What The Funk?

0:01 Happy New Year, Funkers. We're back. Episode 5 of What the Funk. And this is one that I've been really keen on. Really ever since the Inflation Reduction Act came out.

0:14 I don't really understand the Inflation Reduction Act. I think that you two on the call have unique perspectives on it. Karthik really from the Energy Technology side and ESG as a whole And then

0:24 Dave Stewart with your experience as a Vice President of HSE now running operations over at Greenfield Environmental probably have another view of it and how it may directly impact and affect the oil

0:38 and gas industry. So we'll get to know these guys a little bit and then jump into the meat of it which really is breaking down for those of us who may not have rocket science level intelligence.

0:48 What exactly is the Inflation Reduction Act and how does it affect emitters? So Karthik, we'll start with you. You've been on my podcast before it was back with.

1:00 him when we were on tripping over the barrel. Why don't you give kind of a quick highlight of who you are, who actual is, and then Dave will jump into you and some of your background and then jump

1:11 into it. Absolutely Jeremy, thanks for having me today. So my name is Karthik, I'm one of the co-founders of a company called Actual. So my background actually originally started in aerospace,

1:23 so I did a PhD in aerospace engineering. Then I went into consumer electronics I was co-founder and CTO of a consumer electronics company. Basically had a kind of a unique opportunity to take a

1:35 product from basically napkin all the way out to high volume mass production. So kind of firsthand, how do you set up manufacturing lines overseas? How do you make us a flight chain work on scratch?

1:48 How do you turn that into products that are on the shelf, like Best Buy on Amazon?

1:54 Once you got acquired, I got to myself an identification of this company. I do something in aerospace as well. So I went to Airbus. When I started a program at Airbus called Airbus UTM. It's

2:04 called Hultascope then. It's called Airbus UTM now. But basically designing the future of

2:11 aircraft and management and control. So how do you take delivery drones, autonomous air taxis, autonomous cargo jets, things like that and integrate them into an airspace that really hasn't

2:20 changed very much since it's

2:24 actually post-World War II. And as part of that, spend a lot of time working with regulators, transportation officials. And started to see that a lot of the challenges that I was trying to solve

2:35 in terms of modernizing air traffic control infrastructure was the same kind of challenge that the environmental ministers, the transportation minister, the energy minister around the world were

2:44 grappling with when it came to thinking about climate energy and things like that. So I've big gap in the market. I decided to start actual pace, essentially help decision makers whether their

2:55 governments, whether they are in corporations.

2:60 What should our capital plans look like in order to meet our environmental goals, our ability goals, our production goals, our revenue goals? One of the things that we've seen is that the

3:13 S-TREAT's sustainability, you don't hit it without investing physically, in the real world. And that's what we're doing is building tools to help the people who are making those investment

3:23 decisions actually figure out what to invest in and whether or not that investment is going to get them to their goal or not. So before we turn this over to Dave Karthik, as it specifically relates

3:35 to oil and gas, what are some of the things that you're seeing oil and gas companies do? Is it pneumatic, is it electrification of fleets?

3:45 Certainly we're hearing more about carbon footprint reduction, emissions reduction, scope 1, scope 2, scope 3. But as it relates to most of the listeners that we have on here. What are some of

3:58 the themes that we've seen over the past, I don't know, I guess year, year and a half for oil and gas companies as they look to start modeling out their ESG and their emissions? So I think there's

4:09 a couple things. I think at this point everybody has some level of a handle on their accounting and their reporting

4:18 to various degrees of maturity, of course, but I think at this point it's table stakes, right? What does that look like?

4:27 I think in terms of where the companies themselves are, whether it's in terms of reducing emissions in their existing business line or looking at creating new business lines, diversifying, shutting

4:39 down businesses, it's all over the map. It really depends on where you are, right? Are you upstream or are you downstream? Depends on how diverse your business is already, and it depends also on

4:50 your customer base. So there really is no one-size-fits-all, I think this is one of those really interesting challenges where Each company is going to have to think about, are we trying to

5:05 put ourselves in a position where 20 years from now we have the same businesses today, but operating a little bit differently, or are we gonna be a business where 20 years from now, we're in a

5:15 totally different business. We may have the same name, we may have more revenues, but we're actually delivering a different product to our customers who may be entirely different customers as well

5:26 So there really isn't a one size fits all that we're seeing. It's really very important - And I think that ambiguity has created some confusion, which is kind of why you're here today to talk about

5:37 the inflation reduction act. Without further ado, Dave Stewart. Dave, I don't know you quite as well as I know Karthik, but you and I did cross paths back when you were running HSE for Bonanza

5:48 Creek, Colorado based operator probably about six or seven years ago and have followed your career path since. now onto Greenfield. So give us a little bit about yourself. Where did you grow up?

5:58 Where did you go to school? And how did you get into the HSE environmental sustainability side of oil and gas?

6:06 Sure, Jeremy. Thanks for the introduction. Yeah, as you stated, I've worked for three different EP operators over my years Bananza Creek is one of them. Crestone Peak is another and then in

6:17 Canop oil and gas. So I had 16 years of direct experiencing managing all these types of issues and problems for these companies. Prior to that, I did a lot of consulting for a variety of different

6:31 industries. Air quality is truly my technical background. I started out of college doing air quality measurement and emissions work in California and then in Wisconsin And since I've been all over

6:44 the world doing emissions quantification and emissions measurement and leverage those experiences to help oil and gas companies here in Colorado with EHS in general air quality is a huge issue here in

6:59 Denver Front Range to the ozone non-attainment and the amount of regulation we have put in place here in Colorado and how that's bleeding over the rest of the country as a model for

7:11 regulating the industry oil and gas industry and so it's just really relevant to our conversation today and I look forward to talking with you more Jeremy thanks. Yeah Dave thank you for for coming

7:24 on I think the Karthik's in California you're in Colorado as as MI just just very high level. Can you Dave outline some of the differences and how states approach emissions in California versus

7:37 Colorado is it sort of one in the same is it tremendously different like give me any observations that you might have between those two states. Well California and Colorado believe it or not are

7:50 fairly similar in spout in the spectrum because of the they have advanced regulation compared to most of the other states, especially in the West. I think it comes down to the politics of the state

8:03 and what they're trying to achieve from an air quality standpoint. So as far as different states go, they're radically different. Wyoming's much different than Colorado, which is different than

8:14 North Dakota and Texas, and each has their own process and unique compliance program as well as reporting program. So I got like, I

8:25 can commiserate with you on trying to develop systems that can meet all those types of requirements because they are very unique state by state, even in Colorado, down to the county and the

8:36 municipality level as far as reporting emissions go. So vastly different,

8:42 environmental policy is different ways to attack environmental problems and some have chosen to do more proactive means of working with the operators and getting ahead of this. Others have chosen a

8:55 more retroactive sort of penalty type approach, which kind of leads into the Infraction Reduction Act. It really is an emissions penalty act on those that are emitting methane and other greenhouse

9:08 gas emissions. So that's my perspective on it. But look forward to hearing yours, Karthik - Yeah, I am too And I think that

9:19 that leads me into maybe Karthik, this is a question for you as we jump into the bulk of this conversation, which was what the hell is the Infraction Reduction Act? 'Cause there's a lot in there.

9:30 But Dave mentioned the differences between states. What they have in North Dakota versus Texas versus Colorado versus California is different. Is the Infraction Reduction Act designed to create

9:41 uniformity throughout the lower 48? Or what exactly, maybe even taking a step back from that, What is the Inflation Reduction Act? And then how is this going to affect or maybe unify states from a

9:53 either reporting or a mission's reduction perspective if it does? Yeah, so it's interesting. The Inflation Reduction Act, the goal really is looking at what's driving inflation today. Obviously a

10:07 huge amount of money supply going in to creating a huge amount of demand. That gives us a really good signal of what consumers are looking to buy

10:17 And one of the things that drives inflation is when supply isn't meeting demand. When you have a lot of cash out there, and everyone wants to go buy an EV, guess what happens to the price of EVs?

10:27 They skywalk. When everyone wants to go and buy a heat pump further house, whenever it wants to go buy an induction stove, they want to put solar on the rooftop of X1Z. So the Inflation Reduction

10:37 Act, there's a portion in there around the methane fines. And that's going to increase costs for a lot of oil and gas companies But there's a huge portion in there that has to do with essentially

10:51 providing subsidies in the form of tax credits, right? So you have to do something to get something. This is not, here's a check, go have fun. This is you've spent money, so I'll give you money

11:00 back in return. But there's a huge amount of money for increasing the supply of these goods, right? So there's incentives for increasing the mining of materials like lithium to make batteries.

11:15 There's a huge amount of incentives for making battery factories And EV factories and doing a lot of production domestically. But there's also a demand component to this. There are incentives for

11:28 people to go and buy electric trucks, commercial trucks, right? Which essentially, in many cases, will actually cover the entire price difference between a diesel truck and the electric version.

11:41 So essentially what what this bill is saying is that a lot of new technology, whether it has to do with climate or whether it has to do with electronics in general, for example, the first few

11:54 generations of a product are always very expensive. And as you go through the manufacturing process, generation after generation, you're getting better at manufacturing, but you're also doing

12:03 things in higher volume, which means the prices come down. And so what the IRA is really trying to do is bring down those initial costs in terms of what's being passed on to the consumer. So

12:16 building that first generation electric truck is going to be really expensive, because it's the first time you've got to build a factory. You don't know what you're doing, so you're making a bunch

12:24 of mistakes and all this kind of thing.

12:27 But by subsidizing that, you're bringing that cost much closer to the existing generation of things. And what that means then is when the demand is there for this new generation of things, you

12:38 don't see it in the inflation, right? Because the cost that gets paid is the same, so the price of that basket of goods, which is what drive since this is kind of similar. Of course, inflation

12:48 happens much more quickly than you're going to get these factories built. So there's a question of whether it's actually going to reduce inflation or not, but that's what the bill is made.

12:58 So that's at a very high level what the bill really is about, right?

13:04 We've seen what consumer pressure is going. We're seeing where international pressure is going. We're seeing investments that are being made in the European Union. We're seeing where investments

13:14 are happening in Asia Pacific, in a lot of the countries there. This basically is how do we ensure that American companies are producing goods that are competitive on those stages as well?

13:27 Fascinating. No, I think that's a great grassroots explanation

13:34 and Dave, I want to turn it over to you on really,

13:37 certainly everything that Karthik said, how that resonates with you And then also the view from the oil and gas company. not just the oil and gas company, but the oil and gas services company like

13:49 a Greenfield environmental that's going around effectively looking to be an emissions reduction play, plugging in abandoning various wells. Talk a little bit about how the IRA has a very direct

14:03 impact for oil and gas.

14:06 Yeah, thanks Jeremy. So I share a lot of the same thoughts that Karthik had with regards to the inflation reduction act definitely provides financial incentives for innovation and all those types of

14:19 things. But the other thing that I point out is it really does bring a large focus on emissions reduction for oil and gas industry specifically. And in addition, it provides money for methane

14:34 research as far as monitoring goes and techniques to reduce emissions So

14:41 it's both the carrot and a stick, right? We have the carrot being. give you some money to go out and invest in new technology and try to reduce your emissions, but at the same time it has two big

14:53 sticks. The waste emissions charge fee and the federal lands waste fee. So both of those fees are very impactful to the oil and gas industry and drive change. We constantly in the oil and gas

15:10 industry are striving to do better And so a number of the companies that have always been working on this won't be heavily impacted by the waste emissions change fee to be honest with you. It's going

15:22 to be those companies that have kind of languished or not focused on this as a priority or those companies that have older assets where just the return on investment has prevented them from doing

15:33 things that other companies are doing. It's just cost prohibitive and the play would not no longer be economic for them. So we're in an interesting time here in the US where we need. as much

15:47 production as we possibly can get. You're seeing that Europe and elsewhere around the world, but at the same time, we need to do so in a much more efficient way. And this bill provides that path

15:58 towards helping companies reduce emissions and incentivizing them with that stick approach is they have to pay if they don't reduce emissions.

16:10 And I think it's gonna be very hard on the small operator to be honest with you, I think the large operator that works across multiple basins and has advanced systems in place and has been working on

16:22 this for a long time will be less impacted than the mid to small size EP operator.

16:29 So I think there's opportunities here for a lot of us that are in this ESG space to help companies, help them comply with this, help to reduce their liability and their risk overall and basically

16:42 take advantage of the carrots that are in the IRA. as well to help them achieve this in as economic way as possible - You know, Dave, you have run HSE groups, right? Health, safety, and

16:57 environmental, EHS, whatever order you wanna put it in. And to me, when I really started first dealing with people that have HSE titles or objectives within oil and gas companies, it seemed like

17:11 a necessary evil and much like a tactical position. That's really shifted A lot of these people who are in those roles now are charged with strategy around emissions reduction with beyond just

17:23 telling us what the spills were and reporting them, but going way ahead of that, right? So that we can forecast what those emissions and what the carbon footprint is actually gonna look like. Have

17:33 you seen that shift as well in your 16 years from more tactical response to strategic and a much larger seat at the table within the boardroom? Absolutely, that's been. Basically my whole career,

17:49 you know, when I first started out, yeah, EHS wasn't nearly as taken for as seriously at the leadership level. I think safety always has been, but as far as the environmental and some of the air

18:02 quality aspects, they were dealt as a business expense that needed to be managed. And that has definitely shifted into a much more strategic role, especially here in Colorado. You know, it's been

18:13 ongoing We've had 15 years of air quality regulation piling up one after the next as fast as you can put them together. And you know, those companies that understand the regulations, understand how

18:27 to work within them and guide them in the most cost effective way are more successful than those who are not, especially here in Colorado. And I think with the inflation reduction act, it just

18:39 emphasizes that this is going nationwide and the strategic portion of air quality. and how you build that into your business models becoming ever more important -

18:51 So we had, thank you, Dave, that's really, really good insight. We had Bear Givan, who's the CEO of a company called EarthU that effectively puts methane emission sniffers on wells, but they

19:04 also put emission sniffers in landfills. And he's flown planes over all these different various areas and seemed to break it down to be, there's a ton of emissions happening in agriculture

19:18 in oil and gas, as well as in waste. But it seems like oil and gas is probably the most vilified in those regards, maybe because it feels like it could be the most preventable, which to me is

19:30 pretty fascinating. Karthik, I'm curious from your seat, having built out a modeling solution with all kinds of algorithms and math and smart people stuff that goes on in the back end, How do you

19:43 see the ability to. model and reduce emissions and say agriculture or dairies or waste versus oil and gas? Is it harder to reduce emissions in those areas? Is it easier? What are some of the moves

19:58 that companies can make and how much of an impact do you see these companies having if they do model out their emissions? Yeah, that's super interesting because there is absolutely a lot of

20:09 emissions, especially methane emissions coming from outside of the oil and gas sector. One of our, one of the companies that we work with very closely is a group called the New Zealand Reno Company

20:23 and they represent hundreds of family farms in New Zealand that produce extremely high quality marine oil. This is wool that goes into products from companies like Allbirds and Smartwool and

20:35 Icebreaker and Laura Pianna and Gucci and brands like that. So you buy a wool suit. Guess what? There is methane emissions that came out as a result of producing the wool for that suit or for the

20:47 socks that you're wearing or for the sweater that you have. I think that there is, number one, absolutely a different perspective in terms of how people see the

20:59 defensibility of the emissions at a social level because it's easy to say, Well, I'm going to replace my gas car with an EV or I'll ride a bike more. But people are not going to say, Well, I'm

21:09 going to stop wearing clothes, hopefully

21:12 There's a certain element of, Is it replaceable or not?

21:22 The other aspect of it, I think, is that for certain things, there's a very direct set of levers that you can pull and for other things, it's much more difficult. So I think this is where the

21:32 particular solutions that you're going to employ, whether with animals you could be looking at things like bio-digestures on site, you can see the animals different things, reducing the emissions.

21:43 Fundamentally, you're trying to do the same thing as if you put sniffers on Welles, capping wells, leak detection, all those kind of things. Fundamentally, the impact is the same. We have a

21:53 leak rate of X and we want to make it Y and how do we do that?

21:58 I think the difference is how disperses the problem, right? And specifically how permanent is that is that solution as well? If I go in and I retrofit a well, if I cap a well, if I put a sniffer

22:11 in, how permanent is that five years down there or ten years down the road? Am I seeing the problem again? In agriculture, is it a different set of solutions?

22:22 And what's quite interesting, by the way, is that in a lot of supply chains, these industries come together. So when you think about fashion and you think about sourcing wool, well, guess what?

22:32 There's oil and there's oil products that go into the clothes you're wearing as well, right? The polyester, the rayon. So you have methane coming from both directions. They're the chemical chum.

22:42 And in the production of those chemicals, guess how the fuel for those chemical plants guess where that's coming from. So there's a lot of intertwinedness and interdependency. So for a lot of

22:52 companies that are household names, you go to the store and you buy a product.

22:59 A lot of these different industries that are facing the challenge on the ground, they're all rolling up in that scope three. And it's really a spider web type of a challenge. You can't really

23:09 separate it and say, Well, while a gas is going to deal with this And we don't have to deal with it. At the end of the day, you have to deal with it politically. So we have, you know, cert gas,

23:18 certified natural gas. And you see companies like Project Canary getting involved in that camera. We're going to see certified clothing, carbon free clothing. Is that something that's going to

23:27 start happening? Yeah, that's a big push from the brands that we're working with is setting very ambitious targets. And actually, that's one of the big challenges I think that's causing a lot of

23:40 the political

23:43 in terms of what ESG really means is that

23:48 You've had a lot of groups that have realized for for many many years that Saying hey, we're going to be net zero by a certain date has been really profitable But now the tone is shifting you said

23:60 you're gonna be net zero by 2050 or by 2030 Are you getting there? You have a plan? Is it real or are you just you know taking it out on the paper and calling it a day? and so now we're starting to

24:11 see that rumbling of Is this real are you scamming me? and and that's gonna drive either a reckoning or real dollars being put into Real-world investments that actually get companies to these goals

24:28 Yeah, and that's that's the accountability piece that I think everybody is yearning for And I have two thoughts that I really want to jump into One of them before we start talking more specifically

24:41 around the methane fees My neighbor is the vice president of sustainability for Crocs. And they have very aggressive and ambitious mandates. Crocs are the shoes, right? They're rubber. They have

24:52 plans to be net zero by 2030. I don't know how you do that with the rubber product. It doesn't fundamentally make sense to me. So I don't know if or how she's going to be able to achieve that, but

25:03 that's the goal, right? Somebody put that out there. We're going to be net zero, you know, carbon neutral, carbon positive, whatever by 2030 I don't know how they're going to get there. I

25:13 don't even know if that's entirely possible. The other piece that I wanted to touch on

25:20 regarding methane fees is just how big are some of these fees and fines going to be for a large operator. So let's take like one of the majors or even a step down like an oxy or a Devon. Like how

25:34 significant are these checks that these guys are going to have to write now now because of the IRA. And I'm really talking in terms of specifics. Does this tie directly into, they have this much

25:45 production? Does it tie into how much their leaks have been tracked? Like Dave, give me a sense if you can on the methane fees and how that's gonna play for some of these companies that have

25:56 significant production profiles -

26:00 Yeah, it's interesting. I've been talking with a lot of companies about this and talking to a lot of audiences about this And

26:10 it's still unknown right now, totally how much this is gonna impact companies. But the largest operators, as I stated earlier, really have been on a ton of work around this for a long time. And

26:23 they've actually divested most of their older assets, take a look at Shell, for instance. They don't even own any onshore US assets anymore. So they're a super major that has solved this in their

26:34 own way.

26:37 You know, a lot of companies, you know, look at this and you have to be under the 02

26:45 you know, emissions intensity and then you don't have to pay anything. And so as long as your production is up and you're continuing to drill wells in fields and in basins, I think the impact is

26:58 going to be very little. I think the bigger impact is the, you know, impacts of Quato B and C that are coming down the pipe that kind of dovetail into this a little bit as far as attacking this

27:10 whole methane problem. But I don't think the large operators are super worried about this particular fee in and of itself. I think they see the writing on the wall though and will continue to search

27:22 for emission reductions and continue to push this. And as you stated, Jeremy, you know, it's really bigger than just the financial impact of the IRA to the companies to their, how much their

27:35 company's worth their net value. is really what's important to them. And in the public eye, if you're emitting a lot of methane, your net value is gonna go down now. It's just a fact of the new

27:45 frontier we're in. And so frankly, for the majors and the super majors, that's much more impactful as far as a stock price goes and valuation to their company than this methane feat.

28:18 Now, where it does hit operators, and it hits very hard as those smaller operators and older basins that haven't had the ability to invest in newer technology, or they can't get electrification,

28:19 or they weren't able to get pipelines in place when the field was built long ago. Those are the operators that are gonna be hurt the most by this,

28:22 and it will be significant. It depends on the size of the operator, the smaller the operator, even a 10, 000 bill is felt because they're operating at the low margins of the business.

28:36 So I think you're gonna see kind of an inordinate effect on small and mid-size operators, and that'll lead to more consolidation of assets, I believe, over time, is what I predict. As companies,

28:50 big companies may want to invest in either improving some of these fields, or plugging them and shutting them down. And the business of Greenfield is really built around the philosophy of working

29:02 with companies that have to do plugging work, and do it in a way that they can capture the most ESG-positive metrics they can while they do their program. And so that's really my focus here at

29:14 Greenfield, is to help operators demonstrate through quantification efforts, the foreign after-a-wells plugged how much methane they've reduced. So this in turn could lead to potential carbon

29:27 credits or other things in the marketplace that are emerging.

29:33 That'll be very interesting in the next few years to see what happens. those carbon credits are pretty elusive at the moment for oil and gas companies because the additionality requirements and

29:44 concerns around those - Yeah, I do wanna understand a little bit more what carbon credits actually mean, because I talk to companies that are creating carbon credit exchange platforms. And I'm just,

29:56 I have so many questions around what it even means. Like how do you buy a carbon credit? How does that actually reduce your emissions if you're buying a carbon credit from somebody else? But we'll

30:08 talk about that in just a second. Greenfield is fascinating to me because my understanding as it relates to field services companies in general, besides a few very, very large field services

30:19 companies that are pretty well known, is that doing the plugging and abandonment work has been local and it's been a lot of mom and pop shops. My understanding from Greenfield is you guys have gone

30:32 in fairly big, not only acquiring of these companies, but trying to standardize. whole PA market in terms of how you do it. Be very consistent both across basin and across practices and leveraging

30:44 technology to do so. Is that a cognizant and a concerted effort that you guys have put forth to try to make this sort of a bigger game as opposed to saying, Okay, well, we just call the same

30:56 company that's been doing this for 50 years and they do it how they do it, versus establishing some level of standard between the Jonah field, right? But between the DJ basin, between the Permian

31:08 basin, and try to have some level of consistency. Talk to me a little bit about sort of what the, I guess, the thesis behind what Greenfield is and what it's doing. Yeah, thanks for that,

31:19 Jeremy. Our vision is really to

31:23 help companies align their plugging efforts around their ESG efforts. Okay. So really it is a value proposition that we're providing that hasn't been available today

31:37 So what we would bring to the table is we bring a field-wide approach to PA that allows companies to benefit from scale in regards to implementing efforts field-wide that can add efficiency reduce

31:53 costs and then most importantly provide that ESG benefit to back to the company that's currently not being provided Companies aren't measuring them methane emissions before they plug. They aren't

32:06 measuring before after they plug right now But we're in a position to be able to do that today We're in the position in the position to be able to show them the ecological footprint decrease That's

32:17 created by their plugging or consolidation activities and these fields everything from wetlands to wildlife to Biological benefits related to increase in insect populations and thus bird populations

32:31 and all kinds of benefits that are out there that are not being realize today by these companies and the public's unaware of these big plugging programs that are occurring by say every major operator

32:46 in the US is plugging wells and they're really not taking advantage of the ESG story beside behind that. That's what Greenfield is designed to do is help these companies scale, get more efficient in

32:60 when they do have to plug and then get an additional benefit from an ESG perspective at least to tell their shareholders what they're doing and what those benefits might be. As far as carbon credits

33:12 go we can talk all day on that but most companies aren't viewing carbon credits as the big driver for doing this. It's a small ancillary type of thing they're dabbling in but it's not something

33:25 companies are really going in for As far as these net zero product projections they could help contribute to that. But there's all these questions around additionality that are preventing some

33:38 operators from using, say, a plugging in abandonment carbon credit for to reduce their current operational offsets for methane emissions or CO2E. So it's just going to be an interesting and

33:52 developing space.

33:55 A lot of the carbon credits available are very interesting, and they're being attacked You have forced reforestation that's burned down. You have things that are just being scrutinized. And I'm not

34:08 here to say whether that's right or wrong, but I think there's a great debate to be had in the coming years about what is and what is

34:18 a credible carbon credit and how that's applied to your net zero goals as a company.

34:25 Oh, that's good stuff. So it seems to me, at least at this point - And I do think this is going to shift that companies like actual. companies like Greenfield are not only kind of environmental

34:37 ESG and ESG tech companies, but also educating, right? That's a significant part of your job right now. And in the case of Greenfield, how much retraining is there of the existing staff that you

34:52 had? Because maybe they did it one way previously and now you're saying, well, we're taking a different approach. It's still the same people, still the same skilled hands. But now they have to

35:01 do things differently Yeah, the way we're looking at it is these are skilled individuals. They're skilled workers. They have a huge vast amount of abilities and resources available to them. So

35:14 with us trying to be as most efficient as possible with regards to methane quantification, we don't want to have to mobilize a whole other crew out there. But rather we can retrain one of our

35:24 operators to do this work. And so we're looking at building this into our platform such that it will not cost our customers much at all if any. And in fact, it's just going to be an added benefit

35:36 of using a company like Greenfield.

35:40 And the workforce itself, you know, they go home at night every day and talk to their families. They hear about climate change in schools. They want to be proud of who they work for. And I can't

35:49 tell you how many of our folks I've talked to who are so excited about the future of this company and where we're headed and the stories they can take home to their families and their schools and

35:59 things about them actually reducing emissions through their job efforts. That this small amount of retraining with them to get on board with methane is welcome and they're bringing their open arms to

36:14 it. So I think it's very exciting.

36:17 Thank you. So Karthik to shift it over to you. Let's talk carbon credits a little bit. So what is a carbon credit? What does this all mean? Not just for the oil and gas space, but for any

36:30 emitter because I just have a lot of confusion around what it all Yeah, so I think, you know, first I definitely want to echo

36:39 what we've seen with what David was mentioning, which is that I think for a lot of companies that have real emissions on their books, where they have physical processes, physical infrastructure,

36:49 physical operations, carbon credits are something that's kind of a curiosity. They're buying them, they're using them, but there's also this question mark and actually not even a question mark, a

36:59 real realization that you cannot rely on credits to get to net zero

37:04 at that scale. Credits make a lot of sense when the technology isn't available to cut your emissions, when you have very small amount of emissions, if your company is just a few people on laptops

37:14 sitting at home, there's not a lot you can change, so sure buy some credits. But if you are running an operation with hundreds of farms, if you're running an operation with thousands of

37:25 distribution sites, tens of thousands of trucks, what have you, the way you get to at zero is by investing in assets that don't pull it. What a carbon-care essentially is, Hey, I don't really

37:36 have a good way of cutting my emissions or I don't really know how to cut my emissions or I don't want to cut my emissions, so I'll pay you to do it anyways. Gai. Or, I'll pay you to do it for me.

37:44 So this, by the way, is one of the really interesting things about a company like Tesla, right? If you buy a Tesla and you charge it at a supercharger, how was supercharging free? Well,

37:55 supercharging was free because they're paying for the electricity, but every time you charge, you're generating carbon credits. Tesla takes those credits and sells them. Got it. Right? And

38:05 that's what's paying for that network. What's interesting then is if you charge it as a supercharger, you technically cannot say that your drive was zero emissions because you're basically taking on

38:16 the burden of the pollution.

38:19 Tesla gets to say that. Well, so this is where credits start to become really interesting. So there's two big concepts in carbon credits that start to put a lot of pause for people The first one is

38:31 around additionality.

38:36 So, the functionality essentially is, would this CO2 that was pulled in

38:40 have actually been pulled in if the credit wasn't being purchased? So, for example, if I go and I pay to preserve some forest, technically that's generate, you know, and then someone says, Hey,

38:50 by preserving this forest, you're generating carbon credits. You're not really doing anything additional if the forest was going to be around anyways - Right - Right? So, there's a lot of debate

38:59 about that in terms of, well, someone generated credits by taking someone's money and saying that we're gonna, you know, not log a forest, but that forest wasn't going to get logged anyways

39:09 'cause it wasn't a great area to log. So, there's no additionality. The second issue is around permanence. So, permanence is really a big deal. So, for example, if you go off and you plant a

39:20 bunch of trees and 10 years from now, those trees burn in a forest fire, you didn't actually remove the emissions, you just time shifted them

39:29 like this. And so there is in fact -

39:33 It's a big question mark around compounding liability when it comes to buying carbon credits. If I buy a thousand trees worth of carbon credits and 10 years from now those trees burn down, first off

39:46 I need to go and replace those except because of climate change the rate at which fires are happening, the rate which diseases are spreading is getting faster and faster and faster. And also the

39:56 cost of this credits are going up and up and up And also if I'm continuing to build my net zero strategy on credits the number of credits I have in my portfolio is going up. So you've got three

40:05 things that are compounding and accelerating. So this is actually one of the big reasons why for a lot of companies are saying carbon credits are something we're dabbling in. But we're going to

40:12 focus on real investments on our assets to cut those emissions because then you have a sense of, okay, there is additionality. If we didn't buy this electric truck we would have been burning fuel.

40:23 There's a sense of permanence, right? The electric truck is not polluting relative to the diesel truck and so on and so forth.

40:32 There's definitely a place for carbon credits, I think, especially when you start to think about newer technologies, carbon capricylicosteration, that's being put on on factories and plants.

40:41 There's some really interesting things that are happening in the marine space using lime and other kind of chemical reactions to absorb things. And then there's also almost inverse oil wells, if you

40:54 will, pulling CO2 out of the atmosphere and turning it into back into oil, I guess, and putting them back into wells There's a lot of really interesting stuff out there. And we're going to, I

41:06 think, shift a corner around what credits mean into things that are additional that are permanent.

41:12 But right now, there's a lot of different things out there. And each type of credit has to be

41:18 looked at and studied on a case by case basis. My good buddy, Chuck Yeh, it's also a podcaster at Digital Wildcatters, pointed out to me that whales. whales like somebody in Texas might say about

41:34 an oil and gas with, but whales themselves, the mammal, are amazing carbon capture devices. And with the reduction of the amount of whales due to all of them that were killed off for oil and

41:49 things like that over the years, carbon emissions have increased. I don't know, maybe that's just a crazy conspiracy theory, but truly whales, I guess, capture a lot of carbon And when they die,

42:01 they just sink to the bottom of the ocean, which effectively could be a positive thing. Anyways, that just me and my soapbox talking about whales. As far as carbon credits, is this like a Bitcoin?

42:11 Like, is there a monetary value assigned to an individual carbon credit? Like one carbon credit's worth 70, 000 or something? There is all sorts of values. It depends on, is it a voluntary

42:26 credit? Is it a - is it -

42:32 Is it a mandate?

42:34 There's that. There's credits in terms of how well is it certified. There's credits in terms of a nature-based solution. Is it based on CCUS? So what is the process that's generating it? These

42:46 credits can change. The values can change over time. So here, massive forest fire and a lot of credit lands, credit producing lands get destroyed. So there's this huge market. I think one of the

42:56 really interesting things that we've seen is that a lot of innovation in the credit space in the last five years or so has been on the financialization and the transaction. But at the end of the day,

43:05 it's a physical world problem. And I think that's where the real challenges lie. It's not around are we tracking it? Are we making it a more liquid investment? The real question is, can you prove

43:17 that there is an additionality in permanence? Can you prove the quality of the credit? And can you actually generate the credit in a way that is sustainable, in a way that is socially good? Are

43:30 you displacing farmers from their land at gunpoint in order to plant trees? That's happened, right? How do you generate credits really cheaply by reducing your costs? How do you reduce your costs?

43:39 Well, if you can steal the land, that's a really great way to reduce those costs, right? So there is a social impact to this as well. There are government policies that assume a certain amount of

43:51 credit generation that are basically being shown not to be true. A big part of the state of California's climate goals is based on a certain amount of reforestation. Guess where California is facing

44:03 a lot of now wildfires? There's a systemic over crediting in California's forests. There's more credits being generated than actual carbon being captured. And this has been

44:22 a number of studies in the last year that I've shown this. So I think in the credit space, there's the financial transaction piece, the rails are there. It's not that hard to buy and sell them and

44:25 trade them. But what's physically happening in the real world? that's the whole purpose of buying the credit, that's a lot harder to show. And that's really why a lot of companies are saying, you

44:33 know what, our investment is gonna go into emissions reductions because I can see that. I can see the impact of spending this dollar versus wiring somebody's some money and hoping that it worked out

44:44 - Yeah. So like most things in the ESG world, it's fairly ambiguous, right? It's changing consistently. And even though there is a monetary value put on it, it varies as to what the monetary

44:58 value actually is. Dave, I wanna, before we wrap up, shoot this over to you. So I've had a number of people on this podcast. I live out here in Colorado. I have friends who work in the oil and

45:10 gas space and the oil and gas field services world. And they're confident that here especially, we're doing the best job possible and a better job certainly than other countries every time we drill,

45:24 complete and produce a well. So we're seemingly doing the right things or moving in a direction where things like the IRA are continuing to impact the right behavior and influence people to do those

45:36 right things. But then what do we do about other countries that may not be nearly as clean, that definitely aren't nearly as clean or don't have IRAs coming down the pipe? That's still gonna create

45:47 some emissions. So do we just throw our hands up and say, Well, we're doing our best. Like how does this work from an international perspective -

45:56 Well, that's a tough question. I think it comes down to the consumer's choice. Where you're buying your energy from and there's a component of that that's related to LNG, obviously, and how you

46:11 characterize your LNG or your shipment of oil across the world. And buyers, basically consumers need to demand uniformity of reporting of emissions so that they can actually decide on which product

46:27 they want to buy. And until that happens, I don't think you're going to see much change there. I think you're going to see lower place oil coming out of higher emitting nations consistently that go

46:38 to other higher emitting nations that don't really care about it. And as far as the US goes, I don't know what we can do about that. I think Europe has a pivotal role right now in regards to how

46:50 they're managing their current energy crisis.

46:55 And I think as in that energy exporter, you know, we're just really under the gun to demonstrate how low emitting our fossil fuel production is and how we're continuing to address that going forward

47:08 in ever, ever more pressing, pressing ways. And I think that as far as some of these higher emitting nations, I don't have the answer. I don't know how to turn angle around or somebody like that

47:22 that's producing a higher emitting barrel of oil or a higher emitting. MCF of natural gas, but it comes down to the buyer ultimately. So you're going to get a world where there's going to be clean

47:34 energy producers and buyers, and that's where the United States has to be in that clean energy spectrum. And then I think you're going to have the lower cost, a dirty spectrum, regardless of what

47:46 policies and procedures we put in place as a nation. It's just inevitable. And that's just my opinion. Yeah I think you travel internationally a ton, so I'm sure you see lots of differences.

47:58 Where does the US kind of stack up from our desire to have a low carbon footprint compared to some of the other places you travel to? Yeah, it's super interesting. The reality is Europe certainly

48:12 has a pivotal role to play in terms of driving

48:16 the emissions reductions. There's a carbon border just a mechanism that's coming into play in the next couple of years and probably a methane border adjustment as well. carbon embedded in a product

48:28 and basically charging fines and fees at the border. So if you're building a car, you're building some electronics, whatever, and you're shipping it to Europe, you have to then account for the

48:39 entire supply chain emissions and get to the opposite of that. So the energy to make the battery pack is being produced here in the US and the battery pack factory is here in the US and those

48:50 batteries are being shipped to the EU to be finally integrated into the car, there's going to be pressure on the American battery manufacturer to reduce those emissions and that's going to go down to

49:00 the energy provider, right, whether it's the utility, whether it's whoever's providing the natural gas for the factory for the shipping and what have you. Europe is interesting of course because

49:10 simultaneously they're also cranking up also the lint ports, they're recommissioning coal plants, they're doing all these things because you're not going to let your people freeze in the middle of

49:19 winter So there's a question mark about how effective are some of these policies. really going to be in the short term. But I think the key thing to keep in mind is that, this is something I saw

49:32 firsthand, in the first company building consumer electronics, is that supply chains are really tightly integrated around the world. And so the regulations you could have a set of regulations in

49:42 the EU that drive what technologies are being deployed on a manufacturing line in China, whether or not your product is being exported to EU, because that manufacturing line is also building

49:53 components for products that go to EU. So there's a lot of interdependencies. What that means is if that manufacturing line is sending products from China to the EU, it's going to be buying energy

50:05 in a way where it's not going to be hit by that core board or just a mechanism.

50:11 So it's this really complex, intertwined web. And I think that historically when people think about regulation that they go

50:21 about policy, there's a very local perspective. Here's what my state is saying. of my country is saying, as long as I'm compliant and good. And now really the way you have to think about it is,

50:31 who are my customers? Where are my customers operating? Where are they selling to? What are the regulations of the places that they're selling to? And how does that flow back through to me?

50:40 Everybody is part of someone's scope three. And a big part of where ESG and sustainability is moving towards is away from purely within my perimeter, how do I look good? And it's turning into, how

50:54 do I make sure that my customers look? What do I have to invest in today so that my customers are going to continue buying energy supplies components parts from me versus being designed out? And

51:07 interestingly, you're questioning about what is the IRA going to do here in the US? What the IRA is doing is it's providing tax credits for companies in the US to make goods and products and

51:21 components much more cleanly than anywhere else in the world. And there's now rumblings in Europe about how unfair that is, that Europe may not be able to produce goods that meet its own

51:34 requirements as competitively as the US.

51:39 And so now, what does that mean? Is the US have a leg up probably for the next several years, unless the EU is able to free up some cash and invest the same amount domestically as well? So this is

51:50 super interesting. I wish I could predict the future better All I can say it's going to be super interesting. And

51:58 there's going to be a lot of

52:02 really interesting dynamics that play out as a result of these kinds of things.

52:06 Fascinating discussion. Well, wanted to thank you guys for coming on. I feel like this is the type of thing where you guys need to come back on every six or 12 months and give us an update on how

52:15 this is actually working in practicality. But just a quick shout out to both actual and Greenfield companies doing really good work. in the emissions reduction, oil and gas base, and really

52:27 leveraging best of breed expertise with people like Karthik and David. So thank you guys for making time to come on What The Funk Today. I learned a lot, hopefully the listeners did as well. And

52:40 boy, this is a convoluted topic.