Serial entrepreneur and investor Matthew Trudeau recently took on the role of CEO at carbon removal market place Nori.
We talked to Trudeau to find out more about how his expertise in trading and building exchanges and marketplaces ties into him joining Nori, and what he believes the future holds for the carbon market at large.
Just last week, Nori also released its whitepaper on an entirely new product called the blended tonne, which combines the use of long-term and short-term carbon removal and storage solutions, so we dived deeper into the subject to understand the benefits of the novel concept.
Congratulations on being appointed CEO of Nori! Tell us a little bit more about your background and what brought you to the carbon removal space.
At this point, I’ve been in electronic trading almost 25 years now. Initially, my career was on the brokerage side of the business. So, I worked with technology driven brokers, retail and institutional, and then the second half of my career transitioned to the exchange and infrastructure side of the business. And for the last 10 years, I’ve been launching and operating different kinds of exchanges and marketplaces around the world.
Nori is the 13th market that I’ve been a part of launching or working on, and I’ve worked on everything from US equities to Canadian equities, to foreign exchange commodities, derivatives, etc. Prior to joining Nori, I was the chief operating officer of a company called ErisX, which is now called Cboe Digital. For four years we built and operated a CFTC-regulated futures exchange and clearing house and spot exchange and clearing house for cryptocurrency derivatives and cryptocurrencies.
We built it the right way and we sold it to the Chicago Board Options Exchange (CBOE), one of the more prominent regulated exchange operators and market data and infrastructure providers. After that, I started to talk to some of the folks at the Nori team and on the board. And we just seemed like a good fit. What really excited me about it was I was generally looking at how to take all my markets and trading knowledge and do something to try to contribute to solving some of the world’s biggest problems.
Would you say there is any difference between launching a carbon market and a different kind of exchange or trading platform?
They’re all a little bit different in some way, each of the products I’ve worked on has its own peculiar regulatory environment, depending on the jurisdiction that you’re in and the way the products trade. One of the things that I consider an area of expertise for me is market structure.
So, when people think about an exchange or market, that’s a very generic concept, when you actually look at how markets are designed, a lot of the time it is driven by just the nature of the product that is transacting in the market.
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Today, if you look at Nori’s carbon market, it’s very different from, let’s say, an equities exchange, which operates what’s called a central limit order book – a computer that matches buyers and sellers. In the US, you can look at something like 30 to 100,000 order messages a second. That is a completely different set of trading and operational conditions, and technical conditions than trading tens of thousands, or hundreds of thousands of tons of carbon over months.
So, there are a lot of differences just in terms of market structure. But in totality, if I take all the different market experiences that I’ve had in different places with different asset classes, there are little pieces of each of those experiences that can be drawn together here and married up with what we’re doing in Nori and the carbon markets. Also, I have a vision that five years from now the carbon markets will look very different from what they look like today, and Nori will also look very different, in terms of our scale and scope of business.
Can you elaborate on what that vision looks like?
Absolutely. Today, there’s one product, the NRT, which is a soil carbon credit, but it’s not permanent or the longevity of the storage of carbon is somewhere between 10 to 100 years. For companies looking to store on a longer-term basis, that doesn’t really work. On the other hand, solutions like direct air capture that will allow you to store carbon on a much longer-term basis aren’t quite ready yet. So what do you do in the meantime, since you’re still emitting carbon that’s having an impact right now?
Just recently we published a white paper for something called the blended ton. The concept behind it is marrying up the soil carbon credits that we have today and allow you, let’s call it 10 years’ worth of storage, with a longer-term, more permanent storage solution that will be delivered sometime in the future. So, there’s an overlap between the two and you are buying a single product that’s almost like a portfolio product that gets you a solution for today’s problem, while bridging into the solution for the longer-term problem.
That’s an example of where we can do some product innovation, we can create new and interesting products to solve some of the problems and gaps in the market today. We’re actively soliciting feedback now to refine the design.
And then beyond that, the big-picture vision is five years from now, Nori should be a multi-product, single point of entry to the market for both buyers and sellers of carbon credits for carbon removal, where you can find whatever it is you want.
Can you explain a little bit more about how the blended ton works?
The distinction is slow cycle versus fast cycle. There are two legs to the blended ton. The first leg which we would fill immediately with the NRT is what we have today, you can also put some other nature-based solution in there that’s available today. The point is that these credits must be immediately available even if they’re only expected to last 10 to 100 years.
Then the other leg of the blended tonne would be, let’s say, like a direct air capture or any engineering solution that can ensure storage for 1,000 years or longer – that’s the long carbon cycle offset. So, it just makes it efficient for you. We’re trying to help companies that are making or planning to make net zero claims. But many of them say they don’t like the nature-based solutions because they’re temporary. And the longer term engineered solutions aren’t ready yet.
Hence, a big part of how we’re thinking about this is, even if the nature-based solutions aren’t permanent, can they buy us some time so that we don’t hit those tipping point thresholds in terms of the climate? Can we slow things down a bit? Can we get enough carbon out of the atmosphere to buy us more time before the direct air capture solutions are available at scale?
The price for a blended tonne is not officially set yet, but a price point explored in the whitepaper is $520. How does Nori come up to that price point?
I think the price is very difficult to set because we have some competence about the supply availability and where we think the price should be for NRTs. But it’s hard right now to set the price of the longer-term leg of the blended ton and it’s going to be a function of who we work with. So, who’s supplying it, what technology are they using, what’s their cost of producing the ton of longer-term stored carbon, etc.
One of the things that I think will be an important role for Nori to play is price discovery. It’s a little bit like with the oil markets or commodity markets. You would think that it’s a commodity, so say, one ounce of gold should always be worth one ounce of gold.
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But when you look at the characteristics of a specific product like gold, you have to ask if it’s a coin, what artwork is on the coin, what mint produced, is it a bar, where is it located? How easy is it to move from that location? How many buyers are in that location? Suddenly, all these other factors become important in determining the price, and it’s the same thing with the blended ton.
What is the nature of the nature credit going into the first leg and then what is the engineering credit that’s going into the second leg? So, I think the price may vary depending on those inputs, and then the market is going to need to set the price, the suppliers will have to get a price that makes it economically viable for them and the buyer is going to have a price that makes sense in the end.
Circling back to Bayer, are there any other similar partnerships in the making?
Nothing that we can speak about separately, but generally speaking, absolutely. So I think it’s incredible that Nori has been able to establish a relationship with Bayer, because for this to all actually make a difference, we’re going to have to scale at an industrial level. And the way that we do that is to work with some of the real economy corporations, and then eventually with some of the financial services industry to create products to help this get to scale.
In the long run, we want to be just one of the things that the CFO has on their list of running a business that produces carbon as a byproduct of its operations. And it’s just like foreign exchange or anything else where they know there’s a marketplace, there’s a price for carbon, they can factor that into their projections and their modeling. Then they just go buy the product and complete the transaction.
What do you expect the role of blockchain to be in the scaling of carbon markets?
I am a believer in blockchain technology and cryptocurrencies because I’ve been working on blockchain and crypto related things for about 10 years now. When I read the Bitcoin whitepaper back in 2013, I understood the concepts and thought this has the potential to fundamentally reshape capital markets.
Then the Ethereum whitepaper came out a short while later, and that was programmable, which blew my mind. I thought, if they achieve half or a quarter of what they’re talking about in this whitepaper, it’s going to fundamentally change society.
Now, 10 years later, the technology has come a long way and the level of education is much higher. I see it right now as being fairly optimal for record keeping purposes. So one of the challenges with carbon credits and various different kinds of is, are they double counted? Who’s got them? Where are they? How credible are they? All that record keeping on a public blockchain creates a lot of transparency, which hopefully in turn can drive more trust in the industry and avoid some of these scandals.
