Just as not every battery is created equal, neither is every renewable energy credit (REC). Even though RECs today are commodified financial products companies purchase to reduce their carbon footprint, the actual avoided emissions impact of an individual REC can vary dramatically based on the time and place it is generated. As our carbon accounting frameworks seek to become more precise and impact-driven and as transmission constraints proliferate, it is increasingly important that the markets for RECs and other net zero procurement products become more sophisticated. In this episode, Chad Reed sits down with Casey Martinez – the Founder and CEO of Clean Incentive, an emerging new platform focused on changing the way companies think about and execute on their net zero procurement targets. In addition to the getting into the weeds on Clean Incentive’s new Power Emissions Certificates (PECs), they discuss the imperative of data granularity, the challenging role of additionality and how to channel investment capital to the most impactful projects.
Just as not every battery is created equal, neither is every renewable energy credit (REC). Even though RECs today are commodified financial products companies purchase to reduce their carbon footprint, the actual avoided emissions impact of an individual REC can vary dramatically based on the time and place it is generated. As our carbon accounting frameworks seek to become more precise and impact-driven and as transmission constraints proliferate, it is increasingly important that the markets for RECs and other net zero procurement products become more sophisticated.
In this episode, Chad Reed sits down with Casey Martinez – the Founder and CEO of Clean Incentive, an emerging new platform focused on changing the way companies think about and execute on their net zero procurement targets. In addition to the getting into the weeds on Clean Incentive’s new Power Emissions Certificates (PECs), they discuss the imperative of data granularity, the challenging role of additionality and how to channel investment capital to the most impactful projects.
Links:
https://www.cleanincentive.com/
Episode recorded May 31, 2024
Chad Reed: I'm Chad Reed.
Hillary Langer: I'm Hillary Langer.
Gil Jenkins: I'm Gil Jenkins.
Chad: This is Climate Positive.
Casey Martinez: I think it was on the order of 40 gigawatts last year of new coal generation, so it doesn't make sense to be paying a high price for batteries and solar and clean parts of the grid when you have 40 gigawatts of coal being built in other geographies.
Chad: Just as not every battery is created equal, neither is every renewable energy credit (REC). Even though RECs today are commodified financial products companies purchase to reduce their carbon footprint, the actual avoided emissions impact of an individual REC can vary dramatically based on the time and place it is generated. As our carbon accounting frameworks seek to become more precise and impact-driven and as transmission constraints proliferate, it is increasingly important that the markets for RECs and other net zero procurement products become more sophisticated.
In this episode, I sit down with Casey Martinez – the Founder and CEO of Clean Incentive, an emerging new platform focused on changing the way companies think about and execute on their net zero procurement targets. In addition to the getting into the weeds on Clean Incentive’s new Power Emissions Certificates (PECs), we also discuss the imperative of data granularity, the challenging role of additionality and how to channel investment capital to the most impactful projects.
Chad: Casey, thank you so much for joining us today.
Casey: Hi, Chad. Thanks for having me.
Chad: Before we jump into our topic today, help us understand a little bit where and how you grew up.
Casey: I grew up in a small town, Texas, in the windy Panhandle area outside of Amarillo. Fell in love with the large sky and the never-ending wind up there.
Chad: You studied and spent much of your career very focused on science, whether it's physics, data science, engineering. Tell us how you became so into the scientific process.
Casey: When I was in high school, I just fell in love with the intersection of math and the natural world. I found it pretty amazing that you could describe the motion of a pendulum or the planets with these simple equations. I thought that was magic. It started there, but when I went to university and began studying advanced calculus and quantum mechanics and the physics program, it's just amazing to understand the properties of light and how it interacted with materials, led to some material science research university programs there. That was really the beginning of my interest in solar and later in my career.
Chad: Let's dive into your career path and how you became to focus on climate. Talk us through that, please.
Casey: I moved to Austin, Texas soon after graduating and began to learn about the sustainability initiatives of Austin back in the 2006 timeframe. That was the beginning of the first cleantech boom of startups under the Obama era. I got to actually install solar panels on the roof of residential and commercial buildings, trying to get my head out of the books and actually build something real in the world. There was a startup in Austin that was making thin film photovoltaics, and it was very much in line with the material science research I had done at university. I was fortunate to get in to do work in their R&D lab.
I was making solar panels the size of a quarter. Over the next few years, was making larger solar panels, 12 inches by 12 inches. Eventually, we designed a factory to build full-size solar panels, two foot by four foot. That's when I really transitioned from science to engineering, because there was a lot of equipment involved. I also began to understand statistical analysis and trying to understand what about the manufacturing process led to high efficiency panels. I no longer did anything related to quantum mechanics and physics.
It was much more in manufacturing and statistical analysis. At a certain point in my career, I saw that data analysis and statistics was a very powerful tool, especially with machine learning techniques. I decided to pursue my master's and do that. My capstone at that time was to predict the erosion of wind turbine blades by rain and hail and other things. It was a lot of fun.
Chad: You eventually came to found and now are the CEO of Clean Incentive. Tell us a little bit about the primary challenge your company, Clean Incentive, is attempting to address.
Casey: The build out of renewables has been quite remarkable. Then the falling costs have been amazing over the last decades. There's a problem now where there's overdevelopment of renewables in certain regions and in certain markets that's causing reliability issues. There's also a misallocation of capital to develop projects in those regions, which is really a missed opportunity to develop projects where there's a much higher carbon impact. We're adding data to these conversations and to these strategies to try to help developers develop projects that are more impactful and then corporate buyers to contract with them and own the avoided emissions of those projects.
Chad: How do we know that there's an overbuild out of renewables in any particular region? What does that exactly mean? How can we say that?
Casey: There's two ways that I look at it. One is the amount of curtailment, which means the amount of time that a grid operator is manually shutting down wind and solar farms because of transmission constraints
or other factors on the grid. Obviously, you can't control the solar and wind and the clouds and the load profile of these grids, so it's very difficult for grid operators to manage these new types of generation resources.
The other way to look at it is the frequency of negative prices. When you look at deregulated markets, you can see these trends where the frequency of negative prices has been growing over time because the build-out of renewables hasn't been matched by the build-out in transmission. Negative prices obviously means that the market can't take the power and use it in a productive way, and generating during negative pricing is just not great, but it's being enabled by tax credits and REC revenue and other factors that don't really match the physical power market.
Chad: What specifically is your solution? How is Clean Incentive attempting to address this overbuild of renewables in certain regions, which leads to negative pricing and is in part a result of transmission congestion and lack of build-out of transmission? How are you attempting to tackle this challenge?
Casey: The way we view this is that the RECs issued to solar and wind farms vary in carbon intensity or avoided emissions based on this dynamic of the power grid. Not all RECs are created equal, and we found that the data that's more widely available now called marginal emissions factors really paint the picture that we need in order to see which projects and which period of time are most impactful to grid emissions, which is what we all care about.
By labeling the avoided emissions of RECs and monetizing that for project developers and operators, and also providing ownership of those avoided emissions for corporate buyers, now we can fix the broken incentive that we have today and really prioritize those high-impact projects and deprioritize the building out of more renewables in the same location. The classic examples are more solar in California and more wind in West Texas. How do we get those project developers to go Montana, Wyoming, West Virginia, and then eventually Eastern Europe and Asia Pacific and all these high-carbon impact regions?
Chad: Just to make it a little clearer for our audience. A corporate buyer. I'm a company. I want to reduce my emissions. One way to do it is I can buy RECs or renewable energy credits, and those are based on just one megawatt hour of renewable energy produced gives me one REC. Right now, it doesn't matter in what geography or where that REC is produced. It doesn't matter what time of day it's produced.
It doesn't consider, well, you know what, a REC where you already have a lot of renewables is probably less valuable from an environmental perspective, from an avoided emissions perspective, than a REC from an area that doesn't have a lot of renewables because that REC is more additional. It's likely avoiding more emissions when that renewable energy facility is online relative to the coal (especially) in natural gas that are likely the other generation sources in that region.
Right now, a corporate buyer doesn't really have any visibility to know whether one REC from one market is better than another REC from another market in terms of their actual environmental and carbon impact. What your company, what Clean Incentive is trying to do is, how do we tag those RECs with the avoided emissions and other attributes that allow corporate buyers to better assess the environmental impact of each individual REC and make their procurement decisions accordingly. Is that accurate?
Casey: That's exactly right. By having this information assigned to RECs, now a corporate buyer can either source new PPAs that have these impactful RECs or buy unbundled or merchant RECs as well to meet their sustainability goals. It doesn't have to be this large contrast between coal regions and cleaner regions. It could just even be within one market.
Take Texas, for example, a solar farm outside of Houston or Dallas is going to be rarely curtailed. It's going to be impactful to the natural gas generation that's in those regions, but is going to be valued the exact same by a corporate buyer to a solar farm way out in West Texas or El Paso area. That shouldn't be the case. The benefits of the grid and to decarbonization are very different between these two examples.
That's why we can still enhance sustainability and decarbonization even within the same markets. This idea of doing emissions matching or carbon matching does extend globally. Eventually, one day, corporate buyers in North America could be sourcing avoided emissions from projects in India and Asia Pacific.
Chad: You brought up the term emissions matching, used to be called carbon matching. A lot of different nomenclature surrounding this idea, but what is the broad idea? What is emissions matching actually mean? Just to refresh folks.
Casey: There's a principle of marginal emissions modeling that says that an incremental megawatt hour of generation or consumption has an impact on how the grid operator balances the grid. This allows a consumer of power to see the induced emissions of their facilities and likewise the avoided emissions of clean generation. It all hinges on this idea that at any given time, there is a marginal generator that is typically the natural gas that is being cycled up or down based on load and based on generation. That data used to be very difficult and spotty to collect, but it's now much more widespread.
It enables this emissions matching framework where it doesn't matter the deliverability of the power, it doesn't matter the exact megawatt hours involved. What proponents say is that all that matters is if you've purchased avoided emissions that match your induced emissions. That's a very different way than the current carbon accounting works in the power sector per scope, too. It gets to the heart of why renewable generation matters.
Chad: If I am a corporate buyer and I want to do emissions matching, it's really hard for me to do so today. Your platform, Clean Incentive's platform is set up to enable that. You have created what are called power emissions certificates or PECs. Tell us more about what specifically those are and how they interact with the existing RECs that are out there today.
Casey: There's some critical infrastructure that's missing to enable these global emissions matching and global hourly matching. There's a number of portfolio management tools and dashboards that are out there for bilateral contracts and things, but everybody is calculating avoided emissions a little bit differently. There is a need to publish a methodology that applies to all geographies to show how we could assign avoided emissions to RECs and how they could be used to match induced emissions.
That's something that is needed. That's the foundation of our registry, which is an open and global registry to track these enhanced RECs and provide the flexibility for these new types of PPAs that corporate buyers are signing and for the robust carbon accounting that we all want to see.
The Greenhouse Gas Protocol is opening a revision process for scope two and there's this opportunity and there's this need for this methodology and something that can be applied across geographies and across business sizes from the largest corporations to the smallest ones. What we've done is we've applied this methodology to the generation data from power meters and interact with the existing REC registries. By adding this additional data, we retire the original REC in the local registry and we issue a new attribute certificate.
This allows the owner of the new certificate to still be compliant with the existing market-based Greenhouse Gas Protocol, but also have a robust claim for emissions matching and hourly matching. We named it power emission certificates because we're also issuing these certificates for hybrid and standalone battery storage, which is not exactly renewable. We thought a generic name about the power sector would be appropriate.
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Chad: You were getting into it a bit, but the existing ecosystem with RECs, you have the corporate buyers that are buying these RECs from developers or sponsors of projects of renewable generation or batteries. You have the local REC registries. You have emissions data providers. You have international and national REC standards in many cases. You have trading platforms. What exactly is Clean Incentive? Where are you in this ecosystem? How do you interact with all these other players?
Casey: Our platform is separated into two parts. One is the open registry, and one is the marketplace. The registry is available to all these existing trading platforms and software tools and for operational PPAs that are currently being used by corporate buyers to reach their goals. That registry applies the methodologies to the data and issues the certificates.
Separately in our marketplace, we help corporate buyers source the needed PECs to reach their goals by allowing them to upload consumption data and then select which procurement strategy they want, hourly matching, emissions matching. Do they want high additionality PECs? Do they want to support wildlife? There's many attributes that are available in our certificates.
Then with our analytics in the marketplace, we provide them a recommended strategy for purchasing these and then make an offer price to the project owner to purchase them. We're really trying to simplify this process for corporate buyers, especially for the smaller companies that don't have teams of sustainability people, like many of the industry leaders in the data center space. These two platforms are very independent and they provide different solutions in the market.
Chad: They sound like great platforms. Have you been able to operationalize this yet? Are there any case studies of your platforms actually serving customers and working with partners?
Casey: Yes, we have currently onboarded wind, solar, and battery assets, and we're publishing those case studies soon. We've also had demand from buyers, not just the sustainability leaders that want to do hourly matching and emissions matching, but we've also gotten interest from the rest of the Fortune 500 companies who just want to make sure that they're not buying low-impact RECs, mostly as a shield against greenwashing. They want to see that the RECs they are purchasing have made an impact.
Before this platform, you really didn't know the impact of the RECs you were buying. Even if you were trying to comply with the existing Scope 2 Greenhouse Gas Protocol, the brokers, the exchanges, they didn't provide any information about the RECs you were buying. The process was very opaque.
I think we're going to find a lot of interest from not just the leaders in sustainability, but everyone else who wants to see this data. I think it's not unlike the transition happening in the carbon offset space where people want to really know more about the offsets they're buying, not just buying the cheap ones and then later realizing that they haven't made the impact that they thought they were making.
Chad: You mentioned additionality a little earlier. That's a term that means a lot of different things to a lot of folks, but broadly in the environmental community and in this world, we want to ensure that if we are supporting a project, that our support is necessary for the project to get done. But for our support or our contract or our REC purchase, in this case, the project wouldn't have happened. That's roughly and crudely how many folks conceive of additionality. How do you assess additionality, if at all, in your platform with your PECs?
Casey: It's a tricky topic. The way we've addressed this is, when we onboard a new project onto the registry, we assign it an additionality score. It's based on if the project is under a contract, if it's not under a contract but below a certain age. I think there's some metrics within our methodology that helps us quantify this into a score.
Every PEC will have the corresponding score there. We don't place any judgments on the additionality of these PECs. We leave that to the corporate buyers. Many of the businesses out there can't afford PPAs and what's considered the highest additionality goal for procurement.
I still think there's a role for unbundled or merchant RECs to reach sustainability goals. They may not help finance the project at the very beginning, but it's still revenue to the project owners and investors. We're trying to strike a balance here so that everyone can meet their goals. The corporate buyers who can afford PPAs can show that in their carbon accounting.
They would show a overall higher additionality score than some smaller business who has to just buy unbundled RECs. Maybe they both can make the same carbon claim, but they're going to have different additionality scores. That's the data and the nuance we're trying to add to the conversation. Obviously, there's some polarizing and opinionated folks on this topic. We can't really make them all happy, but we want to assign some data to these PECs.
Chad: Let's get into the data a little bit more as well. You ideally rely on locational marginal emissions factors which look at avoided emissions for each usually hour of the day and at a specific node on the grid. Not just at the state level, but a very granular wherever the project basically connects into the grid. What if you don't have that data? That data is available across the United States today in large part, but it's not available necessarily at that level of granularity in every country across the world. How do you think about creating these PECs, especially in regions where you may not have the most granular data?
Casey: It's getting better, but it's not quite globally accepted, like you're saying. The solution we've put in place is a way to prevent greenwashing and to prevent these industry players from cherry-picking the emissions data that they want, if there's multiple available. What we've published is a hierarchy that determines based on geography which emissions data to use.
It's out of the hands of the project owners and the corporate buyers, and it's an independent process that we apply in our methodology and registry. It is globally applicable. I can't go into all the details right now because it's still under review, but the high level is if a grid operator publishes nodal emissions factors, that would be the gold standard. Then it would be resolution-based going down after that. If nodal's available, we would use nodal. If zonal, we would use zonal.
For those geographies that don't have any marginal emissions data, then we would use the average emissions factor. Because for regions with very low renewable penetration, the differences between grid average and marginal becomes less important. That's the system we're putting in place. It provides some, like I said, independence, but also some certainty that there's no bias in the way of what emissions are assessed.
Chad: What regulatory changes, if any, would be needed or would be helpful to fully scale your PECs across the U.S., ideally across the globe at some point? What's standing in the way right now in terms of national or international regulatory regimes?
Casey: There's really no regulatory hurdles for deploying this at scale. The Greenhouse Gas Protocol recommends that RECs are procured in the same country that the consumption takes place, but there's nothing that prevents corporate buyers from overbuying PECs to reach their emissions matching or hourly matching goals. These are voluntary reporting frameworks today, so there's no real barriers to doing this at scale globally.
What we find the most compelling is that this will inform the Greenhouse Gas Protocol and their scope two review process to show how hourly matching and emissions matching could really work in practice, either within a contract or PPA or in an unbundled process or workflow. We want to help contribute to the conversation with actual data and actual projects. We have a methodology that's an industry working group that will review and make adjustments as needed.
I think we will inform a lot of regulatory discussions, either at the Greenhouse Gas Protocol level or also at the grid operator level, because as you stated, the data is not really available to do high-resolution marginal emissions modeling in every geography, and that's mostly because they don't really know if there's demand for it or if there's any use for that data. Once we can show that investment will flow into these power grids, if this data is more available, then I think we'll be able to see every grid operator globally begin publishing more data to allow the emissions impact to be widely known, and I think that'll benefit everyone.
Chad: Absolutely. I hope so. If PECs were more widely adopted, what larger systemic impacts do you anticipate we would see?
Casey: If you fast forward and you really imagine this on a systems level, we really want to connect corporate buyers in North America and Europe with PECs from Asia Pacific. 95% of new coal generation is being built there. I think it was on the order of 40 gigawatts last year of new coal generation, so it doesn't make sense to be paying a high price for batteries and solar and clean parts of the grid when you have 40 gigawatts of coal being built in other geographies. Really breaking down this geographic barrier at scale, putting investment dollars where it's needed the most.
The second thing I would say is, we want to enable green hydrogen producers to demonstrate hourly and emissions matching in the near term to realize the 45E tax credits and to create much more robust offtake agreements for hydrogen. Hydrogen is a whole topic. They're still trying to figure out the use cases for hydrogen and what makes sense and what doesn't, but we want to ensure that there is data traceability into the procured power for green hydrogen, and I think that could be a meaningful change into these hard-to-abate sectors like steel, aluminum, concrete, long-haul trucking, things like that.
Chad: If potential partners or customers are interested in supporting Clean Incentive or procuring PECs, how can they do so?
Casey: We have a PEC alliance, which is an industry group that reviews the methodology. We would love to have input from any type of organization, a buyer, an NGO, a project developer. We are publishing case studies now to demonstrate how this works and how it applies to batteries and how it applies to all these different geographies. You can go to pec-alliance.org to see that. You can visit our website, cleanincentive.com, but we would love to have input and have your help to publish more case studies and demonstrate how this could work at scale.
Chad: Excellent. Casey, we're almost done, but first we have the hot seat. We ask for your immediate reactions to the following statements and questions. One thing I changed my mind on is--
Casey: I've changed my mind on the role of these large flexible loads to do demand response. This might be a bit, I don't know, obscure for most of your listeners, but this idea of demand response has been talked about for a long time, but it hasn't really been deployed. What I've seen and changed my mind on is that there's these new Bitcoin data centers and AI data centers
that are being built out in these constrained parts of the grid where there's excess renewables. It seems like they're very responsive to market prices and carbon signals.
This AI build-out is going to be fascinating to see because it seems like we're separating out the training AI data from the inference and the low-latency serving of those models for your phone and for your applications. We could really see quite a bit of that AI data center build-out be built out in these remote parts of the grid and actually be very flexible. It's going to be amazing to see.
Chad: Next one. To recharge, I--
Casey: [laughs] I like to wrestle with my kids. I have a five-year-old and an eight-year-old. They love to role play. I'm usually Batman and there's some type of villain or something, and they like to jump all over me and try to tackle me. That's always a lot of fun to unwind.
Chad: [laughs] The book that has influenced me most is--
Casey: Let's see. I most recently read Adam Grant's book called Think Again. It was pretty fascinating. It talked about exposing biases that you may have and to help you remain open-minded to new information. In these polarizing times, whether it's political or otherwise, it's sometimes easy to get blinders about how you're right and everybody else is wrong.
It was pretty amazing to read some of the examples of the founder of BlackBerry who completely thought the iPhone was going to be nothing. Nobody wanted a touchscreen. It went into the psychology of why are there all these examples of CEOs and business people who are obviously very smart, but just did not have the ability to change their mind based on new information. That's very fascinating.
Chad: I'll just check that out. The best city in Texas is--
Casey: That's a difficult one. That rural-urban divide is very stark here. I spent a long time in Austin, Texas. That's where I met my wife and that's where I fell in love with live music and great barbecues. I think Austin is my favorite.
Chad: Finally, to me, climate positive means--
Casey: To me, it means that we can have a sustainable, clean environment and a healthy economy and society at the same time. There doesn't have to be a zero-sum game. I think the narrative around this and the psychology around this is changing, because it used to be very combative between economic growth, whether it's in the first world or the third world, and sustainability.
I really think we can do both and have both. I will say that the climate transition needs to co-optimize decarbonization, reliability, and cost, all at the same time. We can't sacrifice reliability and cost for decarbonization because that's not going to really work for society. Obviously, it's a very complex and difficult challenge, but I think if we balance those, it would be climate positive to me.
Chad: Excellent. Thank you so much for joining us today, Casey. Great discussion. I really loved learning about Clean Incentive and your power emissions certificates. I look forward to chatting again sometime.
Casey: Thank you, Chad.
Chad: If you enjoyed this week’s episode, please leave us a leave a rating and review on Apple and Spotify. This really helps us reach more listeners.
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I'm Chad Reed.
And this is Climate Positive.