AirCarbon’s Thomas McMahon: “Carbon trading is not borderless”

Thomas McMahon  spent more than 20 years at the New York Mercantile Exchange and later became part of other high-profile exchanges around the world: Dubai Mercantile Exchange (advisor), Hong Kong Mercantile Exchange (president, deputy chairman), Singapore Mercantile Exchange (CEO), Digiassets Exchange (director), Abaxx Exchange (director-co-founder).

In 2018, McMahon started a conversation with a colleague on the idea of forming a carbon market around distributed ledger technology (DLT). The idea took form and two-and-a-half years later, McMahon is now running ACX, a Singapore-based commodities exchange which he claims is the world’s first carbon negative trading platform.

Corporates and prospective users were initially not keen to join the exchange. However, the pandemic changed all that as regulated entities took on a more serious effort to meet their environmental, social and governance reporting mandates. From struggling to have 20 members, ACX now has 132 companies that are on the exchange.

McMahon has now set his sights on another agenda which he plans to share at the upcoming United Nations Climate Change Conference (COP26) in Glasgow.  “It is time to change and it’s going to literally be done one project at a time. We’ve got to build a universe. We’ve been able to do it. For every other major product in the world, we’ve been able to identify a problem. We need transparent pricing and a new marketplace, then all the related industries grow up around it. We’ve got to do that for carbon.”

The following key points were discussed: 

• ACX was formed based on the idea of creating a carbon trading platform using DLT 
• Demand for carbon emissions offset went up after the first year of the pandemic
• ACX created a fungible product around the voluntary carbon credit that can be invested from almost anywhere in the world
• Each of ACX’s token has a 1:1 ratio with a certified carbon credit attached to it
• China is setting up a test carbon market in Guangzhou to trade voluntary credits
• Financial regulatory authorities in the US and Singapore currently do not regulate intangible assets such as carbon credits
• ACX is the first exchange in the world to be carbon negative

The following is the edited transcript of the interview: 

Emmanuel Daniel (ED): So today I’m speaking with Tom McMahon, a very good friend of mine. In fact, one of my closest friends, who is the co-founder of AirCarbon Exchange. Tom is an experienced market builder from the days of the old Chicago Mercantile Exchange (CME) and commodities trading industry to where we are today in blockchain. The conversation that I had with him is wide ranging. So I need you to hold on to your seats and go with the flow of how he’s explaining what the carbon trade market is, where it is today and the underlining assets in the carbon trade market, how that’s developing, and a little bit about his company, his business, and the exchange that he’s building. In the conversation, Tom explains some of the underlying principles for making a market like this successful in creating a carbon trading marketplace. 

Founding a carbon trading platform

Thomas McMahon (TM):Emmanuel, thank you very much for the opportunity and I appreciate it. We are friends, that’s what makes this conversation pretty easy. AirCarbon began with a conversation with one of the agency heads here in Singapore back in 2018. It was really simple in its mindset then, moving from post-Paris 2015 and what we were coming to in 2021. Could we form a carbon market in a broad stroke and could it be done in Singapore? Could it be done around blockchain distributed ledger architecture? The best attributes of asset-backed token models? Could we have a price? All of those things had not been put in place by any means around carbon at that time. But more importantly, it was looking at the voluntary carbon markets and that market very much post-2012 and the first exploration of the Kyoto Protocol exploration and post-Lehman. The market had really just gone into what I would basically call the ‘dark ages’. There was no demand. People were not really paying much attention to climate at that time. The marketplace itself was pretty much run by over-the-counter bulletin board platforms in a fairly opaque manner. Even in 2018-2019, there still wasn’t a tremendous amount of awareness. But we knew from what had been believed that could be put in place post-Paris 2015 was really that in 2021, the first truly global framework for carbon mitigation would come into effect. It was called CORSIA.  

CORSIA came in under ICAO, International Civil Aviation Organization. CORSIA stands for Carbon Offsetting and Reduction Scheme for International Aviation. It’s important to note that because even today, you’re sitting in China and China’s just coming to market with its emissions trading scheme (ETS). That’s not a global framework. That’s a regional framework and it’s an allowance framework. It’s not a carbon offset framework. You have to put that into perspective of the broader conversation. CORSIA is applicable across 193 countries and every international flight that flies today. Albeit the world today is still in the throes of post COVID-19 and the international flights are not anywhere near the scale that they were in 2019, pre-COVID-19. But domestic airlines have come back. China is at 100% capacity. US is back at 100% on domestic aviation. International flights will come back. But the important thing was, you could for the first time, have a price that was as relevant in London as it was in Beijing, as it would be in Tokyo, as it would be in Sydney. The carbon did not have that in its place. 

The formation of AirCarbon took us two-and-a-half years. We went to beta in July in the middle of COVID-19 last year. We finished our beta in November. At that point in time, these voluntary carbon market prices were percolating but prices were not high. The demand was not there. I can tell you that here we are, basically seven months on from that point in time and prices are up 300% in that same period. Put that into perspective, we follow the volatility of Bitcoin or we follow the securities markets if they’re up or down 3% or 4% any given day. That’s massive volatility. We have a commodity, carbon voluntary offsets, that have gone straight up from a sub-dollar pricing to over $3 especially here in the last four months, that people are still not necessarily paying attention to. But there is a market formation. 

So AirCarbon came to market free in the best attributes of blockchain in the first part. We wanted to create a two-way price. You read the news as I do. The Mark Carney-Bill Winters task force that published their study on the voluntary market and coming up with a core carbon price and creating high quality and verification and all of that. Those are attributes that we embedded into AirCarbon during our build. It may sound like nobody was looking at it but the reality is, people were looking at it and we were specifically because there’s common sense in how benchmarks are built. If you look at carbon as a commodity, which it really is even though it’s an intangible asset, it lives in parallel with our entire food stream, finance stream, transportation stream. If you listen to the language of what they want to do with it relative to trying to impede the two degree rise, carbon will be attached to everything in our daily lives going forward, which means there will be a price attached to everything. Regionalisation, historically, in carbon has set around the allowance markets and the biggest one being the European Union markets and the EUA or European Union Allowance. There’s a lot of misnomer that that’s the price for carbon and it is not the price for carbon. It is actually a price or permission to emit. It’s similar to what’s being done in China around the ETS. It’s an allowance market. So you pay a price to either be clean or dirty, fundamentally. There’s a finite number of allowances that are issued. It’s a controlled compliance market. The voluntary markets are not that. The voluntary markets sit in their own standard around the registries, which for the most part are non-government organisations (NGOs). There’s not a limitation on how many carbon credits can be produced. The limitation is on the quality and the standards of the projects that are being supported, certified, and registered. So that’s what we brought to market.

ED: Tom, you’ve loaded us with a lot of assumptions that someone who’s new to the carbon trading market, you need to sort of slice them out to put them in perspective. So what you’re saying is that because of the Bill Winter-Mark Carney proposition, they want to put a hard stop on the core carbon price. But the markets are still discovering what the price should be. You are a creator of a marketplace and so what the trading price of carbon turns out to be has a direct impact on you as a business. When you first set up AirCarbon Exchange, what was your assumption in terms of the trading price of carbon and your revenue feed?

TM: Exchanges, in terms of how these make money, are not particularly rocket science. You either have a fixed fee commission on execution and data or you have a variable fee that’s notional, meaning that depending on the price of the underlying product you’re trading, you will charge basis points: 53 basis points, 25 basis points or 100 basis points. So you got a floating price and you also got a floating revenue. We initially took a fixed fee structure that is similar to Intercontinental Exchange (ICE) or CMA or even the China market, in terms of what you pay for a round turn transaction. Going back to the price of carbon, going back to 2018, the market demand was way different than it is today. It was very focused around transportation and even more focused in terms of aviation. It was really the only one in the global industry that was going to have any demand for standards at a specific date, 1 January 2021. All throughout 2019, we met with the international aviation industry, the related parties, the entities with airlines. We spent time at different transportation hubs like Changi Airport. I spent time in Dubai with the Emirates teams and we went to Heathrow for the global aviation conference to meet with the entities that were preparing for what ultimately would be, after 2019 and 2020, all airlines that were reporting a baseline period would be built for January 2021, which means from that period forward any passenger miles or utilisation of fuel or equipment or routes that were above that baseline of 1920 recordings, every single entity would have to be offset. The question there was what was the quality of the offsets that can be used to mitigate that requirement? That was where ICAO and the CORSIA standard came about and that was published in April of 2020. We had already started to get into the COVID-19 period, no one anticipated that we’d lose all of 2020 and we would lose all of international travel. So they curtailed it. 2019 has now become the baseline and here we are well into 2021. The anticipation prior to that was that there would be about 180 million tons of carbon credits that qualified and would be available for the airlines. And if the airlines went into it, in what we’d known in 2019, probably between 2021 and 2025, that they would use 120 to 140 million of those available carbon credits. So it probably looked like it would be around $2, $3, maybe $4, what a carbon credit would cost. There would be a bit of an overhang of extra credits. Then people could judge the quality in between and sort of cherry pick what they felt was good for their corporate.

Meeting the demand

TM: What we found out was the airlines were not prepared for it. Then COVID-19 hit and we know that the demand for that particular type of offset would probably be only be at 80 to 90 million tonnes coming out of COVID-19. Now let’s switch the hats of what has changed. We usually have to convince people to adopt something new. It has gone completely 180 degrees. Now it’s like we can’t adopt it fast enough. So what we thought would be very airline or transportation-based demand has gone completely the other way to every regulated entity in the world that’s listed on any exchange, now has environmental, social and governance (ESG), as a reporting mandate. But now they’ve got a performance mandate and whether it’s coming from their regulator, or it’s coming from their shareholders, or it’s just coming from awareness, that consumers and investors will no longer tolerate companies that are not embedding, not just verbiage, not just marketing, not just changing your PowerPoints to green actionability. So that demand is now pretty much far outstripping supply in terms of a quality credit. If you go back to the task force intention of having a standard high-quality price, what they’re calling core carbon is one, that’s not a bad thing. The key is how do you get to that? It’s market demand. Like any other commodity in the world, price are no different than a share of stock either. What’s the value of Apple today versus Apple tomorrow? I couldn’t tell you what it is tomorrow. I can only tell you what it is today. Then the talking heads will either tell you why it’s doing what it’s doing today or tomorrow. 

Carbon is doing the same thing right now. We have a huge amount of demand drivers. Again, going back to when we began AirCarbon, our goal was to get 20 commercial entities on as the first core members. Now there’s 300-plus airlines in the world, there’s 60 major airlines in the world and we wanted to get a third of them to participate or their related parties like their fuel suppliers, like a BP or Shell or something like that. It was a struggle in the beginning because what we found out was the aviation industry was not prepared for it. A few were, mostly the Europeans and one of the American Airlines. But more importantly, it was their supply chain that was prepared for it. It was BP that was selling jet fuel to Singapore Airlines and BP would supply the carbon credits. Similarly, Shell and Chevron and such. So then we turn to speak with them. As we shifted in the market, we realised that they were making so much money with the opacity in the market, that they did not really want an open and transparent market. Now I’m talking about a year-and-a-half ago. I can tell you today, they can’t get on to a market fast enough – the demand for killing the opacity to go to full transparency, to go to full accountability. What’s the quality of the credit you’re trading? Where are you trading it? Who are you trading it with? Who’s the beneficial owner? Who is the registry? Who is the certifier? Who is the auditor? All of these literally 12 to 18 months ago, didn’t matter. 

It does today. So we’ve seen a significant shift in demand, in the requirements of how this market is formed. So for us, getting the first 20 was a struggle. Then COVID-19 came and then the awareness, especially in the last quarter of 2020 into these first two quarters this year. We now have 132 companies that are on our exchange. We believe our core interest would be from Asia or Southeast Asia. Because that’s where we were based in Singapore as a trading hub, fundamentally. We have member firms now from 27 countries around the world. It’s not dominated by Asia by any means. You know as well as I do, you couldn’t travel a whole lot during COVID-19. I have not been on an airplane since January 12 last year. I did this all over Zoom. We got access to people we probably wouldn’t have been able to get access to. So the cooperative effect and awareness and education around carbon came very fast. It’s more now in education. So we spend at least one or two full days a week talking to very smart, a lot of times very high ranking corporates that are just saying, “We understand we’ve got to decarbonise. We understand we do have a carbon footprint. We understand requirements from our shareholders, our regulators, our financiers. We have no idea how to do it. We can talk about it. We can give a metric: I’m going to be 25% cleaner by 2030. I have no idea how to get there”. That’s what the market demand is. 

For us, the first key was to bring some standards on how you form a commodity benchmark and carbon did not have that discipline. We’ve achieved that. The other one was to have a two-way price for carbon, not just a one-way risk by I’ve got a carbon credit, “I’m selling it to you, now you figure out what to do with it”. We wanted to change that. So we’ve got a two-way price, 24/7 on carbon. We also have the ability to custodise it. The key, as you know in this conversation, it’s all about the data. What is the quality of the underlying credit, the project, the vintage, the location? What does it represent? Is it a nature-based solution? An industrial gas mitigation? Is it wind, solar, hydro? So those categories of renewable energy or nature-based solutions, or you’re looking at the newer end of its carbon capture and carbon sequestration to carbon removal. We’re addressing all three of those within our product mix. So now it comes down to how do you serve the client in this world that they don’t really know what they want? But you know that they want it. It’s an awareness, it’s a demand, whether it’s called impact investing or green investing, decarbonisation, or carbon mitigation. The goal is all the same. So by putting it on chain, creating and using the best attributes of Ethereum, ERC-20 tokenisation methodologies, and this is not about crypto, this is about systemically taking all of the relevant data that sits in four or five different places today relative to a carbon credit and bringing it into a single unified point, putting it into a bankruptcy remote trust that adheres to standards of regulatory frameworks around custody, and producing a tradeable, basically call it an electronic warehouse receipt. That’s what the token model is for us today. So for the first time, you can own a carbon credit, have a transparent price, have a mark to market price on it daily. It’s securitised, transferable, and efficient in how it can be moved, whether it’s being transacted or held as an asset. That was another thing we fixed. I would buy a carbon credit off of one of the bulletin boards and it’s all OTC. There’s no guarantee and I would send my money first and a couple of days later, I’d get a notice from, say the Verra Registry or the Gold Standard Registry. So we’ve created certification verification. Sofor me, being an old crusty exchange guy and working through all the iterations of exchanges from when we wrote up trades with pencils and erasers on them to fully electronic markets and recording, and now pushing it into the blockchain and verification model, it’s an ideal for me of what an exchange should look like. It’s a perfect product to do that with. 

ED: You know, Tom, I let you just go on for the last 20 minutes explaining or setting up what’s in your mental map. I was hoping to start the conversation with the company that you’ve set up, the products it has, which is AirCarbon Exchange and the tokens that you have. But what you did was you launched right into the market itself. If there is no market, there’s no price discovery, you can have a baseline price. But how do you know what should the market pay for it? Who are the participants in the market? All of that. You went right into the market issues. And that the airline industry, the aviation industry is probably the first to set up a token, a carbon asset that can be traded in the first place. But you have several tokens, don’t you? You have CORSIA, Global Nature Tokens (GNT), SDT and renewable energy token (RET). Does that mean, you’ve got four products or four different types of tokens on your exchange?  

TM: The underlying are all voluntary carbon credits. Standard.

ED: By definition. 

Global standard for carbon

TM: So CORSIA, it was a standard that was set by ICAO. As I said, importantly, that is actually the only global standard for carbon. It’s the only one. No matter all the noise that you hear. It’s a misnomer because CORSIA is the only one that’s applicable globally. Everyone else is going to build under a variable of what were the Paris accords. I can have an ETS, I could have a carbon tax, I could have a cap and trade mechanism. Or I could have a carbon club. I could join up with another country and form a club. Those are all silos and they’re not fungible. The key for what we’ve done with the voluntary carbon credit is to create a fungible product that can be invested in from US, Canada, and Mexico as much as it could be for China, Hong Kong, and Macau. It’s as relevant in both places and that’s a good thing. CORSIA said you could use these six different registries, the top two being Gold Standard and Verra. You could take credits within the methodologies that they identified like forestry and height, water and such. But the credits had to be relevant to carbon projects that were registered from 2016 onwards. So 2016 to 2020 was the first tranche and now we’re in 2021 and these have been added. So they didn’t want older credits, they didn’t want older projects, which existed. They wanted to make them relevant to the world we’re in today. So CORSIA had a very clear definition. So that was easy for us to adopt.

ED: So if CORSIA had clear definitions when you created your token, the classifications in your token are just taken from CORSIA and put in there? 

TM: Right. It was easily adapted because they set the specifications. So the relevance to that is, and we use this analogy, my partner Bill Pazos uses it all the time, we take for granted commodity benchmarks today and he uses the soybean analogy. So soybeans on the Chicago Mercantile Exchange. Really, the key to that is if you think about what’s a soybean? So a farmer grows soybeans and the inefficiency would be for him to load them up into his truck and drive around Chicago trying to find somebody to buy his truck of soybeans. Then he gets somebody to come out and like somebody from Cargill would come down and ask where’d you grow those beans? When did you harvest the beans? How many beans do you have in the truck? What’s the moisture content? Those kinds of stuff. That’s inefficient. The efficiency came when you created a standard specification of all soybeans that are this year’s crop and have this much moisture content can be deposited in this silo. Then once we weigh them and make sure the specification is within the standards, you can then go trade that on the exchange with this warehouse receipt. So the paper receipt in olden days – not too long ago – that’s the tradeable asset. So here we are today in the modern world and we’re still trading warehouse receipts. The receipt is representing some place like an oil depot. We had a depot that I ran in Nansha down the Pearl River Delta and was a delivery point for Sinopec.  

ED: Which had its own problems in terms of reliability and integrity and all that.

TM: So we tried to clean that up by using the best attributes of blockchain and ledger architecture as a backed tokenisation. All the metadata were captured around that standard of CORSIA. That’s how we defined it. The next three contracts were not as easy because now we had to decide. So Global Nature has been very much in the news. You hear about it all the time that seems to be the defined solution for anybody who wants to put money in and that includes most of the oil majors. They’ve said, “The cleanest end of the spectrum for us is completely opposite to what we are. I’m sucking oil out of the ground and polluting, we’re taking coal out of the ground and firing it. I need to put the trees back in the ground”. So they’re investing in forests and reforestation, afforestation, managed forestry. That’s a nature-based solution as is mangrove restorations, peatland restorations. They’re doing work on the borders of desertification, protecting and trying to hold back the deserts. They’re doing it in China, in a number of areas.  

The Middle East is even doing it now. So those are nature-based solutions in a simple form. Now you’ve got what’s called blue carbon. Blue carbon, basically, is water-based solutions. So that fit into the GNT specs. So we defined it by dates of when the projects were set up. So we accepted any nature methodology that had been registered specifically on Verra and Gold Standard from 2012 onwards. That’s relevant because 2012 previously had been the UN and the Kyoto Protocol. Everything from 2012 forward had been this new market, the non-Kyoto development. So it’s a very broad basket and we wanted it to be broad. There were a lot of projects that had been stranded in that period from 2012 through 2018 and 2019. The over-the-counter credit price was low. Some of it meant that they may be operating a carbon project, like saving a forest, but actually it would have been too expensive for them to even issue the carbon credits because there’s a charge to issue a carbon credit. Now, economics have made it viable to bring those credits to market. So that’s the beginning of the pricing and in GNT. That price began a little under $3. It’s moved up into the $4 range. Now it’s about $4. 

ED: You’re not the only exchange at the moment? There is the London Carbon Trade Exchange and I understand that the Singapore government is trying to set up together with Temasek and the banks. DBS is setting up a climate impact exchange. Just for profile, who else is out there?

TM: The only one that we see that really has any scale at the moment is CBL Xpansiv of the United States. So Xpansiv is out of San Francisco. That’s actually a data company. They were one of the first to push into the ESG data customisability using AI to track carbon footprints. They then acquired CBL, an existing broker dealer that had an emissions over-the-counter trading arm, a bulletin board operation. Their goal was to push into the aviation space early on and they had teamed up with the International Air Transport Association (IATA).  

ED: But this group, the CBL, immediately upon the way in which you’re describing it, San Francisco, broker dealer, they are over-the-counter (OTC) people.

TM: Right, who moved into more traditional futures market space. So they teamed up with the CME to launch a futures contract. They’re using all the old-school mechanisms the same way you deliver soybeans on the CME, you’re going deliver carbon.

ED: They’re the only people that are seriously doing price discovery from a market perspective. And the London carbon trade exchange is not in your sight. Why is that? I would have imagined that the UK would have been a natural sight for the exchange to take off. 

TM: I will tell you, you will see the countryside littered with multiple exchanges in the next three months. There’s so many people that want to get into this. It’s the hottest thing. Now everybody’s a sustainability and green expert and I want to get into the carbon space. It’s going to be a lot of spaghetti against the wall. But at the same time, there’s going to be a lot of silos. So there may be a very good London exchange, but it’s only relevant to the UK. Carbon is not borderless. This is the thing that I’m amazed at what’s going on in this market. We’re talking about a global climate problem. 

ED: Well, in a way blockchain does that, doesn’t it? Because it’s so easy to conceptualise, crystallise and tokenise that practically everybody can tokenise. That’s the easy part. The hard part is to make it into a market. Several things, to have the critical mass and to make it tradeable, there’s price discovery and because it’s token and it’s because of the way blockchain works, you need validators who validate each other. So that’s the hard part, isn’t it? Are you past that? 

Creating a carbon trust

TM: We’re way past that. The more important and hardest part is actually that we’re actually delivering something. This isn’t synthetic. This isn’t bitcoin. The purest, intangible asset, which has nothing underpinning it. Every one of our tokens is a 1:1 ratio, every one of them has a carbon credit, a certified carbon credit attached to it. The key for us is that we’ve created a carbon trust. We have taken a disparate amount of carbon representing many different types of carbon projects, put them into categories but we’ve allowed for the first time the entities that have generated those carbon credits, the project developers for the reason why carbon credits were invented in the first place. The plot sort of got away from it, that the carbon developers, especially in 2012 to 2019 really became the poor man in the block. They became like the subsistence farmer because the people weren’t particularly paying high prices for carbon credits because it was very social.

ED: From the time the EU and the UN created the concept to about last year or this year when carbon prices went up to $3 per metric tonne. What are they trading off on your exchange? 

TM: We’re the voluntary so we’re the $3-plus but you just mentioned the EU. So the EU and the UN are different. One began on 2003 and one began in 2005. The UN is a CD, that’s a carbon credit, a certified emission reduction (CER). The EU Allowances (EUA) market is a compliance market, which is different. They’re not trading carbon credits. They’re trading a permission to emit or use the other word a permission to pollute. And it’s a finite number of allowances. So it’s a closed market. The intent there is to make it expensive. The intent there is to get it to a pricing pain point where the emitters, having to continually pay a higher price for the right to emit, will change their behaviour. They’ve been able to get that price, which in 2017, was EUR 5 ($5.9) and nobody cared in the market. What they did in 2017 was they halved the number of allowances in the market. They basically did a one for two, they split it, reduced it by 50% because they wanted to get the price to EUR 10 ($11.8). What they did unintentionally is they went way past that. They took a price from EUR 5 ($5.9) to EUR 20 ($23.6). Suddenly, people are going, “What’s going on?” But it coincided with the beginning into 2018 and early 2019, where the Europeans were becoming leaders on climate. Suddenly, this smaller availability of allowances at the same time the beginning of the Greta Thunberg effect of awareness of climate and very generational awareness of climate, companies were saying, “We’re willing to pay a higher price”. So the price went from EUR 5 to EUR 20 then hung, went a little bit above that then we had the March-April down spike in 2020. It’s in excess of $58 (EUR 50) today. So it’s achieving its philosophy of making carbon expensive for people that are not being green. That’s one. The problem is that’s only relevant to the EU. That’s not a fungible product.  

ED: Does that include the tax mechanism? So it’s not a price discovery. Basically you’ve got your back against the wall.

TM: So it’s attacked.  

ED: And every industry is regulated to be carbon neutral. So they have to go out and buy the EU carbon credits. Now, someone in the UN had indicated that unless we achieve prices like $40 to $80 per metric tonne, that carbon credits would not be sufficient to fund all these projects that are taking place. So from a market price discovery mechanism, you’re still early days, you’re still on the starting block.

TM: You’re not incorrect. The majority of what we’re seeing in terms of transparent pricing is at the lower end of it because that’s where the largest inventory is. So if you’re looking at a peatland restoration, it can produce a large amount of carbon credits. So supply-demand, if you’ve got a large supply, you’re going to have a lower price until you get the balance of acceptance of peatland. And we want to invest in peatlands, which are very valid investments, but they’ve come up from a buck and a half to $6 in the last six months. So there’s incentivisation now to invest in more peatland projects so the higher the price goes, the more peatland will be set aside. But the other end of the spectrum is the newer technology or the ability to scale good like carbon capture, carbon removal. Those numbers today are anywhere from EUR 30 ($35.4) to $300. And people are willing to pay it. The problem is that there’s not enough of them. Some of the projects that are being invested in only have 30,000 or 40,000 carbon credits a year where the demand is probably well in excess of 10 or 20 times.

ED: So what you’re saying is you have an inventory but it’s not coming on fast enough for you to grow your business. Is that what you’re saying?

TM: Yes. So now is $30 enough to support bio char or if you get to say $40, now you’re going to have a new investment. Somebody else will go into the business and then if you get to $50 or a bit more so then you expand the validity of that particular methodology around say biochar or carbon removal. Depending where you are in the nature-based solutions, they are considered removals. The replanting of forests, denuded land is considered a removal because if a tree exists already, it’s already holding carbon. You’re just saying don’t cut the tree down. That’s not carbon removal. That’s carbon sequestration. Carbon removal is when you take denuded land and put a tree back in the ground. Now you are removing carbon and at the same time holding it. That has a higher valuation.  

ED: Just to give context to this conversation, especially for people who are new to everything that you’re saying and also the constructed a little bit better. You said that carbon trading is not borderless. That was very interesting. The inventory that you have is borderless because you would go out and look for inventory from anywhere in the world. Just talk us through a little bit about how you build your inventory. Where do you get them from? Who validates it? Who regulates the inventory that you have? Who audits the portfolio? 

TM: Based on methodologies and the methodologies are borderless, trees are borderless. So a tree in Sumatra is worth like $5 today but that same tree in California is worth $16. It’s doing the same thing, though. The key to a carbon credit is the economic event. The unlocking is really the end result of what a project developer wants to achieve because that is his financial return that supports either his initial investment to come to market or the ongoing investment of maintaining, whether it’s a methane gas capture facility or managed forest facility. The key for us was to create a transparent market and to allow for the entity that incubated that credit on that carbon project to get as great an economic return that he could via our exchange. Because there was no transparent marketplace for these carbon credits in this no man’s land period from 2012. The project developers either had to go to market directly themselves and they hope that they had some, for the most part, were corporates that were willing to support their project because it had some good, like UN protocols sustainable development goals (SDGs), or they had to go to the brokers of which CBL was one of them. The broker would say, “We’d be happy to be your marketplace, but you’re going to pay us anywhere from 15% to 30% notional of the transaction”. 

Now, the financial markets today work in minuscule basis points. If you do a transaction in a listed exchange, then you’re talking about 23 basis points, you’re not talking about 500 basis points. We’ve seen transactions that have been going across some of these bulletin boards and some at scale at 3,000 basis points, meaning you sell a $3 credit, you’re giving $1 or you’re losing $1, basically. The project developer’s only going to get $2 after the transaction. How are we attracting those same developers? On that $3 transaction, we will return $2.97. That’s it. 

First someone says, “I’ve got a CORSIA-compliant project”. They come to us. We look at it in the registry, the methodology. So say it’s Verra and you can see it. It’s an NGO Verra so it’s got a public forum. You can see the project, you can see the date of registry, beneficial owners. That’s the first step. Second step is to look at how many credits have been produced. How many credits have been retired? So in other words, what’s the available inventory? Every carbon credit has a serial number. Every carbon credit has its own Legal Entity Identifier (LEI). We take that LEI and then we send it to a company called BSI or British Standards Institute. So BSI does a second look for us and says, here’s the information we know. This is the information that was given to us. You take a look at it and come back and tell us if it’s all aligned correctly and anything else that you see. Once BSI comes back, we’ll issue a certificate on the project, which is the methodology then they’ll issue a verification that those blocks of carbon credits – saved from carbon credit 16 to carbon credit 32 – are in line and are available for transaction.  

So that’s the key, you have to make sure. But all of this information sit on somebody else. It’s sitting in two or three different places. So we consolidate it. Only at that point in time, do we inform the entity that wants to give us their carbon and we will accept it for deposit. He informs Verra to transfer to our carbon trust. Trust is independent of us and how it’s operated. It then confirms that it has received the credits. Only at that point in time do we do what’s called minting. So then the carbon credits are in the account of the person who transferred them. We’ve created an account for him. It looks just like a brokerage account that you would have in your own portfolio. We assign a mark to market value. So if it’s a CORSIA credit and it’s currently trading at $3.10, that’s the mark to market for his. So now he’s got a verifiable price. It’s transparent and he’s got it securitised. Tokens are issued and the token becomes the instrument of trade, the instrument of collateralisation in his wallet. Now he doesn’t have to do anything else. There’s no demand to trade. But the key is we’ve changed the nature of his carbon credit. 

ED: Now, the tokens that sit on your exchange, how are they traded? How liquid are they? I see that the technology itself is pretty good. You can trade them and they’re updated in milliseconds. But what do the tokens look like now?

TM: It’s an ERC-20, standard. Everything was developed internally in terms of our blockchain methodologies. The exchange itself as a hybrid model. We have a traditional markets frontend, like you would see on any one of the major exchanges. We have a traditional trading engine, a matching engine for matching of prices. Everything else behind that is all blockchain and ledger architecture and token based.

ED: Permission or permissionless? 

TM: It’s permission in that because we have know your customer (KYC). Because we have high standards. But when you say permissionless, what do you mean? 

ED: Obviously, I mean, 99% is permission in any exchange platform. I just threw that at you because I wanted to see whether you’d want to take it permissionless at some point where the token takes a life of its own. 

TM: We will. That’s important because that’s the wonderful nature of Ethereum. The key to that for us is can an AirCarbon CORSIA token live outside of AirCarbon? The answer is yes. But the underlying carbon will never leave the carbon trust. That’s the key. So even if an ETH trades away from the exchange, it’ll always have an underpinning on a price methodology. In order to come back into the exchange, we’ve adopted where there’s this whole thing about travelling rules and all that kind of stuff. Basically, it goes from a whitelist to a grey list. It has to re-enter the exchange market through a whitelisted entity in order for it to be either re-traded on the exchange or for the carbon underlying it to be delivered. But it can trade and live on its own. So we’ve had a number of conversations with some other large trading venues that want to add carbon to their inventory for trading products. They came to us and said, “Can you do this with us?” The answer is yes. So that’s what we see. It’s not just about trading token. The key to me is we change the nature of how you own carbon. We’ve changed the nature of how you trade and price carbon, but more importantly, we’ve created the trust and custody structure that allows for the beneficial ownership of carbon. It’s not just living on a spreadsheet within a method, the registries. We’ve brought it into the financial community. That’s really the key.

ED: Has the International Organization for Standardization (ISO) started to define how a token like this would look like? I know that it’s Ethereum but is there an ISO equivalent? 

TM: There are and that’s an evolution, that’s an ongoing process especially over the last five, six months. So yes, there is an evolving standard around it. Because people realise, even here in Singapore, when they set up the Payment Services Act (PSA), in conjunction with the Inland Revenue Authority of Singapore (IRAS) and Monetary Authority Singapore (MAS) and the whole thing around the Payments Services Act, it was really meant to go after the guys that were in the purest of tokens. So you had to get the payment token utility token. But it isn’t just that. The interesting part of we’re seeing this transition away from the traditional representation of an underlying asset. That it can be represented with a standard security construct. That is the token methodology or that becomes that. So ISO is pushing through that. You’ve got a lot of tech, the new famous word, taxonomy. 

ED: Well, everyone is into definitions. Now the thing is, you said 132 companies are trading actively. 

TM: Anytime, we’re literally adding companies every day. So I can tell you that number was 119 a week ago.

ED: Yes, the number I have is 87. That’s a long way since 87. But you don’t have enough inventory for them. So is your exchange not liquid enough?

TM: We don’t have a problem with inventory. We do have inventory but our volumes are climbing exponentially as we’re adding inventory. As of today, we’ve got 847,000 tonnes on deposit in the exchange. But the interesting thing is carbon by nature, unless somebody wants to take their carbon and leave, once carbon is deposited, it stays sticking the exchange. The only way carbon traditionally disappears is when you do buy and retire. Inversely now, for the first time, I’ve created carbon that is not solely being transacted for buy and retire. I’ve now created an investable asset class that someone can deposit a carbon credit, they’ve got a transparent price, the token becomes the tradeable instrument. You can have continuous trading as long as that carbon lives within the inventory of the exchange. Now you’ve got a balance. It’s like looking at an exchange traded fund (ETF) for gold. When an ETF gets created, they have to go in and they have to buy the physical golden deposit. So as long as the ETF is alive, the gold is alive in an HSBC bolt in New York or in London, in the Bank of England (BoE) and they’re in balance. We’ve done that for carbon credits. I will continually add inventory and as I add inventory, it will underpin the different classes more, the four classes that we have. But we’re going to expand that basket. We already have demand for the liquefied natural gas (LNG) industry, carbon neutrality on LNG. It’s got a very high demand on deliverable carbon. So we can build a credit around transportation for shipping also.

ED: McKinsey, the consulting company apparently did a study and said the four problems with a carbon trading market including liquidity, financing to trade. That’s interesting. Which is the problem of the 137 companies that trade on you? Is that where the banks come in to provide financing?  

TM: I think we got it backwards. If you go back to the early days of energy, it’s 40 years ago, you look at the first futures contracts for energy trading. The first one was actually 1975. That failed. They relaunched in 1978. These were the first fuel oil contracts. One was in New York and one was in Amsterdam. The year 1983 was when there was the first crude oil contract. The second crude oil contract was in 1988. That was in London. The first was in New York then London. Then came the natural gas contracts. The first was in New York in 1990, two years later in Europe. Then came the power contracts. We take it all for granted today. Those are all benchmarks. 

Before that, there was no underpinning for finance because there was no transparency in the price. I was investing with Exxon because they told me that they’ve got 60 wells in the premium and the estimation is that they’re going to get a million barrels. That was all guesswork. The price of oil is $63. We see a forward curve out to $72 for the next 10 years. Well, now I can finance all of that because I can hedge it all on the exchange. That is the majority of open interest on exchanges today. Asia hasn’t matured as fast as Europe and North America has in that respect of utilisation of pricing and forward curves to hedge the risk on finance. But that’s where carbon is going to change. So carbon today is stuck right at the frontend in the spot price. What’s the price of carbon today? There are one off deals only because it’s a good project developer and someone like Shell goes to them and says, “We like what you’re doing. We want to support your project. We’ll put a floor price of $2.50 on your project”. By doing that, now we’ve established value. One of those particular projects that they did that was in Colombia forestry project, it went from $2.50 to $7 and a combination of two efforts. One, Shell put a floor price and the world went, that’s got to be a good project. Second, the government in Colombia said they wanted to have a carbon tax but the incentivisation is you have a carbon tax, you have to then figure out how to put that money back in to sustainability. So now you’re actually wasting money because then you’ve got to put a whole infrastructure in. Instead, they said, let the entrepreneurs incubate good credit projects and in kind, they can use portions of those credits to pay their carbon tax. So they set the price at $7 in Colombia. So here you had a forestry project that your $2.50 backed by Shell, the country said the carbon credits are now worth $7. So the pure discovery of a price that went into the public preview and said, we’re doing the same thing with carbon. So now we’ve got a discoverable price. We do have liquidity. We have professional liquidity makers also. We have market makers and liquidity providers.

ED: Who are the market makers in Coventry? 

TM: We have two different entities. One is a market maker and they are currently carbon brokers. They’re out of Geneva. I’m not at liberty to name them. But I will name my liquidity providers. They are out of Zurich in Switzerland, out of the crypto valley. It’s a company called Flovtec. A very interesting guy, Anton Golub, who was the founder there. He is a professional liquidity provider and there are those around the world. He worked on the first carbon token in Switzerland, which I invested in back in 2015. It was a company called Lykke and they were a little bit early, but their philosophy was that alongside of other digital products that we want to trade, we should have something that’s carbon and it was based on trees. He had written that first programme so when he saw what we were doing, he said, “I’d really be interested in supporting your project from a liquidity perspective because I understand the project. I understand the technology. Can I do it?” So that’s what we’ve got. Then subsequently, we’ve got a number of the broker dealers that have come and said, “I’ve got both sides of the trade. I’ve got natural buyers and natural sellers but I’m out here in no man’s land. Can I bring these trades into the exchange for securitisation?”

ED: Do you look out for the broker dealers or they come in looking for you because they’re looking for assets to trade on?

TM: A combination of both. Not all broker dealers love exchanges. They’re the guys that are doing higher emotional values.

ED: It’s that whole journey from OTC to market exchange. We’ll also see OTC before? In order to provide liquidity, what does he have? 

TM: His understanding is the nature of commodities. His understanding is the nature of technology. His understanding is the nature of markets. So he brought that understanding. Part of it is just his passion for carbon and decarbonisation. That was sort of how we founded AirCarbon and we started a discussion. But more importantly, we’re an electronic market. You need somebody who understands your technology. Not all people understand not pure crypto. There are pure crypto liquidity providers that can just bang, it’s mathematical. We’ve got a bit of difference. We’re going to have supply-demand economic structures around us. We’re going to have multiple pricing facilities, meeting different prices for different carbon-based products. He understood that and he’s been providing liquidity to a number of entities already. 

ED: I’ve got so many questions for you because, you’re actually describing the birth of a carbon trading exchange in a marketplace. I’m in Beijing. It’s a huge carbon trading market and it’s making its own commitments to the Paris accord. You said that China works on an allowance framework. How many countries do you think would work on that model? Does that mean that there will not be a transparent market as a result? But it’s a market where the price is closely guarded as a result.  

Mitigating China’s carbon footprint 

TM: It’s not opaque. Technically from an acronym, it’ll be the largest carbon trading emissions trading system (ETS) in the world, just by the nature of the size of China and its aspirations to be carbon neutral by 2060. For the last decade and a half, they’ve had carbon trading facilities around the country. They had nine pilot projects. I participated in Shenzhen and Guangzhou. That’s all now being wrapped up into this master ETS. But the market is very specific. It’s the utility companies and it’s about mitigating the carbon footprint or the carbon responsibility of the utilities in China. That’s it. It’s not an open market at the moment. Will it be an open market at some point in time? I’m sure it will be. Does China have voluntary credits? They have what are called China Certified Emission Reductions (CCERs), which are China’s version of the UN CERs which do fit into the UN protocols. They can be transacted outside of China. They’re relatively cheap and they’re legacy credits. They do trade offshore. We’ve seen some of them come out. These are usually around hydro projects and mostly around hydro renewables. But they are setting up a voluntary carbon market in Guangzhou. So what they’ve done is they’ve set this small entity up in Guangzhou and it’s five exchanges. They’re all only 15% or so. That’s a test market to trade voluntary credits. So it’s positioning is logical, Southeast China facing outbound, Guangzhou over Delta. Will that be the venue to trade on an offshore? China will be connected to the voluntary carbon market, China for only 5% of its volume, by law, by regulation. So that’s tiny.

ED: It’s small. It’s the same way that renminbi trades outside of China. It’s a small volume for price discovery but the market is essentially of its own price discovery on validation but the real market is all internal. What you’re doing is very important because with a market, corporations can start to take carbon credit into their book. They can have a valuation for it. That gets reflected in the India share price and in their own business as an asset, as a result. But at the same time, you’re saying that the markets that are coming on stream now, like yourself, are mostly cottage industries? Do you see yourself running ahead of everybody else and becoming the defining player? What will define the defining players relative to everyone else who’s creating a marketplace? Or do you see a marketplace because it’s all on blockchain? And because the standards are being set, they become interconnected as a result, buying and selling between markets. 

TM: I do truly believe we’re leaders. Part of it is we anticipated where we thought the market would go and we put our money where the mouth is, and so far, we’re fairly successful. Are we going to be challenged? Absolutely. It’s too opportunistic not to. So we’ve got a lot of people that are very passionate, but it can’t be confused for expertise. So a lot of that opportunistic is, “Carbon is so hot. We got to get into this”. It’s not an easy thing to get into. It’s very knowledge based. Because it went into this very dark age for like 10 years, there’s not a lot of talent. That’s what we found very quickly. Or most of the talents are actually older guys. They were in the business say in their 20s, dropped out of it for 10 years. Now they’re in their mid-30s. Do they cycle back into carbon trading sustainability, environmental compliance and such? Some are, some aren’t. What our finding is an overwhelming majority of women in the business who went to university during the dark ages and were passionate about sustainability, environmental compliance and that’s what they studied. It would not have guaranteed them a high paying job, even two years ago. They’re now in high demand because they’re actually the qualified people.  

ED: They’re in demand because they’re qualified people because they understand the underlining asset. Whereas you understand the underlying asset because that’s what commodities are. If the underlying asset is rotten, the whole market won’t exist. So in that regard, talk to me about regulation. How much regulation do you need in your business?

No regulation for carbon credits 

TM: I’ve always operated in regulated markets. I’m not afraid of regulators. I’ve always realised there’s a lot of value created in regulation, if you approach it intelligently. So we formed AirCarbon in 2018, went to MAS in February of 2019. We sat down with them and said, we want to put in our application for a carbon exchange. We started the conversation and we travelled through the typical paperwork and writing rule books, policies and procedures, then we got into early 2020 and we really anticipated we’d conclude it. Then the world changed and MAS was unavailable and went offline for six months, like most regulators did, trying to manage all the other insanity. When the light bulb went back on, this was in July of last year, so a year and a half into it. There was still no resolution but they’re very supportive of what we’re doing. They said can you give us a seminar on blockchain and a seminar on carbon? So we sat down with them. It was really good. It was very interactive. They were very thankful and six weeks later, they called us up and said, “We just want to let you know we don’t have to regulate you”. I went, “What? I’m an exchange. I’m going to trade”. They said, “You’re doing everything correctly. We have a couple of metrics: you have to have custody for the underlying product, segregation, Fiat, KYC. But you as an exchange and your product, you can go ahead”.  

They said, “Carbon is an intangible asset. We do not regulate intangible assets”. I went, “Why didn’t you tell me that a year and a half ago?” They said, “We hadn’t thought about it a year and a half ago. It wasn’t relevant. We were thinking of you as typical exchange and that you were going to do this and that and then we realised the product”. So they don’t regulate intangibles and carbon by nature has never had tangibility. From the day it was designed under the UN protocols and in Kyoto, literally, there has never been a piece of paper ever printed for a carbon credit. It’s not represented by any physical nature. As a result of it, everything else didn’t regulate. I found out that it’s not unique to MAS. The United States does not regulate carbon credits, either. So the Commodity Futures Trading Commission (CFTC) wrote a paper in November last year, right around the same time we got a no-action note from MAS saying we can go ahead. The CFTC said the same thing about carbon credits. They do not regulate carbon credits. What they do regulate in the United States is the nature of the underlying product. So if you’re trading a futures product, the futures becomes regulated because you’re accepting marginability and a settlement. That’s actually the regulated part. But the product itself is still unregulated also in the United States. 

ED: So you don’t have a futures market yet?Carbon is an intangible asset. The projects that carbon is based on, there is no leverage. If there’s a leverage, does that become a tangible asset? Like if there’s borrowing involved? And the tokens that you issue?

TM: We do not, but we will in very short order. So our aspiration was we wanted to have a functioning spot market. We’ve jumped on futures quickly without good underpinning market formations. Carbon would only become a tangible asset if we created an indices off of an underlying carbon price. That is, for some reason, the nature of securitised index has tangibility. Under the British law systems, they printed paper at some point in time to represent those. So that becomes tangible.  

The ERC asset and again, this is the classifications under the Platform Security Architecture (PSA), which has become a global standard. The three coins, the three tokens, the payment tokens are regulated. An asset-backed token is unregulated because they didn’t want to impede commerce. It fits into the spot commodity architectures. What’s underpinning the token? It’s an intangible asset so it does not get captured on the nature of the token. What does get regulated is our management of funds but that’s the settlement process.

ED: Doesthe settlement process get regulated by the financial regulator or the court registry of companies? 

TM: It’s done under here. It has to be managed by a capital markets services-licensed entity and a custody bank. They take on the responsibilities with a lot of KYC for every entity that comes in as within the ability to do inbound or withdraw funds. That’s what it’s based off of.

ED: I also understand that Singapore is setting up a climate impact exchange. Is that a potential competitor or do you see that as being something different? 

TM: I see that as being different. We were part, myself and my partner Bill, we were actually guests at their task force, which was run by the Boston Consulting Group (BCG). It was a really interesting exercise with a group of people who had never traded carbon, had never traded a commodity and had never built an exchange. A few of them were passionate environmentalists. But the target had been determined before the decision came out that it would be even called Climate Impact X (CIX). Fundamentally, Singapore wanted to take a position, a good stand in their grand green plan. Temasek and the PM’s office realised that Singapore itself is under threat, there’s no doubt about it. So they wanted to take the highest road that they could and put it on an exchange level. So CIX, its intention is to be in what’s called the primary market, meaning that they’re at the upper end of the carbon market. It’s going to be big, high finance, everything is about quality, everything is about verifiability. These were things that they identified as flaws in the current carbon market. Especially because they’re actually focused on a single part of the carbon market, nature-based solutions. So let’s say its forests. So the problem is, how do you make sure the forest is what it says it is? Is it doing what you said it’s going to do? Is it still there next year. So you can employ technology, whether it’s ground or light detection and ranging (Lidar) or satellite. They want to build this package and then plug in a trade finance facility based off of good delivery credits that they’ve identified at this very high quality. If you look at their wording, it’s all about quality, verification and such. If you look at a large part of the Carney-Winters Task Force, a large part of it says the same thing. And lo and behold, Bill Winters’ bank is part of CIX.  

ED: Tell me a little bit about your company. Where is it now? How much funding have you’ achieved and how much more do you think you would be going for? Being borderless is a very important part of your business model, which is when you’re not tied to any country or any specific idea of location, then you become an attractive marketplace. In fact, I’ve read that you are also carbon negative yourself, as a company. What does it take to be carbon negative? Talk us through about you as a businessman, the entrepreneurship, raising capital and where you’re taking the company. 

Setting a trend 

TM: We’re actually the first exchange in the world to be carbon negative. Actually, the only exchange to be carbon negative. So the company, we’re three-and-a-half years old. We’ve got 17 employees. We’re running it very efficiently in that respect. You can do that today with the nature of technology and blockchain. We’ll be double that in very short order. We’ve just finished our Series A round. We raised a little over $5 million, which is what our goal was. We got our valuation in the mid-20 range. That’ll give us capital adequacy to move significantly further down the road. As I said, we’re in 27 countries, 132 firms and it’s very diverse on the buy-side and sell-side. So we’ve got a good mix of sell-side from carbon and buy-side from investors and traders. We’re probably going to B fairly quickly over funding. I’ve actually never seen a funding round get oversubscribed but ours was. But I can tell you, we began it back in September of last year and it was painful: September, October, November. Then it got to December and suddenly, it opened up. We had people going, you called, we’re interested in it now, that kind of thing. By March, we were fully subscribed. Then people said, “Can you expand your A round?” But the great thing now is we’ve got really good opportunities to deploy the capital.  

We’re not just going to be in Singapore, in short order. We’re starting to see demand for regional basis. Part of that is the nature of the Paris accords that people can build regional exchanges. Part of it is the transition period. One of our clients is one of the ride-hailing firms. They wanted to decarbonise at the right level. That’s very fractional. When we built our credit, we fractionalised it with intent down to thousands. So basically, a ton of carbon can be broken into a thousand increments into a kilo level. So you can either invest in it at a fractional level or retire it. So we gave them a solution that said, if you’re going from point A to point B and that’s 17.6 kilos, you’ve got a thousand kilos in a ton. We set aside a certain specific set of tons. They aggregate it. At the end of the day, they report to us then we retire it for them. So we’ve gotten all the way down to that level in terms of client service where at the other end of it, we’ve got high-net-worth entities that have come in and said, I have $100 million portfolio, I’m going to put $10 million into carbon in the next six months. I’m beginning now. And they’re going to build a $10 million-portfolio with today’s current prices and then they’re going to hold on to it. That’s it. In between that are the people like the ride-hailing companies saying, I’m in Singapore and Indonesia but I’m launching in Cambodia and Laos. I want region-specific carbon projects for the offsets in that region. So we’ve set that up. We look for good projects in those regions and we use that for them. That’s part of marketing. 

ED: Because they will be seen as being local in all these countries. These are companies that operate in multiple locations. So that’s an interesting part of your story. You’re not just on the trading side. But on the supply side, there’s a whole dimension of carbon offsetting projects that can be funded by your marketplace. They can have them registered and then made visible even, not just being traded. Many of these projects are not visible enough so that’s interesting. Do you need marketing people to go out there and look for projects like this or is there enough to be done already as it is?

TM: You always need eyes. Carbon projects generally are everywhere. You can put people in the Amazon, in Central Africa, in Sumatra. They could be in Western Australia, or in British Columbia. All of them can be a carbon project and China, similarly, with the work they’re doing there. There were a lot of experts 10 to 20 years ago. There’s not enough experts today because the market contracted so much. There are a few firms that do very good work and they’re adding assets daily. For us, we put out a request for proposal (RFP) to guys that are either project developers or guys that know of projects that had stopped because they didn’t have adequate funding, that need a seed round of funding to get them going again. 

We’ve identified a couple of those. One in Sri Lanka, in particular, a legacy tea plantation. It’s run by women. It needs to be replanted and portions of it reforested. That qualifies for a carbon credit but it also qualifies for SDGs. When you change the lives of indigenous farmers, you change their business as usual, fundamentally, is what it is. So they have been trying to get funded for quite a long period of time. They heard about us through somebody else and they reached out to us. So these women have this opportunity to change the use of this legacy tea plantation. Sometimes it can be very expensive. We asked what they were looking for? They said, “Well, it’s a lot of money”. They said, $500,000. We were choking on the other end of the phone. We’re like, that’s all? Nobody would give you $500,000 for this? And this is a scalable project. It’ll produce a hundred plus thousand tokens a year. But agro tokens are the worst case. It’s worth $4 or $5. It would pay itself back in one year and it’s got a 30-year life cycle. It’ll be a game changer for these people. But because they were women sitting where they are, culturally, it was not in the nature to invest in them.  

But I’m sure if it was held by a male like us, there would have been no problem getting money. So that’s the kind of things that we’re discovering. We’re also discovering other projects that had only gotten a partial way through their registration and they ran out of money. Yet they’re doing good things. So to get them another jumpstart, all we ask is through their first economic event, pay back a portion of what we gave to them, interest-free. But I want all of their credits to transact on my exchange. I want to build a continuous pipeline of good delivery credits over a decade, minimum of 10 years. But this is a market that becomes predictable, 30 years in the future now, when it comes to nature. So that’s how we’re doing this incubation. There’s a lot of really interesting opportunities. 

ED: But how do you do the valuation of these projects? And how much money do you think they need? 

TM: I’ll be honest. I leave that out to my partner, Bill Pazos, one of the legacy guys in the carbon industry. He was an early adopter back in the late 1990s when not many people were in the business. He had been a banker and a bond trader at Money Honey. He understood the business, understood the idea of finance and understood the opportunity of the first Kyoto and UN protocols. He built a firm called EcoInvest Carbon that at one point, accounted for about 25% of the global projects for methane gas capture around the world. They were that significant. They were acquired years later, in 2008. Then he went on to do other business then the market changed. He got out of the carbon business then he came back in with me in 2018. He’s a bit of a legend in the business. He understands the minutiae, what you have to do from an infrastructure and an initial appraisal of the value of a project. 

ED: Tom, thank you very much. I want you to know that I’m very proud of what you’re achieving. Knowing you as my personal friend gives me a front seat view of building an exchange from scratch in this whole new dimension of impact and carbon credits. What are you looking forward to with the Paris accord meeting in Glasgow? What’s adding up for you as we get closer to Glasgow? 

TM: We’re definitely not in the mainstream in terms of what we’re doing with our exchange. I feel a bit like a salmon on my spawn swimming against the stream. But we’ve got a lot of followers. I’ve got a lot of salmon behind me that are thinking the same way we are so we’re going to Glasgow well positioned for anything other than people saying, “We’re still looking for that exchange”. And we’re going to say, “We’ve been here for a year already, wake up”. The second thing is there are still challenges on the table in Glasgow. I mean the Article 6, counting cross border, double counting and double accounting. Those haven’t been rectified. It’s going to be really interesting to see if they can achieve that. But we’re going to go in and have some fun, because, first of all, we haven’t been able to do it for two years. Carbon people generally are really nice people because they’re really passionate. The awareness today is even higher than it has ever been before. This is not just the bureaucrats, the UN guys and the financiers. These people are going in there saying we’ve got to make a change. It is a time to change and it’s going to literally be done one project at a time. We’ve got to build a universe. We’ve been able to do it. For every other major product in the world, we’ve been able to identify a problem. We need transparent pricing and a new marketplace, then all the related industries will grow up around it. We’ve got to do that for carbon. So if there’s a message, that’s the message I want to bring to Glasgow.

ED: Tom, thank you so much. This is a continuing conversation. I’ll check up with you again to see how you’re taking the market and how you’re building a cross-border or a borderless marketplace when everybody else is trying to create a market within very specific constraints. Thank you very much for speaking to me today. 

TM: Thanks. I appreciate it. Thank you, Emmanuel.