 Hi, everyone. Welcome to the Sustainable Finance Initiative's monthly seminar. I'm Alicia Seiger. I'm the managing director of the Sustainable Finance Initiative and the Steyer-Taylor Center for Energy Policy and Finance and a lecturer at the law school. Before we get started, I want to thank Katie Tafflin, who is our program manager who runs these seminars. And without her, we wouldn't be here. Also want to be thanking So Young in who is a research fellow at SFI who's recently taken a new post in Korea. She will continue to manage the seminar for the next winter and spring quarters. Just couldn't be here today. I'm really excited to share this content with you. I really wish we were in a room together. I know many of you. I know we'd have a rich conversation in person. Going to do the best we can with slides here in a virtual setting and then leave plenty of time for questions and answers. I also want to just here note our research team. So this work is a team effort. And Mark Rostin, Professor Tom Heller, and Abigail Matheson, who's a recent GSB EIPER graduate, have been the team that's been pulling all this together. So we're going to do a lot today. But I'm excited about this presentation. You can give me feedback at the end. But I think we've organized this information the way to hopefully make it as easy for you to digest as possible, because we're going to cover a lot of ground. We're going to cover the sustainability of Stanford just briefly and SFI's broader research agenda just to put this work in context. We're going to cover the current state of practice, which we call counting carbon. And including the story of how we got here. And then we're going to kind of turn the prism of practice a little bit to see a better path forward, which we call carbon accounting. People throw carbon accounting around as a term in practice quite frequently. But I think specificity on what that actually means and how it can be done is really critical. We're going to walk you through that in detail. And then, as I said, we'll have time for Q&A. So sustainability of Stanford, many of you are students here. You've seen this news. Others, perhaps have been watching the news from a little bit farther away. But big news is that Stanford now has a new school, first time in 70 years, the Door School for Sustainability, a very exciting moment in Stanford's history. This new school combines academic departments across disciplines that intersect with questions and opportunities in sustainability. It also pulls together institutes that pre-existed and imagines a new one. This Institute for Sustainable Societies. Pre-court, the Energy Institute, which is where the Sustainable Finance Initiative lives, is now part of the Door School, as is the Woods Institute for the Environment. And then there's this new piece, which we call the Sustainability Accelerator, that is designed to operate actually in a way very similar to the work we do at Sustainable Finance Initiative in terms of being very catalytic and translational in terms of getting research out in the field. Having problems identified in the field, where Stanford Research and Analysis can be creative in developing solutions and working with partners on implementation pathways to get these solutions out into the world. I'll note the other platform that we work from is the Steyer-Taylor Center for Energy Policy and Finance. That's a joint initiative of the Business School and the Law School. So kind of in a sense, building bridges from the Business School and the Law School into this new sustainability school. Also wanna just quickly cover to put this work, Carbon Accounting Work and Context, SFIs for research areas. So this is our current agenda built on work that we've done in the past, which I'll talk about in a bit to really define these four focus areas. The first of course is Carbon Accounting. This is a body of work around improving the accuracy and productivity of measurement and management of emissions. Carbon Markets is very much related to our Carbon Accounting work. And this is the investigation of, what is tradable property and to whom does it belong? And how to make these markets achieve this sort of holy grail of integrity that all the various initiatives that are organizing around the Carbon Markets are pursuing, but do that in a way with a foundation of Carbon Accounting. There are many legal and market questions that remain unanswered in the world of Carbon Markets. Transition Pathways, this is an area that also intersects with the previous two in that it's really important to understand what are the transition pathways in the context of net zero pledges and nationally determined commitments and how do those pathways define the saleable assets and tradable assets within Carbon Markets and how to think about these just energy transition partnerships and applying sort of rigor and analysis to these new partnerships between countries, governments and philanthropy to try and accelerate transitions in emerging economies and coal dependent economies. And finally, insurance, which is a set of questions around reimagining current models and building innovative new forms of insurance that better manage physical risk for both public and private entities, which is to say, we're entering a phase with increasing physical risk that is burdening states beyond imagined capacities or certainly previous capacities and their real open questions, for example, wildfire in California of how the private insurance market and the public insurance markets can play together to create a sustainable future. All right, so now I'm gonna talk to you through kind of this current, the current state of play which we call counting carbon. So to put things in context, I invite you to kind of sit back and listen to a story. My colleagues and I wrote this book published last fall called Settling Climate Accounts, Navigating the Road to Net Zero. It considers climate accounts in the triple sense of the word. So in the narrative sense of accounts, in the technical sense of accounting and in the root of accountability to make sure net zero all adds up. And it is in this kind of narrative sense that I wanna invite you to consider a story that might help ground us in where we are today and understanding the history in the past to inform the future. And so, we start up here with the carbon tax and the original multilateral UNFCCC process of a top-down global negotiation to put a global price on carbon and this thing solved, right? Well, there's a long history of that three decades of multilateral negotiations, but as we all know, we haven't stuck the landing on that one yet. And in particular, as that process really stalled out in Copenhagen in 2009 and sort of in between what then became a near-spectacular repair in Paris in 2015, drivers of climate action shuffled beyond the folks who show up at these conference of parties and the multilateral negotiations. You started to see businesses, started to see investors, started to see NGOs, come to the forefront of climate action and start to make some corrective terms to make up for the failed progress, essentially, of this top-down multilateral negotiation to put a global price on carbon. So these terms that we outlined in our book as an introduction to then explore the rough edges of net zero in practice, they're concurrent and they're imagined, but they are useful heuristics and thinking about the current moment of climate action. So the first turn is this turn to green finance. It is built on the belief that climate progress could be assumed on a type of autopilot where economic growth and efficient markets propel the world on a path to low carbon transition. The optimism of green finance centered around the perception that falling prices would make it easy to build only green. You can say we arguably stuck the landing for green finance on renewables, but it also revealed that the world can't buy its way through the necessary pace and scale required to decarbonize across all sectors and all geographies. And so drivers of climate action turned to risk and risk essentially inverted the lens on green finance and followed its rise by a few years. It emphasizes the problems that arise when green finance isn't enough. The good news is the turn to risk actually brought new institutional capacity for coordinated management of transition risk, including things like the TCFD task force on financial, excuse me, on climate related financial disclosures and the NGFS, the network for green and financial systems, the organization of finance ministers and central banks. These moves actually led to standardization in global climate related reporting and stress testing, which is a good thing. But the turn to risk also quickly revealed methodological and institutional puzzles we have yet to solve. There are really four. The first is that the risks, the focus has been on the risks of winding down, but the questions having to do with replacing these activities are still largely unexamined. This is the question really of the difference between an orderly and disorderly transition and the costs associated with each are very different. Second, models. The models that are used to understand transition risk at a useful level of granularity are more in the domain of the financial modeling community than the climate modeling community. This has posed a problem. And the last point I'll make before a point I really wanna drive home, so the penultimate point, if you will. Both physical and transition risks are highly subject to strategic and political behavior. And so as a result, much of the risk in the system is currently being transferred to governments in the form of disaster relief, unemployment benefits, and other bailout schemes. And this really limits the incentives for private firms to act and limits the ability of states to respond for their stress that gets back into the insurance work I mentioned earlier. But perhaps the greatest disadvantage of the turn to risk is how far it may depart from issues of equity and justice. So the turn to risk without attention to equity risk creating a new wave of climate redlining by limiting investment in the most vulnerable and marginalized communities. And so drivers of climate action turn to net zero. And I hope this context helps you appreciate kind of this where we are now in the climate action story and how net zero began what gave way to its rise. And net zero essentially combines the themes of development both green finance and risk. And its appeal is driven in part by the fact that net zero essentially steers around the principal difficulties of the other two terms. It steers around the difficulties of green finance and that it slides past the challenges of systems transition that plague green finance. And it steers around the risk challenges and that its emphasis is placed on emissions alignment. And that emissions alignment really avoids the granular and strategic challenges of downside risk. And so as our book explores net zero is at the risk of taking the easy road and in so doing leaves what we call four unsettled accounts, data, boundaries, timing and obligations. We'll come back to those as this story goes on. But I wanna just give you this context setting so we can appreciate where we are in the climate action story. So let's turn to the next slide, please. So I love the slide. Thank you, Abby. So this really depicts like an incredible amount of progress in the drivers of net zero should take real pride in and that marks net zero's ascendancy. So you start here in 2007 where Google makes their moonshot announcement, right? Are you less than C in 2007 which really did feel like a moonshot? We can now say that check done in a sense, which is exciting. That's kind of the green finance getting a sector right. Move along to 2010, the SEC actually issued a first guidance on climate risk disclosure was not well adhered to or followed but there was an attempt here early in 2010 for the SEC to start to drive disclosure of climate risk. Next drumbeat, you've got this risky business project. Some of you may be familiar with this was the first risk climate risk assessment for the US economy. Hank Paulson, Tom Steyer and Mike Bloomberg were the figureheads of that. And Kate Gordon who I co-teach class with this quarter was really the drive founding executive director that and driver of that work. Then you've got Paris. Then you've got this 2018 IPCC 1.5 degree C report which is really a pivotal moment in this story and that it really catalyzed net zero into the lexicon and science-based action into corporate and investor decision-making. And then it's just been off to the races from there. The dominoes really fell. You've got CalPERS committing to a net zero target in 2019. This is early. This is really early. There's still only 16% of the global economy that's pledging net zero and you've got a US pension there which is remarkable in that itself. 2020 start a pandemic. You've got Microsoft making a net negative pledge which is remarkable in that it starts to attend to the carbon stock issue, which we'll come to. Larry Fink's writing about climate and his annual letter. Now, next thing, 2021, you've got G-Fans with 450 signatories managing 130 trillion. G-Fans is the global financial, excuse me, Glasgow financial alliance for net zero. The ISSB comes together. You're now at 68% of the global economy. And here now, 2022, G-Fans is up to 153 trillion. SEC's got a proposed climate rule and net zero covers 91% of the global economy. It's truly remarkable when you look at this slide. You've got the sort of green finance turn in here early with RE Lessons C. You've got the risk turn with risky business but what you really see is net zero takeoff. I wanna just pause on this moment of success because it's important and it marks the moment where there's opportunity to continue to evolve and this is where we'll spend the bulk of our conversation. So next slide, please. As I talked about in the story of the book, the practice of net zero has some problems. And in particular, we've identified them in these broad categories of data boundary timing and obligations. These headlines embody those challenges. So here, Exxon, this question of, which is more ESG friendly Exxon or Tesla, this ultimately comes down to a question of the challenge of data. You've got, this isn't ESG question. ESG has its own challenges even distinct from climate and carbon data, but you've got a self-governed heterogeneous pool of data sources. You've got a lot of opportunity for greenwashing and you've got a lot of lack of comparability and consistency in the data. There've been emerging efforts around this, but when it comes to climate accounting, it's clear that what we really need are primary emissions data. On the BP headline, this brings up the issue of boundaries. Where to draw lines up and downstream? Here BP can just sell off one of its upstream assets and reduce its carbon emissions when in fact no emissions have changed in terms of the atmosphere. So how do we ensure emissions don't disappear just by moving them out of bounds of disclosure rather than out of the atmosphere? This headline on offsets really embodies the unsettled account of timing. This also comes up in the Microsoft announcement, but net zero is a flow concept and carbon and climate change is a stock problem. So we've got this, in this California forest offsets buffer pool going up in flames, you've got this issue of carbon stocks that haven't been attended to and you've got new scope one emissions in addition to the offsets that are no longer functional. You also have a question embodied here in the timing of nature-based solutions versus technology. We know we need to preserve nature now. We also know we need to invest in technologies of the future. How do you make those decisions as an investor and as a manager of a corporate net zero pledge? And then finally, this question of obligation. So you've got this headline of US banks threatening to leave the G-fans, Carney's Climate Alliance is G-fans in this headline. And that challenge has really come about because even if you get good data and even if you get the boundaries squared away and even if you have the timing right, you still have an ultimate question of what is one supposed to do with all of this information when these alliances and these pledges are voluntary. And so when it comes to actually making decisions that are expensive to a business, it's very unclear how decisions are supposed to be made. And so you're starting to see cracks in some of these alliances because rubber is meeting road and it's difficult to make decisions without obligations. So in sum, from this counting carbon section, I hope you've gathered that this is a moment now where we are transitioning from a voluntary regime that has met tremendous success and it is in fact sort of born out of this success as this opportunity and need to evolve our tools into what can be applied to compliance regimes and can be applied to really scale investment in decarbonization, particularly among corporates and banks to achieve this, we need better underlying accounting systems. And again, this is to resolve these unsettled accounts that we explore in our book of data, boundaries, timing and obligations. So here we are at carbon accounting. It sounds like such a boring thing, but as I hope you'll see in the next 20 minutes, 15 minutes or so, it is really the foundation on which we can unlock so many of the barriers that practitioners, really earnest practitioners are running into as they go about implementing their net zero pledges. So next slide please. So to get to real carbon accounting, we have to take a sober look at the tools that we have. The GHG protocol is primarily the tool used to measure carbon emissions. It has been an incredibly valuable tool in the climate action story to date. It has been what has given rise to net zero's ascendancy, but it's time to take a closer look. So the purpose of the protocol was as a proxy to measure risk back in the day when we had that carbon tax that was coming. And so what were essentially features of the protocol that there was double counting, but that was in a sense really a feature more than above, particularly from an advocacy perspective and that it enabled advocates to tag emitters with emissions that weren't necessarily within their control. And the data issues were features because you could use approximations, you could get sort of rough estimates of direction of travel and that was fine when it was used as a proxy for risk. And boundaries were flexible because you were using these numbers for internal forecasting and seeing how changes in strategy would affect the direction of emissions upstream and downstream. That's all very useful in terms of internal management, internal risk management, but where it starts to fall down is when you try and make it add up. And I invite you to look closely at the picture on the right, which I have seen so many times over the last 20 years, 20 longer than that even, but it wasn't until recently where I realized that it's actually wrong because you've got arrows going up into the atmosphere for scope one, which is correct. Those are emissions that are going into the atmosphere, but scope two and scope three here where the arrows are going up in the atmosphere is actually not correct. It's scope two and three are other people's scope one emissions that are being assigned elsewhere, but they aren't additional emissions going into the atmosphere. And so here's a picture that really drives this point home. And it's a very simple supply chain and it shows you how this kind of feature of double counting in risk management world or as a proxy, excuse me, for risk management becomes a bug. So this is a very simple three step stainless steel supply chain to picture here. You've got a melt mill, a re-roller and a service center. And essentially what you can see here is in the first on the left, there are only two firms involved. So the melt mill for those of you not familiar with steel supply chains, the melt mill is taking new and recycled metal material melting them together to form stainless steel or other forms of strips or bars or plates or wires. And then you've got a re-roller that's a giant machine that's re-rolling stainless steel strips to produce thinner gauges with tighter tolerances. And then you've got a service center which is a massive storage depot used to supply production lines. So in the first image, there's only two firms involved. The melt mill and the re-roller are owned by the same entity, but you can see here it takes the 50 tons of emissions that are entering the atmosphere and turns it into 60 by counting the scope one of the service center in the melt mill and re-rollers scope three. What happens on the right is where the protocol really starts to fall down in practice because what happens on the right is now the melt mill has sold off its re-roller business and this three steps supply chain is now owned by three different firms. And now you've got scope three emissions that have increased 300% by just M&A activity. So you've turned 50 tons of emissions entering the atmosphere into 60 into 200. Again, this was kind of a feature at one point. It is now as we're trying to compare and align ledgers above. So here we're just gonna take a little detour into accounting and talk about just tools that are fit for purpose. So again, this isn't to say that the GSU protocol doesn't have a useful life. It certainly does. It's a very useful tool for managerial accounting and for internal decision-making and forecasting and the flexibility is a feature. These are also captured on the left-hand column but once you're into the kind of external side of things where you're into the realm of financial accounting which is where we're heading with mandatory disclosure and with significant investment decision-making, we need a tool fit to purpose. So we need something more like financial accounting that is useful for investor decision-making that is reliant, that is demonstrable through past performance that has rigid and regulated and firm boundaries and can be subject to oversight and audit. So what would that tool look like? Tool looks like eliabilities. This is work actually originally conceived with two faculty out of Harvard and Oxford, Karthik Ramanan and Bob Kaplan and they originally published this work about gosh, maybe nine months ago in Harvard Business Review, introducing this eliability system. And it's actually very simple. It's activity-based. It's a step-by-step process where emissions are generated by each company and then essentially handed off down a supply chain much like costs would be in a cost accounting or value-added tax. And also important to keep in mind that some carbon is not handed off and retained similar to inventory. So you can see that picture of this very simple supply chain where the emissions, some emissions are passed and some are retained as inventory if they aren't sold as a good or a service. So what eliabilities are that the GHG protocol is not for compliance is fit to purpose. And the reason is because they saw these accounting issues that the current protocol cannot. They eliminate the double counting. Carbon is counted only once. They rely on primary data and eliminate the widespread use of estimates or industry averages. I know this isn't a flip, a switch you just can flip overnight. But what it does is create the incentives to improve that data over time and to drive towards sole reliance on primary data. And then this is huge, it solves the boundaries issues. It gets consistent and firm boundaries. So you have consistent reporting and can be audited and legally enforced. So here's where our work builds on this work out of Harvard and Oxford and eliabilities to this concept of emissions liability management and carbon balance sheets. So once you have eliabilities, you can start to build a carbon balance sheet and carbon balance sheets allow us to actively and accurately manage emissions liabilities. So just like a counting T chart, you've got your debits and credits, you've got your eliabilities. These are cumulative stocks and incremental flows of carbon emissions that are essentially permanent obligations. And then you've got two ways primarily to balance those eliabilities with a corresponding asset or contra liability. One is investment in supply chain emissions reductions. This is happening right now. You know, there are companies that are particular, tech companies are setting up funds and finding ways to invest in renewables in Asia to drive down the emissions of their supply chain. But this creates a structure and a foundation on which to make for decision making with real numbers and a balance sheet to capture the activities and the costs and benefits. And then of course the other asset or contra liability are offsets. Removals are the only permanent way, well, removal of capturing CO2 and storing it in rock is the only way to permanently extinguish a liability. But you can think about offsets now as an opportunity to match duration of liabilities. So you can have, you know, going back to the California forestry example, you can have your forests. And in fact, we need people to be investing in nature-based solutions, but you attended them according to the duration. And so if those offsets are reversed, you've now got a new liability of the scope one emissions of that reversal and you've got to replace that asset in your portfolio. And so it creates a structure for incentives and decision making to balance these questions of timing of natural carbon sinks and technology investment and make those decisions efficient in terms of pricing. So ELM is this magical tool. Of course, there's more work to be done and there's still questions that remain unanswered, but it attends to these unsettled accounts that we've identified in our book of data boundaries, timing and obligations. So again, on the data side, it delivers consistent, comparable and reliable decision useful data with incentives for continual improvement. Data is a challenge in the current system and it will be a challenge in this system. But the point here is that in a system of ELM, when the data gets better, it will matter because it'll enable those who are making these improvements to receive investment and benefit from having reduced their liabilities as opposed to capturing the benefits of others by using industry averages. It defines these clear and consistent boundaries that enable comparability and alignment of carbon ledgers. This is so key, right? If we're going to make net zero add up, we've got to be able to compare corporate, national and global carbon ledgers. We can't do that right now in a system that arbitrarily over counts. Timing, it addresses the really critical missing element of net zero in practice right now, which is not paying attention to stocks. Right now people are, they've got their targets, they're counting carbon in the current year and then going about it all over again, not paying attention to the fact that those emissions this year, that liability is forever. And in practice and implementation, we'll have to define time horizons that can be managed. Maybe it's 50, maybe it's a hundred years. These are not out of the question there are long-term benefit plans or defined benefit plans now that manage these intergenerational timelines. But that's the kind of timing that we're talking about. We're not talking about emissions this year and offset this year and you're done. And finally, this is the most important point. Obligations, a balance sheet by nature of having to balance one balance sheet you create this obligation to manage the liability permanently and to allow for the efficient allocation of company investor and government capital. Now we can come to this in the Q&A how do you create the regulation for furnishing a carbon balance sheet? We have a playbook and we'll come back to that. And you can see here just below where E-liability sort of covers the data and boundaries questions but it's this emissions liability management work that we've been investigating that covers the whole array of unsettled accounts and together they can make net zero add up. And just to keep driving home the point so you get the story of the three turns you get the unsettled accounts of data boundaries, timing and obligations. You see how this foundation of carbon accounting it is the foundation on which we can make this all add up. And it's not just making net zero add up you see these, it's the driver for these benefits that are plaguing net zero and current practice. So scaling decarbonization going from billions to triums getting corporates to make material investments and decarbonizing their supply chain instead of having to spend some money here and there and marking it as advertising spend for brand enhancement as opposed to really something that's held on a balance sheet. You've got the foundation on which there's all this conversation around building integrity in the carbon markets that's focused on the quality of the supply but what's missing in those conversations is market integrity and carbon balance sheet build the foundation on which we can have market integrity for carbon trading and investment in carbon removal and natural carbon sinks and to some extent avoided emissions although we can get into that and the Q and A it's a little trickier ties back to the work on transition plans and what is in fact a saleable asset. And then this really important point of aligning carbon ledgers, right? We've got to make net zero add up and we can't do that if we don't have for double counting, triple counting and if we don't have actual numbers. And I would just say now this carbon accounting foundation and the foundation that we've got right now in the current regime isn't stable enough isn't capable of withstanding the pressures that these goals are going to put on it. It's not to say that it wasn't successful. In fact, it was hugely successful which is how we've gotten to this moment. It's just that it's time to evolve our tools to make them fit to purpose and carry the weight of this next chapter. So this is kind of the invitation for discussion but so what's next? So great, you've got a good idea that works in theory and a few people are talking about it but meanwhile the rest of the world is off counting their scopes one, two and three and about to furnish those for compliance and various jurisdictions. You've got the SEC poised on its climate rule. I will say I'd be shocked if scope three is in there in the final wording but the trains have left stations is the point but I would argue that ELM is evolutionary not revolutionary and that we've got implementation pathways. So the first point to make is just that the protocol can remain a tool for managerial counting. It's useful for internal decision-making and for forecasting. It is useful as a proxy for discussion around downstream emissions. As you noted I'm sure at this point that ELM is a cradle to gate exercise. You've still got the gate to grave question and that's something where the protocol can be a useful tool for management and for investor engagement and it doesn't conflict with this evolution. It is an evolution so it can remain. The second part point here to make is that we're already doing it. Practitioners are already engaged in this cradle to great data collection. They're already asking for upstream scope three which is essentially this upstream scope one, two and three and in fact for scope two you can think of scope two as utilities, reliability. They're just handing you their reliability and we call it scope two but call it whatever you want. That is actual emissions data. Now what we need it to be is not an annual average. We need it to be delivered in smaller and smaller increments so you're getting your actual emissions by the day, by the hour, by the 10 minute increment and eventually 24 seven. So and finally the point I would wanna make is back again to the success I showed you of that timeline slide but we've really got the playbook already. There's been so much learning and muscle development around this rapidly evolving industry practice. So TCFD was created in the lead up to Paris and implemented in less than four years where it was this voluntary self-governed group of industry leaders that coalesced around a set of standards. That playbook can work here too. And in fact, when it comes back to this questions of how do you make carbon balance sheets mandatory if investors in the same way they're demanding TCFD or demanding carbon balance sheets and it becomes standard practice, it becomes standard practice and they can be then used as part of a regulatory transition. And then of course the point that net zero adoption went from 16 to 91% in two and a half years. I mean, it's really the appetite is there and in the conversations we've had with practitioners that there's strong desire to do this right and a sobering recognition that practitioners don't have the tools they need to actually get it done. And so this is, we can have these net zero pledges be pretend or we can have them be real. And I'd like them, I'd like to live in the world where these pledges are real and where we have the tools to get it done. So with that, I think our next slide is questions and I'm looking forward to the discussion. No one has any questions? I hear from any students, I love hearing from students. Yeah, Daniel. Hey, Alicia, good to see you. Doing well, I put myself on screen for the question. We were debating your paper in here at Creo internally and we were a little tripped up about how well these liabilities could be priced. There aren't too many great examples of pricing liabilities that are beyond five or 10 years. So what capacities do you think would have to be built in order to get these priced appropriately? Thank you. Yeah, it's a good question. And delighted to hear you were debating it internally, getting wheels turning. Well, I mean, the reference asset is essentially permanent removal of sucking it out of the atmosphere and storing it in rock. So call that 500, 700, whatever the number is, it's going down. But that sort of sets a market. And then you can manage a portfolio of shorter duration liabilities that match your annual liability. And you've got the incentive to invest in the technologies that are the permanent liability to drive that. You develop a forward curve and you start to drive it down. So it creates the structure for the market to reconcile those pricing questions with the permanent removal being the reference asset. Michael, I'm getting all my friends from industry, which is great to see, but I do want to see some students, but please go ahead, Michael. Hi, thank you. Super excited about this, Alicia. I'm working on it with you in some ways. So the question for me, I have this sort of related, I guess, the questions of liquidity. So I mean, the reason I stick with things like a carbon tax is because the trend, it's really hard to move parts of the economy that are using carbon now out of using them. Like, does this help me understand, does this system assume that all carbon is eventually buried? And that's the only way to treat it as an asset. What do you do when you, how does the, how do the liabilities happen when let's say a city gets rid of all its cars and moves to 100% mass transit? And then the other piece of course is the central political and policy challenge from my perspective is the transition from the fossil fuel economy to a non-fossil fuel economy and greasing the skids ideally through a carbon tax. And by the way, this is one of the few times you'll ever hear me use the word tax as many of you who work with me know. It's not a non-starter in this market. Anyway, that's the question. Is that where does the liquidity come from for transition and things that just take, that get carbon out and stop it from being emitted? Right. So I mean, core to your question is sort of the distinction of what problems can markets solve and what problems do policy, do we need policy to solve? So you liabilities in the L.M. address sort of the market actors and in aligning incentives and creating obligations for market, for private sector to invest in decarbonization of their supply chains and other products. And I should say, you know, in terms of like, it also defines what the hell is a net zero pledge. Well, net zero pledge is you, you have, you've got a carbon balance sheet that's balanced. Now some companies may go farther and say, you know, I'm going to have net zero product, life cycle emissions for my product. So I'm going to, you know, I'm Apple. I'm going to be, I'm a sustainability leader. This, this, you know, iPhone might have, you know, 500 grams of carbon in its embedded, you know, that I'm going to sell it to you at zero liabilities. But I'm also going to take the next step and know that you use this for X number of years and you live in Palo Alto and your missions, et cetera, et cetera. So it can define more clearly to find what a net zero pledges. But your question about decarbonization of the transportation sector, that's, that's Paula, that's in the realm of policy. We need that too. Because at the end of the day, as I'm sure many of you have sort of realized in this conversation, downstream emissions are still, you know, a problem. And we've, and when you think about what those downstreams are, those are me turning on my lights. They're me getting in my, you know, I've got my electric vehicle, but, you know, getting on an airplane, et cetera, it's, you know, buying my clothes. So that, that requires those downstream emissions and where consumers are sort of are the problem, if you will, who pays and how to manage that are questions that the market isn't gonna solve. We need policy, we need efficiency standards, we need targets. And the question of, that was also sort of embedded in what you said is, is what about carbon taxes and how do carbon taxes intersect with this? And I think that the answer to that is, you know, right now there's the carbon tax is disconnected to the emissions without the carbon tax actually managing the liabilities. The implementer of the tax isn't actually, you know, it is trying to solve one problem without attending to the primary problem, which is how to, you know, how are they managing their emissions liability? So if those taxes go towards investment in programs that are reducing, you know, household emissions, but are kept according to a carbon balance sheet, then you've got a system that's actually reconciled. Right now we've got a system that's disconnected from the carbon. Thank you. Thank you. Let's see. Alicia, it's Holly. Hi, Holly. Sorry, I'm walking. Thank you. This was fascinating. So who, in addition to you and folks at Stanford are working on actually developing this tool? And is it in collaboration with the folks at Harvard and Oxford or like who's developing this? And I guess you were saying not that many people know about it, but how are more people going to know about it? Thank you for the question. And I should say, you know, there's another colleague here, a faculty member at the GSB, Stefan Reichelstein, who's been collaborating with the Harvard and Oxford faculty and also writing on his own. They're all, by the way, accountants, which I, by the way, am not. So their work is very deep in the technical implementation as, you know, the technology of accounting. Our work is more translating it into practice and into the submissions liability management. But the Harvard and Oxford guys, so we're all collaborating, I'll say. And as soon as you find people that want to talk illiabilities, it gets very exciting and we all want to, you know, hang out together. So it's a small but growing and enthusiastic group. But there's now something called the Eliabilities Institute that is, the Harvard and Oxford faculty are co-founders of that. And they're actively engaged with companies, developing case studies, developing pilots. They've got a slick video you can watch on to go through, you know, what I said in one slide in a five minute video as far as what illiabilities are. And then, you know, we're going on a road show and talking to anyone who's willing to have the conversation. I will say there is strong resistance among particularly the environmental, like advocacy community to have this conversation because scope three is such an important tool for advocacy. So there's, that has been a challenge. But from a practitioner perspective, it's been met with real interest and curiosity as we find way, you know, as they experiencing it, they experience it as a completely rational tonic to be the solve to all their problems. So, but it's sort of like, yes, this makes total sense. Who's doing it and who, you know, how do we get started and we're there. And this is kind of the also the opportunity and the challenge for the accelerator and for folks, you know, groups like SFIs, how do we get that flywheel going? And right now it's publishing, talking, engaging with folks that'll listen and starting to try and get pilots going. Yeah, thank you. At least there's a question that's chat. How corporations offset liabilities today? Is there effective? Well, so, I mean, what's happening today is that folks are attending to their flows. And so they, to the extent that they're buying offsets today, they're using advertising dollars or marketing spending. You know, it's not booked as an asset, which is a problem. And also, I mean, the problem for a number of reasons, not the least of which it limits the amount of investment that companies are gonna make. And then the timeline for developing effective bar asset market, I mean, I think that's, you know, everyone's antsy to get that going. But I think what we're seeing is there are some fundamental questions that folks who are trying to get it going are asking the wrong questions. That there are these more fundamental questions or should be asking, in addition to the questions they're asking, should be asking these more fundamental questions around the foundation of carbon accounting, around the definition of tradable assets as they relate to transition plans as they relate to property rights as they relate to, and then really understanding the market structures and the proxies for commodities that can build the market trading mechanisms that will enable the growth of the offset market. So a lot of work still needs to be done. There's a lot of energy and enthusiasm around it, but I think there's a need to kind of step back and ask some more fundamental questions. Yeah, Brad. Yeah, coming off mute here. Hi, Brad Schaller with Windrock International. Thanks for hosting this. It's been super interesting. I've, I work at Windrock now, but for about 10 years I worked at WWF on science-based targets and a lot of these sorts of standards. And actually right now, one client we have is voluntary carbon market integrity initiative. So one of those carbon market initiatives that's trying to drive kind of clarity in the market, at least on the claim side, but all of these different systems are interacting, right? So I'm sort of curious, not just what maybe the environmental advocacy community has thought and thanks for the clarification that this is evolutionary and not revolutionary because I do think that there's gonna be, it makes sense that there's pushback because just seeing a transition is really hard, right? And so many people are working to make scope three right. And so to kind of show a way out into something better, which I think there are people out there that are even working on scope three, recognize it's imperfect, right? So I guess my question is how, like what are the reactions of SBTI, the greenhouse gas protocol and then regulators like the SEC and the European reporting initiative, those that are in charge of that because those are probably the four initiatives, their views are, I would say are the most important. So thanks. Yeah, thank you. Appreciate the question and the opportunity to revisit the sensitivities around this. And I tried and I hope to some degree succeeded in the presentation to respect and honor the work that's been done and try and contextualize it because it's not, it's not meant as a wholesale criticism and it's not meant to throw it all out. So that said, I mean, my, so I haven't, we haven't talked to anyone directly at SBTI. I talked to, you know, WRI GHG protocol folks. I mean, it's, there's very strong feelings around this and I get it, like it's hard to work in climate. It's hard to work in day in, day out. It's, you know, you're getting the existential angst of the challenge mounting. There's the pressures from the right that are just totally irrational. And so anything that feels like letting go of progress is very scary and unappealing. And so I get that. And so my experience in conversations with those like closest to the protocol is like, so there's, you know, kind and respectful engagement and I'm trying, but I would say I haven't had a conversation with where I feel like new information is being taken in and processed and considered and coming out. It's been a very much like, it's a feature, it's a feature, it's a feature. Or it doesn't, it's not perfect, but it's, it's all we have. And the problem with that is it's all we have and it's gotten this far, but it's not gonna carry us to the next state. We've got to figure this out. And, you know, improving scope three, we can call this improving scope three, call it whatever you want it. Like it's just sort of, it's getting the boundaries and the data right and squared and that's, you know, we can get into semantics and sort of to help ease the pain of evolution. On the SEC and on other regulators, it comes back to this question of who's doing it, which comes back to the playbook. Like saying that, you know, this is how we got the original, you know, rule in 2010 or guidance in 2010 that didn't go anywhere and now we've gotten the TCFB and potentially real guidance because so many people were doing it. If we can get to people doing it, then the SEC, their job's easy than everyone's doing this and so you should do it. So that there's definitely the hand-wringing among the regulators of like, I don't understand how we can make scope three work or make it stand up in the courts. But when it comes to an alternative, it's well, who's doing it? Yeah. So it becomes this circular reference that we got a breakout of. Yeah, I mean, the thing is the scope three is not auditable and everyone knows it too. And so, you know, with the voluntary car market integrity initiative claims guidance that came out and this is what we're working on now, updating it, there are these comments and these are public comments that people can look at the feedback received in that. It's just, you know, how, how can we be held to account for our scope three when it's just all over the place, how people are doing it, right? And very few people are using primary data and they don't wanna be on the books having it as a liability, right? They don't wanna use it for this purpose that you're talking about. So it's kind of fascinating. Yeah. It's that internal excellence, managerial accounting versus financial accounting and especially downstream, it's always gonna be an estimate it's always gonna be out of their control and it's super gameable. So it's a good managerial tool. It's tough as a compliance, you know, reporting mechanism. Appreciate the question, invite opportunity to have a longer conversation offline too if there's a way to help on the implementation side. We're two minutes before the hour. Anyone else wanna chime in before we all let you go? There's one more question in the. Oh, in the chat. Sorry. There's timing. Yeah. Good question. I think it's working with portfolio companies to begin to report their missions along, you know, in this cradle to gate, E liabilities structure. And then what's interesting and this is where our research is going next is actually, and I didn't mention this in the presentation but the reason logic follows that this type of accounting is gonna greatly increase the cost of capital for high emitting firms. So instead of this exercise the financial sector is going through now on on finance emissions and all the complexities involved in those calculations and the wide range of outcomes and answers one can can arrive at. This would create a very structured and straightforward way of evaluating, you know what we're calling finance emissions now but of cost of capital for high emitting firms. That's an area of development we're really excited about both from a research perspective but also potentially from an implementation perspective. And so short answer like to see them doing is starting to ask companies to, you know furnish just like they were asking for CDP data 10 years ago, asking for ELM carbon balance sheets. We do have an article, there's two articles actually maybe you can drop them in the chat. There's an impact alpha piece which is a 10 minute talky talky piece at 10 minute read and then a 12 page working paper that captures all the ideas at this deck which we're also happy to share. I think captures the story as clearly and succinctly as any of those things but if you like to read I do encourage you to look at those. Okay, well thanks all for joining. I wish we could be together in person and I could see your faces but I hope you enjoyed it and please do reach out a few of ideas for implementation or if you have questions and challenges, we welcome that too.