Building an Article 6 carbon credit system in the Philippines

Markham interviews Justin Reynolds, CEO of Maharlika Carbon Technologies.

What is Energi Talks?

Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.

Markham: 00:04

Welcome to episode 320 of the Energy Talks podcast. I'm energy and climate journalist Markham Hislop. Understanding carbon credits and carbon trading is not for the faint of heart. Least that's my experience. The principle is simple.

Markham: 00:19

A jurisdiction generates credits by sequestering carbon in some way, then sells those credits through a corporation or jurisdiction wanting to offset their greenhouse gas emissions. As you can imagine, the rules of a carbon trading system are critical to prevent abuses and greenwashing. But it's the rules that are often difficult to understand and administer. Jesse Culver and Justin Reynolds from Maharlika Carbon Technologies Technologies are here to explain how the Philippines is using carbon credits to decarbonize and drive clean energy investments. So, Jesse and Justin, welcome to Energy Talks.

Markham: 00:59

Now, gentlemen, maybe let's start with Justin. Could you give us an overview of exactly what what is carbon trading? How does it work?

Justin: 01:09

Sure. I think, Malcolm, as you alluded to earlier, there there are sort of lots of viewpoints on this. But I think the basis of it is the ability for someone who has a credit, either created or given, to be able to sell it to someone who doesn't have a credit, either created or given to help the process of decarbonization, you know, across the world. And then, obviously, you like all things human, you become a lot more complex and a lot more complicated depending on how different people see things and how different entities, be they regulators or, you know, private enterprise, decide that they want it to to occur. But, fundamentally, it's the process to decarbonize the, impact that humans have had on the on the planet to try and bring it back to where it was before humans started the industrial revolution.

Markham: 02:16

So if I'm a company and I am producing some I have some carbon intense process and I need to lower my greenhouse gas emissions, to meet, let's say, local, you know, national, climate policies in in in my where I operate. I can buy carbon credits from someone who has them. That increases my cost of doing business, which then motivates me to invest in emissions reductions activities. Could be technology or whatever it happens to be. Have I got that more or less correct?

Justin: 02:56

In a in a in a nutshell, yes. It's supposed to be an an an incentive or a nudge to for businesses, governments, depending on whether you're in the compliance market or in the voluntary carbon market to to decarbonize their operations, their scope 1, 2, or 3, and the ability to buy credits. And then, obviously, you have to cancel them, is a is a mechanism to to get money into sectors that are decarbonizing and to into, in a sense, incentivize those that are not decarbonizing to decarbonize by, as you say, increasing the cost of doing business.

Markham: 03:37

Justin, if you could explain the difference between, compliance credits and voluntary credits? I think that's how you describe them. What's the difference between the 2?

Justin: 03:51

Zevo, this is a moving feast, but but, basically, compliance is government, government to government, what's also called article 6 under the Paris agreement, but it basically started in Kyoto under the Kyoto agreement and the CDM. So it's really government to government type type market. Obviously, the Paris agreement came along, to try and allow the private sector to get involved in the carbon markets. And under that, they created the the voluntary carbon market where the private sector could could get involved. And the reason for that was, obviously, private sector tends to get things done quickly and fast or or faster and, with more impact than governments tend to do, specifically if it's in an unregulated environment in the way that bungee carbon market is.

Justin: 04:42

And that's the reason for Paris. But within Paris's article 6 of the Paris Agreement, which is still being debated, as I'm sure we'll come on to, and that was really to sort of bring square the circle in a sense to bring the voluntary carbon market under Paris back into the compliance market and governments government involvement.

Markham: 05:03

My understanding of article 6 is that it's it relies upon government to government agreements within which then the the private sector can operate. But there's a lot of concern about it being used improperly, and so the definitions and the processes are fairly restrictive. And could you address that? Just explain it for us, if you don't mind.

Justin: 05:35

Yeah. That that's that's absolutely correct. And after each cup or or SP, which are the the midterm cups, which are held in bond, which the latest one's just finished. That's very much the the idea because the the whole idea is as, you know, most of the world works is that the pressure is put on governments, and then governments put the pressure on private sector to enable the government, stroke, country to meet targets, whatever those targets may be. In this case, it's climate.

Justin: 06:04

And that's done through the NDCs or the nationally determined contributions, which each country, stroke, government has to set. And then that government, you know, enables or regulates the, you know, the private sector to to help them meet that. That's really what Article 6 is is all about. And it it is messy at the moment, but it's messy for many reasons. 1, because of human nature, and 2, because of of the sort of global nature of the Paris agreement and and and the desire to drive decarbonization across the planet and I and also this climate finance mechanisms, which are which are done through the credits and the trading credits, be it in the voluntary carbon market or in the compliance market through ITMOs, where the money flows from what are called buy side nations into what are called sell side nations to help fund, environmental projects in the sell side nations to then decarbonize the planet.

Justin: 07:14

And with that complex complexity, there's always going to be, know, skullduggery and people taking advantage of a truly unregulated market.

Markham: 07:27

Speaking of, I have an example here I'd like you to just comment on. You you probably don't know the details, so I'll just give you an outline of the issue. So within Canada, Canada is a big producer of natural gas. I think about 18,000,000,000 cubic feet a day. A lot of that goes down to the US.

Markham: 07:49

A fair amount of it is burned in the Alberta oil sands to create steam as part of their process. And the government and there is a a big LNG project on the, British Columbia coast, the West Coast, of the of Canada. It's the, Shell LNG. Sorry. It's it's LNG Canada, but it's owned by a consortium of Shell and Petro, Petronas and and some others.

Markham: 08:16

And the argument is made by the pro oil and gas folks that because, British Columbia produces gas with a very low leakage rate, It's like 3 tenths of 1%, and it has plans to electrify all of its LNG. Now that may not happen, but that those are the plants. We have if it had if it electrifies the liquefaction process and it has a low leakage rate, it'll qualify as quote unquote clean LNG. The argument then goes that it will qualify for let's say that it sells, a load to, of LNG to China, and it displaces coal in their powers, sector. So the the argument goes then that under article 6, Canada would receive credits, for that sale, which would then be transferred to the the company and improve the economics of new LNG facilities on the West Coast.

Markham: 09:16

The problem with that is, why would China give up credits? Because it just paid commercial rates for, shipping of LNG, and if there are credits to be generated, it would keep them for themselves. I I it boggles the mind that China would voluntarily give, give away value, to Canadian producers. And secondly, I've been told by experts, this is not how article 6 was intended to work. In fact, there are mechanisms in article 6 to prevent this very thing from happening because it's subject to abuse.

Markham: 09:49

I know that's a bit of a long winded explanation, but I just if I could get your view on this.

Justin: 09:56

Yeah. I think if you go if you go back to it, so if you take the Puritan view, which is I always find it a good place to start when you have these conversations. Article 6, as I mentioned earlier, was a way of getting funding from buy side nations, which Canada is a buy side nation, into sell side nations, which is by number the vast majority of nations, which are predominantly in Southeast Asia, Sub Saharan Africa, and Africa, and South America, for environmental projects to help those countries to build out environmental projects and be able to trade at most with buy side nations. Now Canada is a buy side nation and say, you know, the Philippines is a sell side nation. When it comes to China, similarly to, you know, other sort of countries like Singapore, for example, they are fudging it slightly because they're trying to be sell side nations when actually they should be buy side nations.

Justin: 10:58

And I think Singapore has come around to the Singapore has created its own little niche where it's both a sell side nation and a buy side nation, which is still playing out. But I think, Mark, on the other side that you you have highlighted here is this debate about whether article 6 projects or compliance projects can be undertaken in a country by another country. So, again, if you go back to the purest form of of article 6, A country, so call it, you know, sell side nation a, they set their NDC, their nationally determined contribution, and they have to come up with the funding to to undertake projects in their country to meet their NDC. Once they've met their NDC, they can then create ITMOs and then trade ITMOs with a buy side nation. And in that way, they get a they they bring in finance climate finance into their country.

Justin: 12:01

Where it's becoming murky is the scenario in a sense that you've just, outlined, which is where projects happen alongside the NDC, not within the NDC. And countries or private sector are asking the sell side country to sign a letter of authorization to allow these article 6 projects to occur alongside the NDC. So the issue is is that they do not contribute to the meeting of the NDC of that cell site nation. They may contribute to decarbonization, but they do not contribute to the NDC of of that country meeting their nation, which allows for when when the corresponding adjustment is put in place, which is needs to happen to make sure that there's no double counting. But if you follow the accounting side of that, once it once an LOA is signed, an Article 6 project is is is undertaken within the sell side nation and the the corresponding adjustment is is executed, 2 things happen, which are not really being discussed openly, I think, at the moment.

Justin: 13:13

Is 1, the risk of that corresponding adjustment being removed potentially down the line is relatively high depending on on the the sell side country. And there are many reasons why it could potentially be removed. And what's the what's the, you know, how do you roll that project back and those credits back? But 2, the pressure it puts on that country to meet their NDC increases because land has been used and or the ocean has been used to undertake this article 6 project, which is not meeting the NDC. But the country theoretically still has to meet their NDC using a smaller piece of land in total or a smaller piece of their ocean in total.

Justin: 13:56

And those are areas where I think this is not being thought through properly because the whole aim is for each country to meet their NDC and the global stocktake to get better and better and then, hence, the process with the under Paris and article 6, you know, does what it's supposed to do.

Markham: 14:15

This will be the last question about carbon trading in general and and this, example that I gave you, and then we'll get it to Jesse, and we'll talk about your company and what it's doing in the Philippines. But is it fair then to say that the rules as they are today are fairly murky? They're confused at confused, and that maybe, the example I gave you of clean l, Canadian clean LNG being sold to China to displace coal might, in fact, in reality, generate those article 6 credits that the proponents say would happen.

Justin: 14:51

Yeah. Absolutely. It might do. And I think, you know, there are the if you come slightly out of the Puritan side of it more into the sort of economic reality and climate reality of it. Of course, LNG, specifically if it's clean LNG, is far better than coal.

Justin: 15:08

And, I mean, that that's that's just a that's just a fact. So there's a you can sort of see the argument there to that to that side that that going moving from coal to LNG is better. There's no doubt about that. And that battle was fought in the EU couple of years ago, and and, you know, LNG has been put on the list as a clean. I think sometimes the terminology is not great.

Justin: 15:31

LNG is not clean. LNG is still a fossil fuel. It's just cleaner than than the very, very dirty fossil fuels. And I think sometimes also, as I said earlier, to be able to have these conversations, you really need to go back to say, you know, to to to reality and start with reality and talk through in sort of real terms. Whereas coal is very dirty, diesel is obviously very dirty.

Justin: 16:00

LNG is still a fossil fuel, so it's still dirty, but it's just cleaner than the others. And you have the same conversation that's going on with hydrogen at the moment. Right? People talk about hydrogen and hydrogen this and hydrogen that. And when you dig into it, it's actually dirty hydrogen.

Justin: 16:15

But most most of the hydrogen that is being consumed in today's world is dirty hydrogen. It's not green hydrogen or blue hydrogen. So it's so, you know, it still has benefits, but it's still a dirty process in creating that hydrogen. And and I and and I think a lot of this mess comes from sometimes people trying to make a quick buck and and the fact that the environmental markets are unregulated, completely unregulated, really, if you truth be told. But then also a lot of it's around terminology and people being slightly dishonest in their terminology.

Markham: 16:51

Well, Jesse is telling me that, the signal he has, the Internet signal, is weak in the Philippines, and so, best that you and I continue the conversation. So we'll get Jesse another day. But let's turn to your company. Could you tell me, what it's set up to do? How does it operate?

Justin: 17:14

Yeah. So at COP 26, when as we were talking, article 6 was first ratified, and it's obviously still being debated and finalized. Jesse and I, who we already are operating in the Philippines with farmers and, you know, very much sort of the scope 3 environment of farmers in in the Philippines. And we worked out that, you know, obviously, that scope 3 has a big impact on specifically multinational companies' need to buy offsets in the voluntary carbon market. Through that process and that those conversations, we ended up at COP 26 in Glasgow, where article 6 was ratified.

Justin: 17:56

And we realized reading article 6 that there's a huge, huge environmental and economic and social benefit that could come from countries, sell side nations, implementing article 6 properly. And there are many areas of that, but one of the things you need is a registry. It's you know, for any for any country who wants to truly operate in Article 6, they have to have a registry up and running that is trusted by, you know, obviously, people within the country but also buy side nations and private sector who would be buying credits from from that nation that they had that there's a registry that is, you know, transparent and and, undertakes its registry activities properly. So Jesse and I decided to set up Mahalica Carbon Technologies in the Philippines with the aim of becoming the Article 6 Registry of the Philippines and enabling the Philippines to really move forward and participate in what we call the environmental markets. The idea was not just to register projects and sell credits.

Justin: 19:04

It was really to drive an environmental a domestic environmental market within the Philippines so that, that could enable the Philippines to meet their nationally determined contributions or their NDC, but also to participate in the international market.

Markham: 19:19

How would a market a carbon market, trading carbon trading market, how would it do that? What what's the mechanism? What does it look like on the ground? If you could describe it for my listeners, please.

Justin: 19:33

So I think the other the the other big driver that we saw under article 6 was the economic benefit. So, ultimately, obviously, it's an environmental benefit. That's what you're measuring through the methodologies and the standards. And the verification processes is that the the projects the environmental projects are having an environmental impact. Now to have a truly environmental impact, an ongoing environmental impact, you have to have a sustainable social impact.

Justin: 20:03

Because as we've seen many times, if if a project developer comes along and I'm gonna sound a bit flippant here, but if a project developer comes along and grows some trees on a piece of land and creates carbon credits under REDD plus, which is often the case, But the people feel, the tribal people, the indigenous people, or just, you know, any people that are linked to that land, if they feel that they're not benefiting from it, they may eventually, and have done, decide to take back the land or to or or or to start using it to grow crops, for example. So the environmental project collapses. So so for as onto your question, to have any, you know, proper environmental projects, you need to have a sustainable social, impact around that environmental project for the for the people. To do that, they need to be making money out of it. You know, the bottom line is to to make these projects sustainable, the people have to be making money out of it.

Justin: 21:01

For people to make money out of it, you need a market so that they can make make money out of environmental project, be they on land or on the ocean. So to answer your question, what does a domestic environmental market look like, it's basically the ability for people, whoever they may be, to make money out of doing good to the planet. And that is under, you know, Paris, under Kyoto that is that is designed through the creation of credits, and you can now have lots of different types of credits within a domestic environmental market.

Markham: 21:36

Does your company act as the the market maker, as the the central point that processes the application and enables the transaction between the buyer and the seller?

Justin: 21:51

So that's that's very much what we're focused on now. So the initial focus is on getting the registry up and running to help with the Philippines being the articles you know, moving towards being an article 6 country. The registry was was up and running. Then we realized we needed to create what we call the liquidity or the market. And so now we're building out the capabilities, and there are a number of them, to enable the domestic market to to operate.

Justin: 22:18

So a lot of that is liquidity. A lot of that is working on bringing in buyers and and sellers. And then, obviously, the ultimate one is to have lots of projects that are viable, transparent, robust, and people trust.

Markham: 22:35

Is it fair to say that you're essentially setting up the infrastructure in which the trading and tracking of credits will take place?

Justin: 22:47

Very much so. Yeah. It's it's it's very much an infrastructure and environmental market the the final article 6 or ITMO decisions are made by the Climate Change Commission of the Philippines, which is, you know, mandated under the UNF triple c. So we can't do that final bit. But if we can enable there to be a liquid domestic environmental market, to enable the Philippines to meet their nationally determined contributions, and then either the project developers, the government, you know, to to then issue ITMOs and trade in the compliance market globally, that's very much our our our role.

Markham: 23:30

One of the things I've learned over my career, particularly in indigenous communities or smaller communities that are trying to do some kind of economic development, is the issue of capacity building. I mean, it's all wonderful to say we're gonna do we're gonna bring in, we're gonna put it together a program that'll stimulate economic development to create jobs in a particular area, and then it turns out that the community itself has no capacity, to manage that, to train, local workers, to do all of the things that that economic activity requires. And so then it gets done, you know, then they bring in outsiders to do it. And next thing you know, it's all happening or not happening in some cases, and the local folks have have had little to no benefit. And it sounds like you're in basically involved in a, capacity building exercise within the Philippines, and then that raises the issue of, our similar efforts being undertaken in other emerging economies like the Philippines.

Justin: 24:40

Yeah. Very much capacity, technologies transfer, knowledge transfer, job creation, they're all very, very important aspects of building out what we call an environmental you know, the the environmental market need of it. If you don't have the buy in from the people and, as I said earlier, if they don't feel they're making money out of this, it's very difficult to make or to keep people focused on having positive environmental projects or just being positively to positive to the environment. And people moving, right, from moving from current practices today, which are generally because of the way that humans have been, you know, generally nature negative to operating in a way and making changes that are nature positive. That requires incentives.

Justin: 25:33

And the best incentives that I believe come from market rather than from government or regulation. To answer your second question, yes, there are lots of conversations going on around, you know, specifically around the 130 or so sell side nations. And there are a number of them, as we know, in the buy side nations. California with the rec market is a is a good example. You know, the EU and and their internal markets is another example.

Justin: 25:59

But I think the the difference with those is that is is in the buy side nations, there tends to be regulation that drives it rather than market. And in the sell side nations under Paris, regulations have proven to be hugely damaging. You know, there have been some 70% taxes slapped on profits from certain projects, which has just killed, any sort of investment that has happened. And from a pure domestic market, on a sell side basis, I'm not really aware of one yet that has sort of taken off properly, and and is truly working, on a from a sell side nation perspective. And, you know, we we hope to be one of the first and to sort of sort of lead lead the way and and prove that it can be done, but it's it's, you know, it's gonna take a lot of work to get there.

Markham: 26:56

Can you walk us through how this would work in reality? You know, are we talking about, some, local communities undertaking to replant forests, in in a a deforested area that then generates credits. ExxonMobil or Shell or one of somebody like that who needs credits comes along and buys it, through the infrastructure that you're setting up. Can you just walk us through how that might work? Sure.

Justin: 27:27

Yeah. So I think one of the key bits, as I've said before, for us is that it's economically sustainable. So if you you need to need to design a project that is economically sustainable. To be economically sustainable, you need at least 2, if not 3, sources of revenue to to make it true truly work. So we on the nature based side, we very, very we spent a lot of time understanding and the Philippines has actually just brought in the phase, the first phase of regulations around this.

Justin: 28:00

But we're very focused on natural capital, on creating natural capital as an asset class. Natural capital allows for multiple revenue streams, carbon being 1, but you need others as well. And as long as you are regenerating the land or or regenerating the ocean, whilst having more than one revenue source with carbon being one of those revenue sources, then you can build a sustainable economic model around it, which creates which, you know, which brings in the community, be that an indigenous community or or even, you know, farmers within the Philippines. We work a lot with farmers in the Philippines on regenerative farming. But it could also be big corporates that are putting in projects or real estate, and they put an increasing amount of the land that they have available for real estate to biodiversity uplift or some aspect like that.

Justin: 28:58

As long as we can create a value, a natural capital asset value, then it becomes possible for those to to to to occur both on on the land and in the sea. The sea is obviously more difficult, but there's huge momentum now around trying to get much capital methodologies off the ground in in the ocean.

Markham: 29:18

I was looking at your website, and it provided some examples of projects that might be undertaken, under the system. Clean energy economies, which I would assume would be like wind and solar generation and, hydrogen, who knows what else, waste management systems, clean water solutions. How do those projects get, funded so that they can then in turn generate credits? Where does that money come from?

Justin: 29:48

So the money come the money will come from sort of number of different different areas. There's there's an if you just go back to the pure carbon side of it, there are, you know, $1,000,000,000 funds out there now in natural capital, looking for natural capital projects. But they are quite rightly being very picky about the projects because they want them to work. They want them to have the impact, and they want them to be sustainable. So, you know, from, again, from a natural capital perspective, there's a lot of work to be done to to get that off the ground.

Justin: 30:21

But the money is there. As I said, there are now, you know, a number of $1,000,000,000 natural capital funds, who are very interested in the Philippines. When the Philippines or as the Philippines move towards being a truly functioning Article 6 nation, that interest from this money becomes even greater. And so that's one route. Another route is is from banks and and and others who who are interested in funding these type of projects.

Justin: 30:53

So let's as an example, if it's a regenerative farming project or an agroforestry project with indigenous, and then they are selling, not only regenerating the land, but are selling crops to some extent. That's a normal banking relationship that can happen. The Philippine government, again, outside of the private sector, the Philippine government through through their banks have put up, you know, quite a lot of money, for those type of projects, again, as long as they are regenerative. The ocean is the same. You can have agriculture projects, fishing, you know, as long as there is a natural capital aspect to it, it's regenerative.

Justin: 31:35

They're rewilding, and, you are reducing the supply chain, or or the the length of the supply chain and hence reducing the carbon hence, reducing the amount of carbon going into the atmosphere from a supply chain and a manufacturing aspect. That's you know, that can all be financed through through traditional sort of banking or private, money. We've seen just recently, we've seen quite a lot of private equity investment coming in in the natural capital space in small small amounts of money, not big as in the huge private equity funds that go into some traditional, private equity space, but definitely a kind of a private equity mentality where, yes, we wanna invest in this project because it has environmental benefit. It has social benefit, but it also is an economically sustainable business.

Markham: 32:33

In my conversations, with Jesse offline, he indicated that a significant part of a significant objective of this of this process is to lever green finance, you know, environmental finance, climate finance into the Philippines. And I I can't I come back to, Mark Carney, good Canadian boy, former bank governor of the Bank of Canada, talking at one of the COPs about, you know, the 1,000,000,000,000 of dollars sitting on private capital, sitting on the sidelines, looking for projects, and the difficulty, of doing that. And it seems to me, and you can tell me whether I'm right or I'm wrong, is that companies like yours, initiatives in the Philippines, initiatives like the ones you're undertaking in the Philippines, are building the infrastructure that that capital is waiting for. And when it's all put into place, that and there are credible systems for measuring and for trading, and and they're transparent, and and and people trust them, that that capital that Carney was talking about will begin to flow in in in in a much more significant way into emerging economies like the Philippines. Have I got it right?

Justin: 34:02

That's that's absolutely the hope and the expectation, and it's very much what we've been told, Malcolm. So, yes, you you, you know, we we hope you've got it right. That if we build if we build the infrastructure, if we build the transparency, if we build the data that is required, if, you know, if we if we build the market and people trust the market, then then the money will start to flow. The the 1,000,000,000 and 1,000,000,000 and 1,000,000,000 of dollars in numbers that you put out there, I'm absolutely certain as I'm sure you are and many others that there's some double counting going on there. But even if you cut the 1,000,000,000 and 1,000,000,000,000 of US dollars that have that have been supposedly pledged in half to be, you know, or even in quarter.

Justin: 34:48

That's still a lot of money that that is looking for a home somewhere. You know, the I I referenced the $1,000,000,000 natural capital funds that we talked to. You know, I know I know the founders. I know the fund managers in those funds, and we've had conversations with them. That's genuine money.

Justin: 35:06

It's absolutely genuine money waiting to be deployed. But quite rightly, they're asking for the projects, you know, to meet a certain criteria for the the market that, in a sense, the one that we're building in the Philippines and people may be building in other countries, you know, to be at the level where they actually trust it. Because it's an unregulated market, as you know, it's a buyer beware market. And so it's so much of it is based on on trust. And and so we need to enable that through the data, through the technology, through the methodologies, and then and then we believe it'll flow.

Markham: 35:44

If you don't mind me asking this question, how does your company generate revenue from all of this capacity building and establishing the registry and building trust and doing all of the things you're talking about, how does that work?

Justin: 36:00

Just like any other market, really, if we if you if you look at, example, an equity market, you make you make money out of success. So by taking a clip on on the transactions. And, again, it's about enabling it all. So as as the market takes off, you you you take a clip on on the transaction. So it's it's from that perspective, it's it's very traditional.

Justin: 36:31

But I think what we what what I would add to that, though, is I'm I'm x equity and debt capital markets. There is a lot that we can learn and not bring in to the environmental markets from the specifically from the equity markets. And, you know, a lot of that in the voluntary carbon market specifically, you can see a lot of equity thinking just being sort of pushed or dumped into the voluntary carbon market. And we're quite keen to not do that and and take the learnings from the equity market and and do it slightly differently or make sure that those lessons have been learned and they don't flow into what we're building in the Philippines on an environmental market.

Markham: 37:17

Final question, Justin, and I'm not sure that you actually have an answer for this, and maybe this might be just your opinion or your observations, based on your experience. But the Philippines, given its proximity to China, raises the question for me, especially because we're seeing, the the US as, you know, 100% tariffs on, EVs that were introduced, but there's other tariffs, smaller tariffs that have been on a whole range of clean energy technologies from China. And it's being justified as a reaction to high embedded carbon in those products. The EU now, is can't be as aggressive because it has a different relationship with China, but still raised its tariffs on EVs and and other products. And my take on this, because I I've come to the conclusion over the last year that China is going to drive the global energy transition.

Markham: 38:11

It's simply in in terms of, its investment and subsidies of clean energy, technology, manufacturing, solar panels, wind turbines, ZVs, batteries, all of that stuff. It is scaling up, and it's driving down cost, and that's a big part of that that adoption. It also has the belt and road initiative, which is going and I this is my hypothesis. I think that China really doesn't care about the US market. I think it looks at the rest of the global south and the emerging especially the emerging, sort of middle class economies and says, that's where our technology that's where we're where we want it.

Markham: 38:52

We want those markets. We'll be a major we'll be the preeminent clean energy or industrial power in the world by sewing up those markets over the next 10 or 20 years while the Americans are off building their silly battery plants and trying to compete with us. And and I wonder from your position in the Philippines what your take would be on that hypothesis.

Justin: 39:19

I think I think you're right. I I I and it it it, it's very obvious, right, that that's China's plan. You look at, you know, the brakes and the currency and what Saudi Arabia has done and, you know, it there's no doubt about it. 10, 15 years ago, I spent a lot of time in Beijing working with with, both the state and enterprises, but also the private sector companies in in China, looking at it when I was in the equity markets looking at capital raising. The time I started in Beijing, I if I've got my numbers right, I think there were about a 100 and 8 80 listed directly listed companies from China on the US market.

Justin: 40:06

And then, you know, by the time I'd stopped working in China, that had dropped to about a 100. And and that 180 number was already lower than where it was before. So you're absolutely right. The the but I think where what what's being missed here slightly, and we'll see how this plays out. But if you look at the if you look at the energy transition specifically, a lot of the energy reasons for energy transition away from fossil fuels, and it's one of the reasons why China's driving it, because dry China doesn't have many fossil fuels itself.

Justin: 40:46

It has to import them. But if you look at it in almost any other country, because very few countries actually have large amounts of fossil fuels. You know? So the balance there or there is an imbalance. But if you can start to produce more and more renewable energy, be it solar, be it wind, be it hydrogen, you actually then need to import less and less and less fossil fuels.

Justin: 41:12

So you you you not only have an energy transition story, but you have an, an energy security story as well. And I think that's the bit that's really gonna play out here is and, you know, everyone knows about this, but it doesn't seem to be talked about in the same breath as energy transition is this energy security side.

Markham: 41:38

And energy security is tied up very closely with geopolitical security issues. And it's fascinating to me that the, oil and gas crowd talk when they talk about energy security, they talk about, you know, the aftermath of Russia invading Ukraine and then, you know, the energy insecurity that created and the rising prices and energy poverty, as if that'll go on forever. And as if, you know, countries don't have a response to that. And the response I mean, the EU is a perfect example. The response they just said to Russia, screw you, pal.

Markham: 42:14

We're gonna we're gonna go for energy efficiency, and we're gonna build out our renewables, and we're going to just eliminate, you know, by 2030, or we're gonna greatly reduce our need for fossil fuels, and then we don't care about you. You can do whatever you want. We're we're independent. And I see of, variations on that theme all over the world All over the world. And it seems it seems to be, a, ignored or b, discounted by decision makers and the lead the the leadership in the current energy sector.

Markham: 42:49

And I think I am I'm with you on this one. I I think it's a it's a huge strategic mistake. It's it's a they're they've got blinders on. And I as I often say about the Alberta oil and gas companies, you know your business, oil and gas, you do not understand your competitor's business. And that is the disruption that leads to blockbusters and codex, and in invariably.

Markham: 43:15

And it seems like that's playing out on on a global scale. I don't know. Your thoughts?

Justin: 43:21

I I I I totally agree. I I mean, there are lots of the the there there are lots of difficulties in it. But if you just look again, a country like the Philippines that we know well, quick desktop analysis, so these numbers are not absolute, but they're close enough to make the point, the Philippines spends 9,000,000,000 US dollars a year importing diesel. Right? If they can switch that diesel for hydrogen let's assume they managed to switch all 9,000,000,000 of it.

Justin: 43:55

That's 9,000,000,000 US dollars a year that the Philippines can spend on something else. Yeah. So

Markham: 44:02

huge. And I think I think that we the there's a point about putting energy technology, reminds me actually of the oil sands, compared to conventional production, is the greater, amount of CapEx is in the greater amount of capital required is for CapEx, not OpEx. And once you've paid that, you've you've figured out how to, where you're gonna get that $9,000,000,000 to invest in electrolyzers or wind farms or your power grid or wherever it is, it's done. It's infrastructure now, and it'll generate electricity for 25 or 50 years or however long. Instead of the $9,000,000,000 a year, now you've essentially, that's all, for internal consumption, and and it it it it's actually a lot cheaper than importing fossil fuels.

Markham: 44:56

And we that strategic issue, is I agree with you. It says we're being ignored it's being ignored. Justin, this has been a fascinating conversation. I've learned a lot about the Philippines, learned a lot about carbon markets. Thank you very much for this.

Markham: 45:11

Really appreciate it.

Justin: 45:12

Welcome. Thank you. Thank you for your time, and thank you for inviting us on.