounting of net zero, the more they can step up and control this whole process and also have a say in how this process unfolds.
Shashi Menon (48:44):
It’s important for the agricultural sector, farming sector, and the growers to really be empowered to be part of this, because otherwise, the trickle down idea of net zero is not the right way to do this.
Sarah Caswell, Esq. (49:03):
Shashi Menon (49:03):
It has to be bilateral approach.
Sarah Caswell, Esq. (49:05):
Right. And it needs to be specific in the policies and regulations as to how that’s going to happen to ensure that the economic drivers are there to promote the innovation and carbon reductions that policy makers are looking for.
Sarah Caswell, Esq. (49:28):
Roxby Hartley, Ph.D. (49:30):
California has done that. California has made that leap between the regulation that size and they’ve got a policy that can get to net zero, whereas I think federally, we haven’t quite got there yet.
Sarah Caswell, Esq. (49:43):
Lyndsey Nielsen (49:48):
Roxby, you mentioned the ISO as a carbon accounting system. Are there other ones or different systems? What are the other things people can use?
Roxby Hartley, Ph.D. (50:00):
With California, we use it … It depends on the application, whether using an application that measures fuels, such as GREET or GHGenius like they use in BC. Or you’re using another methodology, which just measures scope one, scope two, scope three emissions.
Roxby Hartley, Ph.D. (50:18):
Roxby Hartley, Ph.D. (50:19):
ISO is the gold standard for it, for all of them, effectively.
Shashi Menon (50:25):
I would definitely encourage the person asking the question to just maybe even reach out to us offline and we can talk in more detail about which system is applicable to what sector.
Lyndsey Nielsen (50:38):
For sure. Everybody’s emails are listed here on the slide, so feel free to reach out to us. And then again, do the survey once you close out, and we can get in touch with you if you’d like us to. Anything else before we go?
Shashi Menon (50:53):
No. Thank you, Lyndsey, Roxby, Sarah. And we look forward to seeing you again. Thank you.
Lyndsey Nielsen (50:59):
Yeah. For those of you that follow along, we do have another webinar scheduled next month on electric vehicles, so go to our website and stay tuned. Thanks everybody.
Shashi Menon (51:10):
Sarah Caswell, Esq. (51:13):
Roxby Hartley, Ph.D. (51:13):
Have a good day. Bye.