Chuck Yates Needs A Job

0:20 Hey everybody, welcome to Chuck Yates needs a job, the podcast. My guest today is Mike Taylor of Aegis and I pronounce that correctly. Yes, Brian would be happy. Brian would be happy. Brian

0:31 learned to me how on it. Now, you know, we've talked on the podcast because I've had a couple of repeat guests come on. My priest has come on a couple of times. Brad Olson has come on and we've

0:43 talked about how sequels just really suck We haven't done a sequel and changed out the lead actor before. So no pressure, Mike. Perfect. There we go. But I appreciate you coming on because I

0:58 think in five years from now, when we look back at all the podcasts, I think this is going to be an important one because you've been doing carbon cap and trade, emissions cap and trade,

1:14 environmental cap and trade. for probably longer than anyone on the planet. And I don't understand how any of that works. And I feel like I need to, 'cause I feel like that's gonna be a big deal

1:28 in the future. So the open ended question is, what is that stuff, or how did you get into that? Take that kind of wherever you wanna go - Sure. So cap and trade, it really started with the

1:45 passage of the 1990 Clean Air Act. And then the EPA started a program in the early '90s around acid rain, SO2. So basically they took all the power plants, call it roughly 25

1:59 megawatts or greater and said, we're gonna cap the amount of SO2 emissions per year that in aggregate the whole universe in the program can emit And each year they lower that

2:14 cap. And that's how they, but they allow the companies inside. to determine who's going to lower their emissions overall to meet the cap and you're allowed to buy and sell between the market

2:23 participants. So companies can put on scrubbers and reduce their S2 emissions by 98 and

2:31 then they'd have surplus credits and then they could sell it to someone else who it's not cost effective for them to put on control technology and they allow trading in between those facilities. And

2:42 as long as they stay below the cap, the program's successful and emissions drop over time. So that's really started emissions trading. And I don't know a lot about the acid rain, but kind of what

2:55 I do know is from, I think it was Jeff Curry or the guy from Goldman did a podcast and it just happened to hear about it. I mean, the science was pretty settled that, yes, this was leading to

3:07 acid rain. Yes, we had to reduce it. So we figured out a mechanism for putting a cost on it and we just raised the cost over time or limited the amount and that drove it. And that program actually

3:22 worked, right? And we don't have acid rain today. Extremely successful, yeah. Was so, so what were attributes maybe of that program

3:37 and the problem that was dealing with that might be helpful? 'Cause I think ultimately where we're gonna start talking about is carbon emissions have a cost. I mean, everybody has to admit that. I

3:49 mean, even if you don't believe it's leading to global warming and you just believe it's annoying when you're in a tunnel and you're coughing because of

4:02 the car in front of you is emitting something, it does have a cost that's not priced today. So I think we're ultimately gonna be talking about that. And the like, is there something though, from

4:10 kind of this

4:13 program that started it really are there lessons we can learn from that - Yeah, I think once you put a price on something, people pay more attention to it. So companies, you take Microsoft, for

4:28 example, they're now charging business units internally when they travel for their CO2 emissions and say you're going to pay for those CO2 emissions. So once you put a price on something and you can

4:43 measure the emissions, you can encourage people to start taking actions, especially take California, for example, they created a carbon cap and trade program. First year was 2013, and anybody

4:55 that emitted more than 25, 000 tons, they were put in the cap and trade program. And prices started at 10 per ton in quarterly auctions and then increased by CPI plus 5 every year. So we've gone

5:10 from 13 a ton to the high we had last year 35 a ton. and each company was given a free allocation that ratcheted down each year. So once you assign a price, you start seeing companies and

5:24 management say, Hey, is there ways that we can reduce it? And if it's cheaper to reduce these credits or reduce our emissions and

5:34 for business purposes, then they'll do so. But really putting a cost on something is really what drives incentives and change - I gotcha, and so before we jump into kinda today, how'd you get

5:46 started in

5:50 this? So, I was born in Wallens, I went to LSU and I had two big internships. One was at Enron back in 2000. And the other one was at Microsoft. And I did it back-to-back, actually took a

6:10 semester off, went up to Redmond And I got two. full-time job offers from both and - What's your major - Finance - So you're a finance person, you get it. And are you writing Microsoft? What are

6:28 you doing at Microsoft - No, yeah, I was in the treasury - Okay - So at the time managing all their long-term strategic investments and all the technology companies that partner with or have shares

6:40 with, in the treasury they also manage all their foreign exchange risk, it was probably 50 billion at the time that the treasury was managing, which is a much larger number today - Right, gotcha.

6:53 Okay, so you did that and then what were you doing at Enron - So Enron, when I got the internship, I said had liked to be as close to trading as possible. And they said, Hey, do you mind waking

7:06 up early for your internship? You know, I'm thinking, Oh, maybe six AM, six 30, they want me in there before everybody And I said, Yeah, sure. And they said, Great, please report at 4

7:20 am. to the natural gas desk and go to these bulletin board systems, the old school dial up, get the flows from yesterday, update everything, and have a report. That's back when we use paper,

7:34 photocopy for every trader and every scheduler, have it on their desk by 715 am. So that's what I did from 4 to 715 am every morning. And then after that, they said, Look, you're an intern. We

7:49 don't really care what you do. So I would just ask the traders as much questions as I felt I could without them telling me to take a hike. And then luckily for myself, one of the main traders, she

8:02 went on maternity leave. And so her seat was open and that's when Enron Online was growing. And the guy next to me is like, Hey, I'll let you sit in this desk. Just do everything what I say.

8:14 I was able to be exposed to trading at Enron after I did my three hours and 15 minutes of reporting and data entry every morning. I don't know if I've told this story on the podcast, so it may be

8:29 repeat for listeners, but Enron Online came out and at least one of the fears was the industry saying, I don't want to trade directly with Enron. I don't want them to know my positions We actually

8:44 put together, because I was at Stevens, a little rock Arkansas investment at the bank at the time, we put together an idea called Enron Anonymous, where we were basically going to be in effect a

8:58 website that sat between client and Enron Online, and you would just trade through us. We would aggregate and we'd directly tie into Enron Online, and that way, theoretically in Ron wouldn't know.

9:14 They just know Stevens was doing all this trading. And we actually put together a business plan, pitched a few guys at Enron. I wanna say there was even a meeting that's skilling popped his head in

9:28 at the time. And for whatever reason, it just kind of died. It never got any traction. And thank goodness. 'Cause so did

9:37 you go work for Enron after that - Yeah, so deciding between Microsoft and Enron, which obviously at the time, two great, great options, booming companies. But Microsoft, we supported the

9:54 people, we supported the money, we didn't make the money where Enron, the trading firm, the traders were the ones making the money. And so I decided, I was like, I'd rather be the guy making

10:04 the money than supporting it. And one of the reasons, Microsoft was there on its 25th year anniversary. And they brought Sinbad in the comedian. They rent out Safeco Field. And so they had the

10:18 office group, the windows group, the Xbox group, all the programmers and the people that made the products, they had reserve seating. And when the treasury showed up, there was about eight of us,

10:28 they said, hey, you don't have reserve seating, just go somewhere up on the third deck.

10:36 So that's just kind of an example of, hey, you were supporting the money, you weren't making the money But so we actually did with the senior guys, like, hey, we're gonna go in, we sat in the

10:47 windows group. And every time they mentioned windows, we grabbed the noise maker, so we wouldn't be found out that we were in the wrong section. But yeah, that's why I decided to go into the

10:57 trading as, I kind of wanted to be on the front lines and try to make the money for the firm for supporting it - You're too young to remember this, but Sinbad, my favorite joke from him from way

11:08 back in the day, It was this horrific aftershave clone.

11:14 called Aqua Velva. And their whole commercials and pitch was there's something about an Aqua Velva man. And Sinbad's joke was always, yeah, he shops at Kmart. And

11:28 so that's funny. So you went to work for Enron, what are you doing there? Yeah. So after spending a summer on, you know, a natural gas desk, I, you know, when I got the full time offer, I

11:40 said, well, what's the quickest way to trade? And they said, if you want to trade power or oil or not gas the lines way back there. But if you want to go to the emissions desk and that, you know,

11:52 the one guy doesn't show up tomorrow, you're next in line. So I joined the emissions group, you know, in 2001 and, you know, spent my time there and obviously Enron declared bankruptcy late 2001

12:07 Yeah, my ex wife was working at Enron at the time and. My office was at 1100 Louisiana on, I think the 41st floor. And they were putting up that new Enron building, literally a floor week. I

12:22 mean, it was just high tailing. And about June of 2001, the new building just stopped. And I was always like, what's going on with that? And Kim goes, yeah, I don't know, but they told us to

12:35 go pencils down on deals 'cause she was financing oil and gas deals. So she's like, yeah, you know, they tell us to go pencils down, so wherever we're playing board games every day, and

12:46 should've known something was up. And I think probably the only reason as the stock was falling, we didn't load up on the stock was it was so cumbersome at Kane Anderson to get approval to buy stock

13:00 that, you know, we didn't do it. So what was emissions trading back then? What were you even doing? Yeah, so emissions trading back then, you know, there was. the SO2 and NOx, so two

13:16 pollutants that occur when you combust natural gas, coal, or oil predominantly. And that was that cap and trade program that was administered by the EPA. So the Environmental Protection Agency

13:30 created the rule and majority of the states in the northeast, Midwest, and South were in this trading programs. So Enron would buy and sell SO2 allowances and NOx allowances in those programs.

13:46 Carbon trading didn't really exist in the US at the time. Yeah, do those programs still exist today? Because I'm not even sure I'm familiar with them. They do, but they've had a few kind of name

13:58 changes. So the acid rain SO2 allowance program still does exist, but the market is so oversupplied with allowances. They're literally worth less than a dollar per allowance. you know, the peak

14:14 of that was like 1,

14:17 630 back in, you know, 2006. But because facilities did such a good job at reducing their emissions, you know, the program really became relevant at the time. But they created a new program,

14:32 same concept called the cross-state air pollution rule And they offset NOx both annually, as well as an ozone season, which is May through September, which causes ozone when the temperatures are

14:47 higher and you have NOx emissions that's most likely to cause ozone in the air. So they have an ozone program, they have an annual NOx program, and they also have an annual, you know, SO2 program.

14:59 And the EPA is actually in the middle of a rulemaking process that would add more states to the program and reduce the supply increase in the strictness of the program. Gotcha.

15:10 And prices have actually gone up probably

15:17 a few thousand percent on Knox allowances this year after being a relatively sleepy market for years, but when you decrease the supply to a point, obviously the demand for power stays similar. As

15:33 we've more renewals being built have helped, but EPA continues that program So have they actually worked? Have we over time reduced Knox? Yes, the program's been very successful. As we're

15:50 discussing acid rain, there's no longer a problem because you've reduced. One of the reasons that it's worked so well in SO2 and Knox is you can put on large control equipment. So in SO2 it's

16:02 called a scrubber and it has anywhere from a 98 to 99 percent destruction efficiency of SO2. It may cause, you know, hundreds of millions of dollars to build those, but you get the destruction of

16:16 the pollutant. Same thing for NOx, it's called SCRs, getting 95 to 99 destruction of the pollutant. So it's been extremely successful. And when we talk about carbon, the fact that that

16:30 technology doesn't really exist that you could put on a facility tomorrow commercially across all industries, that's why the price of carbon and reducing carbon is a much greater challenge than

16:41 historically NOx in S2 - Oh, okay. Well, yeah, that makes a lot of sense. And I guess,

16:50 so let's fast forward today and let's talk carbon. So if I'm pro carbon cap and trade to reduce global warming, what's kind of my story? What's my narrative there? And then I'll ask you the flip

17:07 side of that you've been for it, I'll ask you later, what's the argument against it - So, we'll take, there's two main programs in the US that are actively putting a price on carbon and trying to

17:23 drive emissions. One is called the Regional Greenhouse Gas Initiative in the Northeast. It's currently 12 states. I say currently because Pennsylvania and Virginia are trying to determine if they

17:37 wanna be in the program, when you have governors elected that are a different political party than the previous governor or state legislature, sometimes they argue whether they should be in the

17:47 program because it's for power generation only and for every ton of CO2 that your power plants emit in the program, they have to have one allowance to offset that and it's an annual compliance. And

18:01 so, and they auction off the CO2 allowances,

18:07 funds and then they choose how they get to allocate those funds. And theoretically, those funds are remediating somehow, planting trees or something. Yeah. Energy efficiency programs. So various

18:22 things that all should be reducing CO2 or helping

18:28 climate change. Some people view that as it's just a tax, you're increasing the price of power, and you're just being passed on to the residents of the state. And so power prices are absolutely

18:42 higher because CO2 is a cost that the power generation companies have to occur. But it helps incentivize renewable energy projects from the aspect of their carbon free. So they don't have to pay

18:56 that cost. They get to sell into a power market that's presumably a higher price because all the coal, oil, not gas plants, or all factoring. a price of CO2. And you have seen emissions come

19:10 down over time. And the grid just getting cleaner, older facilities being retired, as well as renewables coming up and new net gas for placing older coal plants. Yeah. And what's the other

19:24 program? You said there were two going on? Yeah. So the other one is California. So what California did is they started the program in 2013. And that was sector wide. So if you make cement,

19:40 you're in the program, power generation, if you're doing mining, oil and gas, where the Reggie states were just power. So there they put a tax on very, not attacks. They put a, they put a CO2

19:56 cost on various industries that emitted any industry that really emitted over 25, 000 tons a year. And they started in 2013. Most industries got a free allocation, which drops every year. So we

20:10 can talk about specifically like an example of an oil and gas company, how that's changed over time, but that's the other main program in the US. In California, they actually linked with the

20:20 Canadian province Quebec.

20:23 They have similar rules and just one allowance that trades between

20:29 the two - That's interesting 'cause they've got cap and trade stuff carbon based in Europe, don't they - They do - Anything in Asia - China has started some programs, but yeah, the European ETS is

20:44 the oldest carbon trading system in the world and has been quite expensive for the facilities to comply with its most expensive carbon allowance that exist out there - And so the genesis of all this

21:01 stuff, just to kind of always joke on this that my mom listens to this podcast. We have to have a periodic movement for mom on this. Basically, Cap and Trade walks in and says, you can emit X,

21:13 and we're going to decline that over time. You get this, you get that. It's declining over time. If you need more, you're going to have to go buy it. Theoretically, the penalty causes you to

21:26 invest to cut it down. Does that have an issue?

21:34 The proponent side of that, you've laid out, is we reduce the emissions over time. What's the argument against Cap and Trade-type solutions to reducing carbon?

21:52 One thing, California, for example, is part of what's

21:57 called the WCI, the Western Climate Initiative and it was supposed to be multiple US states. as well as multiple Canadian provinces, we're gonna do this program, because what that leads to is

22:08 potentially leakage, across borders - Sure - So - Just move the plant to Reno or whatever, yeah - So yeah, for example, yeah, cement plants shutting down in California, increasing their

22:19 production in Arizona, and then just trucking the cement into the state. So you didn't do anything for CO2 emissions, except cost yourself potentially jobs in the state, and you reduce CO2

22:32 emissions in the state. But unlike NOx and SO2, which is a regional problem,

22:41 ozone issues with NOx and VOC, that you could see locally, CO2 is a global problem. So a ton reduced in California, offset a ton increased in the state of Georgia, close some trucking - Yeah -

22:56 There's no benefit to the air So, you know, states really, you know, California would really like. its neighboring states and provinces or nationally to have a CO2 trading program because it's a

23:12 global issue, it's not a state issue - Yeah, that's the thing I always phrase it and pardon my French, but there's no non-peying section of the pool, I mean, it's

23:22 like beating the pool, they're beating the pool. So I guess kind of anti-cappin' trade would be, I guess there is a segment out there that just the amount of CO2 is in dispute. You know,

23:43 some people think it can go here, some people can go there. And then I think the bigger impediment is probably, if you need to do it for the whole wide world, how are we divvying up allocations

23:57 between us, China, India? And, you know, let's, let's talk a

24:01 little bit. on the oil and gas sector in California. So they obviously have a cost to run their operations in California. So for example, a facility that produced a million barrels of oil

24:14 equivalent per year in 2013 with the price of CO2 plus their free allocation, which was about 98 when the program started, I call some about 135, 000 to comply with the program in 2013 and 2022,

24:34 the exact same facility, exact same operations, it's about 2 million per year to comply with the program. Nothing changed, same emissions, same production. In 2030, that's projected to be over

24:46 3 million per year.

24:48 So you're increasing the cost for oil and gas in California while countries saw the Peru, Ecuador, Venezuela, they don't have these programs and cost on their producers. So it's cheaper to produce

25:05 in those other countries. So you're, you know, disincentivizing new production in California and you put those, you know, you put the fuel on tankers, cargo's ship them here in California while

25:19 having CO2 emissions associated with the transportation, having less CO2 stringency to produce the oil from a, from a start. So you can see how California, while they're reducing their emissions

25:31 because they're putting a cost on carbon for oil and gas emissions are increasing in other countries because of demand for fuel gasoline has not dropped dramatically in the state of California -

25:43 Arguably, you've kind of even made it worse, if you will, because of the transportation, what I'll call leakage or additions to the system - Yeah. So that's why California would love for everyone

25:56 to have a similar program So there's, you don't have those issues of reducing. California, but increasing somewhere else that has less stringent programs. Gotcha. Yeah, just California is

26:10 unilaterally disarming right now, I guess is maybe a way to put it. So what do we see? Okay, so we've got all these targets of

26:23 2050 and 2060 I think Xi figured out his life expectancy and added five years to China's targets. But

26:34 I mean, do we see cap and trade type scenarios potentially happening? If we're sitting here in 10 years, what are we talking about? So, in addition to the cap and trade, we're seeing

26:49 corporations that are saying, hey, we're going to do our part and buy carbon offsets, which is a whole separate program from cap and trade. Carbon offsets are voluntary. So you're seeing

27:04 companies and Microsoft is very outspoken and public, what they're doing, they're trying to offset all of their carbon emissions. Google is the same, Spotify, Etsy, et cetera. And what they're

27:17 doing is buying carbon offsets from companies or projects that are reducing their emissions for voluntary reasons, nothing to do with compliance. So because it's very difficult to pass the carbon

27:29 cap and trade program, it was tried in 2009, it passed in the house, but it couldn't get through a Democrat controlled Senate because it would really affect the coal industry. And there's a number

27:42 of Democrat senators that were from coal states in 2009. So you're starting to people say, companies say, Hey, we're gonna take it in our own hands and do voluntary steps, including purchasing

27:53 carbon offsets. In addition to trying to reduce their carbon emissions as much as possible. But I think to see meaningful changes,

28:03 obviously Europe has led the way with their program, but getting countries like China, India, Brazil, and the US to have federal-wide cap and trade programs is really what it's going to take to

28:17 see significant reductions in those countries. But cap and trade programs do work when you put a price on it. Companies are going to find ways to reduce it Energy gets better, incentives get better,

28:29 and you're going to see reductions, but it's hard to do it when it's not at the federal level of the countries. Yeah, that's always Charlie Munger's show me your incentives, and I'll show you your

28:39 behavior. So

28:44 the offset programs I find interesting, is there a global certification of what an offset is, or do we kind of have an ad hoc set of committees that determine what an offset is?

28:59 You have what's carbon registries and they're non-for-profit. So we have three main ones in the US that have existed from 1999, I think 2007 was the last one. And what they invite is organizations

29:17 to produce a carbon methodology that says, if we do this activity, we should generate these many, this amount of carbon offsets And that activity should be additional, so it should not be business

29:31 as usual. And then the carbon registry say, yes, we approve it. We're open for business. Any company that shows up registers a project with us, hires a third party verifier that's approved by

29:46 the carbon registry. They go out and they do a site visit, which prevents fraud from people just saying they have a project and turn it into paperwork, but you actually have the site visit. Who's

29:57 that report? It goes back and forth and they ultimately settle, okay, we agree this forestry project, here's 100, 000 carbon offsets for the activity that you're doing that's not business as

30:08 usual. Pay us our issuance fee as the registry and we'll officially issue these credits. So that's how it's really worked in the US. And then corporations say, we verify or we trust in that system,

30:25 in that registry and we'll buy those offsets and retire them to offset the emissions that we had at our company. So that's the way that it's historically been done - So am I getting this right that

30:39 it's, and this is gonna sound horribly cynical, but it's, well, I was gonna go build a plant now, I'm not. And so I have X amount of offsets, Pilly's pay me. I mean, I know that's the

30:52 horrifically cynical way to look at it, but No, so this is in your example. I was going to start doing something that was going to start pollute. I'm not so you should pay me. Majority of these

31:03 offsets are, you know, I was emitting now I found a way to reduce that. I was at 10. Now I'm at eight. So pay me for two. So for example, landfills. So, you know, landfills that have organic

31:16 waste, if they're small enough, they weren't required to put in a gas collection system, capture the methane and flare it Um, and so they were emitting and they were allowed to emit by law. So

31:29 one of the early, uh, methodologies was to come in, put a gas collection system in these landfills, capture the methane and destroy it. So you've actually avoided, um, emitting CO2, um, and

31:42 it costs you money to build that gas collection system as well as to, to maintain it, make sure it's, uh, calibrated and then have those third parties So that's typically it's not that, Hey, pay

31:54 me not to do something, but it's more of, Hey, avoiding or reducing emissions that were already occurring. Do you have any idea kind of globally, US or whatever, what the size of that market is,

32:09 is 200, 000 of this happening a year or is it multi-billion? Any idea? It's certainly a multi-billion dollar system.

32:22 California, for example, between California go back If we say there's emissions of 350 million tons per year, and if you have an average price of 30 a ton, that's over a 10 billion

32:40 market just in California and Quebec. Europe is

32:46 even bigger, and then of course, all the other countries. I'm not sure if a trillion is the right number, but if you look at all the emissions and the you assign a certain cost, it's a very,

32:59 very large number. Interesting. Because I mean, the way I've kind of looked at carbon reduction is this isn't government driven. I mean, it really is consumers, companies. I mean, it's a tidal

33:17 wave because people want it to happen And so I think a lot of money has been

33:26 spent and has been going to continue to get spent on that front because this is a tidal wave. And it's showing absolutely no signs of, I mean, energy crisis notwithstanding.

33:40 Yeah. I mean, you look at companies like Lyft, every ride is carbon neutral So they calculate what their CO2 emissions are, whether that's a quarterly or annually basis and then they work with

33:54 carbon offset developers. sell them the credits and then they retire those. You want to take a carbon neutral flight, you check a box, you want to ship your FedEx or UPS, you can check a box,

34:08 make it carbon neutral. So you've definitely seen demand from consumers which driving these voluntary actions and people are willing to pay more for the same product if they know they've offset their

34:23 carbon emissions Have we been able, have you seen any studies that have actually kind of quantified the benefits of this or is it because it's all private, it's hard to gather data on it?

34:37 You know, there's definitely been a number of studies done but I don't have any good examples for you Yeah, no that makes sense. So Ed E just what do you guys do in this space? So you know. Let's

34:56 take a California oil and gas entity. So with their production, their emissions over 25, 000 tons, they're in this mandatory program and they have to comply. So we help them understand the

35:09 program, we help them understand what their free allocations are gonna be, we help them understand what their deficit is each year, and then help them come up with a strategy to reduce cost. So

35:22 there's forward markets in carbon So when the Russia-Ukraine conflict prices on California carbon drop, that was mainly sympathetic to European carbon allowances dropping when there was concern that

35:37 it wasn't gonna be enough energy, continue to run all the factories and industry in Europe and it was a lot of the same global trading firms. So we saw that as a great opportunity, there was over a

35:50 20 price and we were able to help our clients hedge. not only for spot purchases, but forward purchases for this year, next year. So helping them try to, or helping them comply with the program

36:03 in the least cost effective way. In addition to that, one thing we haven't discussed, what we also do at Aegis, is help companies potentially able to create revenue from these environmental

36:15 programs. So for example, if you have an oil and gas operation here in Harris County or one of the seven adjacent counties, we're what's known as non-attainment for the federal standards for ozone,

36:29 which is NOx and VOC. If you shut down well and you plug it and turn all the equipment off, you can generate VOC and NOx emission reduction credits, which then you can turn around and sell to a big

36:44 chemical or refinery plant that's being built in the area In addition, there's, you know, if you're doing carbon capture, storage - Um. there's the ability to earn voluntary carbon offsets. So

36:58 some companies are doing activities, but they're not aware that there's the ability to generate environmental credits that a program has been set up. They just realize, hey, we've reduced

37:08 emissions. But so helping everyone understand whether it's a liability or an asset, the whole carbon and environmental credit trading, and it's only getting more complicated as we go. In addition,

37:22 we also help companies that are producing renewable fuels. So renewable diesel, renewable natural gas has been growing dramatically the last five, six years. And if you sell those fuels in the

37:35 state of California or Oregon, you earn what's called a low carbon fuel standard credit that you can sell. So those facilities have been very profitable and growing because of these programs that

37:52 incentivize we're doing traditional fossil fuels. usage. Gotcha. Now that's interesting. Is there any sort of magnitude of dollars associated with this? If I

38:08 do X, Y, and Z, can I add 10, 000 a year revenue? Can I add millions of dollars? Do you have any, even if it's just an example of a project, because I, you could name a number right now? And

38:21 I would be shocked by that number no matter what the number is right now. So, so let's stake carbon capture storage for enhanced or recovery. There was a number of projects done, you know, in the

38:33 2000s. And some of those projects generated two to three million tons of voluntary carbon offsets per year. And so. That's just injecting CO2 in to increase the flood Got it. That's exactly. And

38:49 those credits historically back then, maybe worth a dollar, 2. a ton. So, to the project, it was worth, call it four to six million dollars because of fact, prices have increased and we've

39:04 seen a demand for new projects, I'm sorry, for credits associated with US-based projects, because the majority of the carbon offsets are created in developing countries. And the majority of the

39:17 people buying carbon offsets are from developed countries. So, when we can take a US-based carbon offset project and sell it to a US-based company, they feel good that they're buying in the same

39:31 country, that their emissions occurred, that there was a reduction. So, in the CCS EOR case, prices have at least doubled if not triple. So, you go from making four to six million a year to

39:43 potentially 12 to 15 million a year, you know, for the same size facility. And people are projecting that carbon offsets need to get to 20, 50 a ton. on average, we have carbon offsets trading

39:57 significantly higher than that. But that's what it's going to take to really drive down carbon emissions. So you can imagine that entity that was earning two bucks a ton, five, six, 10 years from

40:08 now, they might be earning 20 or 30. So the magnitude can get pretty high, pretty significantly depending on the price of carbon offsets And right now with the system that we're talking about,

40:22 it's voluntary. So prices going up are board of directors telling companies we're going from X to Y. Is that basically right? Since there's not a governmental hammer, if you will. Yes. And what

40:38 you see, once companies go 100 carbon neutral and they make a pressure lease and they buy all their emissions for, you know, call it calendar year 2021. It's. the CEO is the board. They don't

40:51 want to go in 2022 and say, oh, we only offset 70 because prices went up. So once they kind of make that commitment, they really, they really try to stick to it. Now that raises an interesting

41:03 question. And we deal with with Aegis clients is if prices of carbon offsets go up, do you look at other types of carbon offsets? So typically nature based offsets always trade a premium to, you

41:18 know, technology or renewable base projects. So if prices double, you know, do you change what type of carbon offsets that you're buying because of budgetary reasons? Or do you, you don't

41:30 continue to buy the same and you just double your, your budget from the previous year? So that's a discussion that a lot of companies in the US have had to have after the big run up in 2021. So

41:42 what's, what's, what are some examples of nature based carbon reduction? I mean, obviously plant the tree.

41:51 Yeah, so forestry projects. So less of plant industry, but taking existing forest and changing the way that you manage that forestry, it's called improved forestry management, gets into a lot of

42:02 detail, but that's a nature-based. Another one that is trending is around soil, changing management at the farm that increases the amount of

42:13 carbon that's stored in the soil. And those credits are trading between 20 to 40 a ton, for example. And then you might have landfill credits where you're capturing credits from a landfill, but

42:27 from a PR perspective, people would rather say, Hey, I'm supporting this forest than maybe I'm supporting the landfill down the street. So that's why those credits, even though from the registry

42:38 point of view, they're both a ton of CO2, that's why those credits might trade between six and 8 a ton of forestry might be 15 to 20, and then soil credits my between 20 and 40. And then there's

42:52 all other various types of carbon offsets, but the PR value and the volunteer world is really which driving. So that's some of the nature base. Some of the other credits, you know, hydro in

43:05 Brazil produces a carbon offset. It's a developing country, the same hydro project in the US would not produce an offset per the rules. India, when projects produce a carbon offset, but when

43:20 projects in the US or Europe would not. So that's why majority of the credits come from developing countries, and they typically trade at a discount to higher quality US-based projects. Yeah. So

43:39 I've talked about this once on the podcast, and I'll lay this on And I'll have all the facts wrong because I read the article. gosh, six to eight weeks ago. But supposedly one of the best things

43:53 we could do for carbon capture is increase the whale population. You know, we had four million whales on the planet a hundred some odd years ago. And of course we hunt them, use them for oil.

44:06 We're down to like 12 million whales. And the amount of CO2 that they sequester in their body over their lifetime, and then they just sink to the bottom of the ocean. One does a lot for

44:22 sequestration. The other thing too is their poop is the greatest fertilizer for plankton. And plankton, I think we've figured out recently, 40 of the photosynthesis on the planet is done by

44:37 plankton. And so swimming in the trails of whales in their poop

44:45 is that. We've had the joke around here, but I want to do more work on it and be serious about it is we need to increase the whale population. Supposedly what happens today is they get really

44:56 fascinated by boat and they get hit by the boat and that's what kills them. That's why we're kind of capped out at a million to whales. Yeah, I did listen to that podcast where you mentioned that.

45:08 And yeah, a lot of people will make the same discussion around cows If the cows burping and farting, creating methane emissions as well. So you've seen those things where I don't know. Yeah, I

45:24 think it was serious where you put a mask in front of the cows mouth to kind of capture that and have it from being released in there. I don't know if that's commercially viable, but yeah, animals

45:37 obviously play a large role in CO2 emissions I had a fellow on the podcast that wants to grow kelp. And I forget it's the brown, it's the red and the brown kelp or the brown and the red and the

45:55 green kelp, whatever it is. One of them, and I can't remember which one, you just, it absorbs carbon and then you just sink it to the bottom. The other one, supposedly you can harvest and use

46:11 like tiny bits of it as feed for cattle and it helps reduce the methane emissions from cows burping by like 90. And I don't think Sean's gotten that business up and running yet, but he was

46:28 commissioning a study from I think the University of Nebraska just to, does the cow meat taste the same, does the milk taste the same and all? But I that's one of that we feel calls probably on a

46:42 weekly basis, hey, I have this technology I have this idea that's going to reduce CO2 emissions. And then the question is, can we get it approved by a carbon registry that then you can earn carbon

46:55 offsets and sell it to a corporation? So putting a price on CO2 and incentivizing people to think of ways that you can reduce CO2, especially if they can get paid for it, is pretty exciting and

47:08 it's only gonna be growing. So maybe one day you'll have him on the podcast and he's been creating CO2 offsets and I've been selling them - Now the entire - And

47:21 the other one sitting over there in your gold chains and made the fortune on CO2 - Well, Mike, you were cool to come on, but before you go, tell me real quick about your book 'cause I'll get this

47:31 to the camera. You were kind enough to give me a copy of your book and you autographed it for me, so - Yeah, so there wasn't too many books on carbon cap and trade programs, especially in the US

47:44 There's lots of articles you can read on. carbon itself. So I took the California and Quebec program and wrote a book in 2018. It kind of starts from the beginning. What is a carbon trading

47:58 program? How does it work? How do you get your pre-alliances? How do you calculate your demand? And then ending with some trading strategies on how they actually can reduce their cost over time.

48:11 So it's been a book in 2021, a lot of private equity and hedge funds started buying that book. As we've seen a lot of speculative capital come into carbon trading as they view it now as a commodity,

48:24 just like oil, gas and power. But for majority of my career, you didn't see large funds trading in the carbon space. But that really certainly has changed over the last 24 months. But yeah, it's

48:37 a great book for someone who's never heard of or looked at a carbon-carbon trade program Minton, I'll read it and then I'll give it to mom. So some mom can do it. 'Cause now I think you're great to

48:51 come on and I appreciate you talking this through me 'cause at the end of the day, like we were talking about earlier, I mean, this is a tidal wave. Everybody is gonna have to do something to this

49:03 effect and we can take the position as an industry, as a company that, you know, hey, this is all grift, it's all BS Well, people are ultimate consumers, don't feel that way. And if we don't

49:19 address their concerns, we're gonna get left on the sidelines, I think. I mean, obviously ESG, I felt was the trending word of 2021 and now you have the SEC that wants companies to, you know,

49:33 start reporting and measuring their CO2 emissions. So yeah, it's gonna continue. So it's gonna be an interesting run Well, thanks for coming on, Mike, and be sure to tell Brian I said hi - We'll

49:45 do, thanks for having me, Chuck. Sure.