In previous episodes of this podcast, both Prof Sir David King of the Cambridge Centre for Climate Repair and Rob Gardner of St James' Wealth Management mentioned the role of whales, elephants, and biodiversity in general in sequestering carbon.
Interested to know more I came across Ralph Chami, Assistant Director at the International Monetary Fund and co-founder of Rebalance Earth whose seminal paper on placing a financial value on the carbon sequestration of whales (initially) kicked off this whole field.
I invited Ralph to come on the podcast to talk about these exciting new findings and how we can use finance to protect and enhance biodiversity while simultaneously sequestering carbon. It was a fascinating conversation. I thoroughly enjoyed it. I learned loads as always, and I hope you do too.
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So that when you walk in and make the argument for conservation, you get the question How much is this gonna cost me say X dollars? What do I get in return? You say, Oh, you get y dollars and y dollars are far greater than the X dollars you're gonna put into it. And suddenly conservation becomes revenue generating on net. How wonderful is that?Tom Raftery:
Good morning, good afternoon, or good evening wherever you are in the world. This is the climate 21 podcast, the number one podcast showcasing best practices and climate emissions reductions. And I'm your host, global Vice President for SAP. Tom Raftery. Climate 21 is the name of an initiative by SAP to allow our customers calculate, report and reduce their greenhouse gas emissions. In this climate 21 podcast, I would showcase best practices and thought leadership by SAP, by our customers, by our partners and by our competitors if their game in climate emissions reductions. Don't forget to subscribe to this podcast in your podcast app of choice to be sure you don't miss any episodes. Hi, everyone. Welcome to the climate 21 podcast. My name is Tom Raftery with SAP and with me on the show today I have my special guest, Ralph. Ralph, would you like to introduce yourself?Ralph Chami:
Sure, my name is Ralph Shami. I work at the International Monetary Fund. I've been there for 23 years. And I work at the IMF, I'm known for my work on fragile states, I have a new book out called macroeconomic policy in fragile states. I am a financial economist by training. And with a lot of operational and experience, but for probably for your audience. The most interesting part is what I've been doing, which started as a hobby, working on valuing services of nature, to end the value of nature to our well being and our economic system.Tom Raftery:
And fascinating, fascinating because we've actually had two previous guests on the podcast allude to this kind of thing. So we had Sir David King on and he talked about, you know, the the ability to use whales for for climate repair. He's the director of the Center for climate repair in Cambridge. And this is one of the the possibilities he threw out there. And then a guy called Rob gardener, who's the head of investment for St. James wealth, wealth management company, mentioned the ability to use biodiversity for carbon sequestration, essentially. And so it comes it all, I think seems to come back to you under paper you wrote about this and about whales A while back. Can you tell me a little bit about how that came about? And maybe explain how we can use whales for carbon sequestration?Ralph Chami:
Sure. So about four and some years ago, I was confiding in a colleague of mine, that my on my bucket list was that I would see blue whales, because it's the largest creature that ever lived. And the only way you could do that is in the wild. And she surprised me by saying, Well, I'm part of this research group that actually studies the great whales. And let me see if I can get you a place on that ship on the boat and make long story short, I ended up flying to Los Angeles from Washington DC on a moment's notice. And from there to Loreto, Mexico and join the group of people studying the blue whales and the great whales. And we'd be on the boat for 11 hours. And it was the first time I've ever seen a whale of any kind and let alone to be the first thing you see is this 110 foot magnificent creature quietly feeding next to you. If there's any iota of soul in your body, you can't but be in awe of this beautiful nature and the design of it all. And literally I mean I was sitting there thinking here I'm a financial economist in the middle of nowhere. I don't know anyone. I'm staring at this creature who by the way, just to give you an idea this this way you could fit a the largest African elephant in her mouth. Well, he or she would disappear completely, just in the mouth. Okay, so so it's not only the length, it's the volume of this creature. Anyway, make long story short. later on. We're having dinner together and I'm on my third glass of wine. And I've tried to get into a conversation. So my background is in sciences. I was in physics and then statistics, finance and economics, and on a thing about whales or anything of the sort. In fact, my interview for the job was Do you know to swim? Yes. Do you get seasick? No. Do you know how to dive? Yes. Okay, you can get on the boat, literally. So that's my knowledge. That was my But anyway, so there these guys are talking about carbon on the whales. And I know from my science days that we all carbon units, so I and I should have known better but I was trying to get into the conversation also out of it. I said, What's the big deal? We're all we're all carbon units. And one of the scientists there said yes, but you've been you've been on the boat for 11 hours now, watching this swale feeding and otherwise, the blue whales feeding you you think were the same caliber? Of course, I knew the answer. And I said, Yeah, but how, what are we talking about? And then they started telling me numbers. And of course, I'm a researcher. I'm not a scientific economist, I do a lot of research. And the question you always ask, Is this your opinion? Or his published work? Yeah. And so then they said, No, Andy Pershing wrote the paper in 2010. And why don't you have a look at it? This the his paper anyway, everybody's asleep at night, I can't sleep. I'm downloading all this stuff on my iPad, I want to know so. And the first thing you do you find when you when you read that paper is table one, where he actually looks at each species of the great whales and how much there's carbon in their tissue. And, and, of course, as economists think a bit differently, also, on average, so how much how much carbon is on the way, but no one? The scientists, and rightly so don't speak that language. So quickly, I created this Excel spreadsheet, and I said, of course, I downloaded his article and other articles, and I started reading and I'm like, Oh, my God, oh my God, I gotta find out on average, how much is on a great whale, and breath. You know, I calculated nine tonnes, that's carbon times 11 over three, that's 33 tonnes of carbon dioxide that's being kept out of the atmosphere, because that's sitting on the body of the whale. And then when the whale dies, because they're so heavy, they're negatively buoyant, so they sink to the bottom of the ocean. And that carbon never interacts with the atmosphere. So it's sequestered there. And they, they actually they talk about it. And so I'm not saying anything that was just for us, the layman, the lay people. We didn't i didn't know any of this, right. So that's how it started. That's the first night no sleep. They claimed that the next day, I didn't say a word to anybody. Luckily for me, get on the weekend, get on the on the water, because northern winds, it was too choppy. So we were there and so I could digest what I had read. And that's how it started. I mean that that conversation, but the next day again, we were all living together and we've cooked together. So they're having another conversation about whale carbon, I sorry, whale pump. I'm like, What in the world is a whale pump. And here is even more surprising. So science says phytoplankton capture 30% of all carbon dioxide that is emitted. And and and and these are microscopic organisms that float in the ocean and and they return more than 50% of all the oxygen that we breathe, right? So okay, so where does this so how does this relate to the whales? So they're talking about the whale pump. It turns out that these whales, as I know, they eat, they feed on krill. They have no teeth, except for one species. But the big ones don't really have no teeth. They call them baleen whales. And so they feed on krill, the krill feeds on Phyto. And the fighter for it to survive needs nitrogen, phosphorus, and iron. And I hope you had your breakfast on the way where does Phyto find all those nutrients in the middle of the ocean? It's in the poop of the great whales. So imagine this, and I actually had seen that and smelled poop of this great whales for the next two weeks. But so these words are very intelligent. They, they they release their fecal plumes. They fertilize the Phyto. There is more Phyto there is more krill, there's more krill, there's more food for them. So now, of course, why is this relevant? Well, the scientists were talking about it as if like, you know, this is just a conversation. But for me, I was listening to them thinking but remember, I am sitting I'm sitting in the IMF. And the IMF is all about at the time, this is three or four years ago. They're working on the climate change and the rate, what should be the price of carbon that would change people's behavior? And so I started to think, wait, maybe I can help these guys help them. Why do I want to help them because they were telling me that the whales were under threat. whales are dying. We used to have 5 million or 4.5 pre whaling and we now down to a million million and a quarter But certain species haven't really recovered, such as the right whales, others have made some recovery, but they're all under threat from strikes on our testing, getting caught in fish nets and all that stuff. So I'm trying to help them. And I thought, Wait a minute, maybe maybe I can, maybe I can do something useful. First of all, to translate this knowledge that they have into a language that my people can understand. And who are my people? policymakers? I've you know, I've been in the policy circle for a long time. And to the I'm a financial economist, finance guys, and this is a nice spot, cuz I'm not gonna use that words. And these are the let me say, the what's in it for me crowd. You know, the crowded, they only care if you can make it relevant for them. Right? away, does it? Yeah, exactly. If I say the way it is a beautiful creature, they'd be like a, we've heard that before. Okay, what? Tell me something I don't know. How about if I tell you well, guess what, the whale captures so much carbon on its body. And indirectly through the fertilization of phytoplankton, that is equivalent to 1000s of trees one way. Now, even if you don't care for the way you presume to people, people care for themselves and for their loved ones. So they're, in essence, helping to save you. So that was the first part of the story. The second part is, How valuable is it. And the language of my people is the unfortunately, it's dollars and cents. And so I wanted to kind of crystallize that idea in their minds. So what I did is I looked at the value of the carbon that they that they capture and help sequester and also other things that whales do for which, but only the things that I could measure, right. And here, I want to underscore that because when you want to talk to the markets, you need to speak their language and their languages, prices markets. So I used carbon market, fish stock fisheries, which we have a price for and a market for, and whale tourism for which we have ticket sales. Yeah, sure, I didn't look at other things that beautiful things that the whales do, because there are no prices or markets for them. So only with these three things. And using a minimum I'm as I'm trained in mathematics and all that. So you always make the case with the minimum not with a person who has a $2 million, a lifetime value of a single whale, living whale, right? Living not only injured, living freely, to do what it was meant to do. And so I'm probably I'm jumping way ahead, but this is basically what I was after is I said, Look, look, I can tell your story to a crowd that has never heard anything about what you guys are talking about. And we can bring them into the into the solution. And they the scientists were like, why? or How can they help us I said, they have the decision to help you. And they have the money to help you. And if we were facing a crisis of, of since then people have written about, you know, the death of nature, which is happening, by the way, Tom, at the same time that by the way, all of our focus is on climate change. But really, there's another risk that we are facing, and it's as important if not more immediate, is that that's of the natural world, because that's happening at a very fast pace. And by death, oh, by, by diversity, so I thought, why don't I bring the two together? So that was the idea behind writing. I agonized over how to write that paper for a long time. Because I knew I had one shot at it. Right? Yeah. So I sat in the middle and I said, if you helped to save the whale, why do you want to help save the whale aside from its intrinsic value? It's because it's providing service that's very important to us. Life, like, Alright, and, and, and so so it's valuable in and of itself. It's valuable relative to us as a society. And it's valuable to us in terms of helping to fight climate change. And so you take the whale from being a victim to a whale that hold maybe not the key but certainly a key to solving the the climate crisis. So it's a positive there's a positive aspect of this story. So why don't you come with me? Come with me, let's let's invest in the protection and regeneration of the whales. And, and then at the same time, we help to save our ourselves because climate change is really about us. Not really about the planet. Yeah, yeah,Tom Raftery:
sorry. And the long to answer your question. No, no, that's great. That's great. And the cool thing about a whale which is worth $2 million, you know, at a minute Among right, yes, if you put up with another whale, worth $2 million, you get a third whale coming out. Worth.Ralph Chami:
Absolutely, absolutely. Yeah, it's a gift in a sense. It's a It's a gift that keeps on giving. Yeah. And so what you what you're what you just said is actually quite important because when you do the mathematics of it, people said, How did you value it, I said, Look, I was a professor of Finance. And and this is like a bond. And when you think of so when you think of the, the, the 33 times that is kept of carbon dioxide is kept out of the atmosphere, that's like a balloon payment of a bond that lives 60 years, or depending on the species of the whale. And when it dies, it gives you this payment, unfortunately, it has happened when it passes away. So he asserts a zero coupon bond, that that pays off after 60 years and you discounted to the present, and you get the value. But this way, is also helping to fertilize Phyto and Phyto is is gap capturing how much carbon some estimates would put it at 37 Giga tons per year, which is equivalent to four Amazon forests a year. So there's a flow argument there. But so you have to grab that one too. But as you just put it this way it gives life to when it's when it's an adult, and it mates with another whale to another whale. And so when you do the mathematics, the way we build it, just allow me just one minute, two minutes, because it's important for your audience. All right. So it's important to understand that there's an upper bound to this, or there's a limit is a cap. And the cap is what did nature, nature deem the number of whales ought to be? According to the scientists, there used to be 5 million or 4.5. Pre whaling, okay? So you're building from where you are right now. But that 4.5 represent to us the potential if you don't have that potential, people could say, why don't you have a billion whales, come on, Indian nature said, you ought to have 4.5, for whatever reason, that's the equilibrium number that the oceans can probably hold. Right, so now you're building the profile from what you have, to what you could we could have. Yeah. And so when you build the model, it's a dynamical model. For those of you, your audience that love mathematics, it's a differential equation, you know, on a compact set, and it has an axiom, and it has a fixed point, and you can calculate, and you can actually come up with a solution. But to do that, you got to work with the scientists, and you build a population model, it's a logistic model means it increases and then eventually it tapers off, okay, and we can actually track that, but it's not one way let's just put it this way, this giving life to another way, if some of them survives, don't survive. And you have to capture all of that you're tracking overlapping generations all the way out. And it takes about I think, we calculated took about 150 years sitrus variables meaning without any EQ everything else constant to achieve that, 5 million or 4.5 million, you can double that population within 25 years, as some of them because they do recuperate quite quickly if when if and when left alone. So you have to do you build the population model first, then you you impose on it the valuation model using financial techniques, and then you discount all of that to the present, because our decisions are in the present. So we have to have, you know, and why is that important? Because the cost of conservation is understood whenever you say I want to preserve something, or conserve something. The first thing comes to mind to people with the money is how much is this going to cost me? Yeah. Yeah, what you really want to say is, yeah, it's going to cost you x pounds or dollars or euros. And they're going to say, what do I get in return? Before our work? It came along people, the scientists would say, Oh, you get biodiversity and you get more fishes in the ocean. And and this and suddenly the politician or the guy with the money, they're, you know, they're, they're not scientists, they're like, Oh my god, there's another tree hugger here, you say? So what I was trying to say is I can translate that wonderful benefits that that are right now in the realm of science to the language of dollars and cents, so that when you walk in and make the argument for conservation, you get the question How much is this going to cost me say X dollars? What do I get in return you say, Oh, you get y dollars. And y dollars are far greater than the X dollars you're gonna put into it. And suddenly conservation becomes revenue generating on How wonderful is that? Because the money goes, and we'll discuss that in a bit. The funding goes now to to invest in a natural. I hate to use the word, but that's the language of my creed, a natural asset. But it keeps on giving. The not the nature's nature thrives, and the revenue thrives, and lots of other good things happen as a result.Tom Raftery:
No, that's fantastic. And I mean, just you said a single whale is worth 2 million. There are one and a quarter, I think you said in the words today, we could double that in 25 years. So that's one and a quarter million multiplied by 2 million in 25 years. That's a nice return on investment.Ralph Chami:
Absolutely. And the beauty of it is not on Yes, return. And when I say return in so many, not just in monetary terms, absolutely. Yeah. And you can you can multiply that and you can. But imagine what this is really saying this is saying livewhale is far more valuable for us to us than it that way. And it's going to sort of so let's let's, let's assume we can we can monetize, by the way, when we talk about monetary value, it's not about selling the whale at all, this is about selling the services of the whale, or if you like paying the whales for the services that it's been providing to us. Or it will be providing in the future simply recognizing their value, and you're paying them the minimum by the way of what they've been giving us for free for so long.Tom Raftery:
And who does the money come from and go to?Ralph Chami:
Beautiful? Okay, so then that's the question I always get asked. Okay, Rob, so you did a model valuation? But how do we, how do we, you know, act on this? Yeah, I mean, to make this happen? The answer is, allow me just to build it for you, please. So when you recognize what you have, so we have so many ways, the next part, Ralph and company Come come around, and my colleagues and I, and we value that service as whatever, whatever the dollar amount. Question is, can I act on it? Can I sell their service? And the answer is not yet. Because to sell their service, that means the market has to recognize what do you have is really what is called a financial asset, or financial capital. So you have to financialized the, those those services in a way that the markets could act on. And for the markets to act on, that that recognition has to be codified in the law, kind of every asset. So let me step back. I taught corporate finance for many years, any student of corporate finance understands that any asset I mean, think of bonds, stocks, and bonds, okay, simplest. They only exist in the law, right? They don't exist physically. Why do they exist? Because there's a certain law on the books that says, Oh, that is recognized as something you can put on your balance sheet, which will change your net worth. So now we have a way of going I put the whale on my balance sheet, the answer's no. Why not? Because there's a certain action that you need to take. And here, I want to underscore something that I always chuckle when I or I cringe, depending when I'm reading it during the day, from what economists language is, and what the financial world language is. Economists do not necessarily speak the language of the markets. We are an arrogant crowd who think we know everything. And, and, and we really don't know much. Okay. So when we talk about natural capital, that's a purely economic jargon. And why because when you for anyone who's taking a course in economics, we talk about capital and labor production is a function of capital and labor. Yes. But when you say that to somebody from the financial world, to look at your capital, so that's on your balance sheet. And because that's what they understand capital to be out on your balance sheet, it's a it's the difference between your assets and your liabilities. That's your net worth. That's your capital. The answer is yes, it could be, but not yet. So the question is what allows stocks and bonds to be on the balance sheet? That's what you got to ask. It's the law. It's codifying it in the law. And that is not the Invisible Hand of the market. That's the very visible hand of the government. Yep. And why would the government allow you to put a piece of paper on your balance sheet, because the government's gonna tax the hell out of it. It's gonna it's going to it's going to either To tax it or create some fees or something, so it's going to generate revenue for itself from it, then it sees that, ah, it's incentive compatible. So I'm going to let you know, put it on your balance sheet and allow the lawyers to mint it into law. And then I can extract some it from. So now let's take that model, by the way that applies to all the derivatives, I taught the derivatives, I've taught all that stuff. And I practiced it to all this crazy stuff that, you know, people say cause the 2008 crisis, because the lawyers were sitting in the back rooms and minting all these new instruments. And, and the government was rubber stamping them, yes, yes, this is an instrument, put it on your balance sheet. Without even reading the fine print. Why is that? Because the government thought I'm going to get so much revenue out of it. Okay, so now let's take this wonderful machinery. And, and and look at assets that actually exists, nature exists in front of you. Because that's the weird part of this conversation. Tom, is I get people say, really an elephant? I said, Oh, so you find the elephant to be a weird asset but a CDO? Have you ever met a collateralized debt obligation? Have you ever smelled it? Have you ever touched it? That to you is real? But what's real is not real? Why? Well, because the big investment banks tell you, this is valuable as hell it must be must be true, because they told me it's true. Well, they told you, it's true, because they can codify it in the law. And therefore it ends up on the balance sheet. So whatever I said to you, I said to you, we need the action of the government. And I can explain that in much more detail. So the government has to allow us to, to convert what the economists call natural capital into what the finance people in the markets call it, the financial capital. Otherwise, it cannot be on the balance sheet. And then all of I've done in terms of valuation is just a nice number that makes people you know, cause this wow factor, how about, so what do we need to do, the government has to come in and say this, this in the case of the whale, of this whale is valuable to us, it's a national treasure. If you don't like the word asset, it's a national national treasure, it is providing so much services to the society to our well being and potentially to us in terms of revenue fiscal revenue. So, we are going to allow you to call it under some law to call it a net a few like a capital in the language of the market, or or an asset, a financial asset that you can put it on your balance sheet. Once that is done, and not only that is given a value to it. Financial markets will look at this, oh my goodness, this is new class of assets. We can build, we can build all kinds of services around it. And I can give you a real life example if you like please, around so. So let me let me so in the in the Gulf of Corcovado in Chile, there's a beautiful experiment that is happening as we speak, and people can go on there. And Google it is called the blue boat initiative. Okay. And it's, it's the very foundation along with the government of Chile and many other stakeholders, what they've done in Chile have won a very important whales. They're all important. But among the blue whales, they have the Chilean blue whale. And they care about the ocean and they care about their whale. So what they're doing, they're installing buoys in the water. And what's so special about this blue each buoy is has has a chip in it, that shift. By the way, this is brand new technology that you can detect the whale, the type of whale and what location at what depth, which is incredible. This is brand new technology. HopefullyTom Raftery:
waiters don't get their hands on it.Ralph Chami:
Yeah, exactly. Yeah. Which actually, that leads me to the next part. Is that enough to recognize where they where they are. You have to protect them. You have to monitor them. That's actions of the government. Yeah, there you go. So you're now asking the question. So what's the goal? So this is not an n? By the way, each buoy costs a million dollars. that technology is brand new technology. So they're installing they want I think they want to install five, there are three of them, that are being installed as we speak. It will be able that chip in the buoy will will send that information to a satellite saying hey, there's a humpback in real time. By the way, in real time, there's a humpback at this location at this depth or a blue whale or a fin whale or whatever have you. The satellite will send a message to a land center and saying it says with the sides same information that land sent With send a text to the ships in coming through the Corcovado that golf is saying, watch out. There's a humpback in your way. Okay, in real time now, that's what technology does. Now lets you and I analyze it a little bit. Suppose I'm a captain on that ship. And I've been stuck in, in Suez Canal because they couldn't release that ship for, I don't know, six, six weeks or whatever. So I'm late, and I'm being penalized for every day that I'm late in delivering my cargo. Yep. So now now I get this text that says there's a humpback in your way. I am a nice guy. I really don't want to hurt any anybody. But I'm late and everyday, I'm, you know, I'm going to paying fines for being late and delivering. So will I stop? While I give you the answer? I won't. I won't change course. As much as I don't want to hit the whale. I could think to myself, so Okay, if I do hit the whale. What's the penalty? Zero? Yeah, yeah, yes, Chile loves its whales and all that stuff and marine protected area. But effectively, I kill the way of, most of the time, you can't see them, because they sink to the bottom, some really, very disturbing images, and when they get skewered on the bow, and you save them to the port with them, for everyone to see. But you know, at the end of the day, the guy's like, what should I do? If I change course is gonna cost me money, more, more, more, more fuel, more, whatever. Who knows? So if I hit the whale, there's no penalty. Yeah. So obviously, saying that you have a marine protected area, and saying that I have the technology to detect where the whales are, does not stop the ship from hitting. In fact, you gave me the other option, which is the whalers now know exactly where that whale is if they get in from so how do you change that? That's where the government talking about the Invisible Hand of the government. Suppose now in this scenario, I'm not saying they will do it. But I'm saying suppose the scenario, the government of Chile says, that way, is a national treasure. It brings so much benefit our society, morally, ethically, health wise, in terms of, you know, better environment, and we can see that possibly revenue coming from protecting them. So if you anybody were to harm that way. This guy Shami and his friends, did Valley value the great whales of Chile at three to $4 million, because the blue whale is the largest, right? So anybody who who harms the whale, there's a there's a monetary punishment, it's going to be $3 million. Now, let's analyze what would happen next. So you make that argument, you made that statement. It's, and now the captain of the ship saying, Jesus, if I hit that there's a monetary fine of 3 million. Let's look at my insurance contract. Let's assume for the sake of this scenario, Lloyd's of London gets a whiff, that there is a new asset in the water. That is worth $3 million, that they didn't realize it existed. They're going to send this guy an email or the owner of the tanker or the ship saying, when we gave you that contract, there was no asset in the water, or 3 million that you could damage. So we're going to put an attendance as you are not insured. You're on your own, you hit that thing. You're on your own. So now imagine what's happening. The government of Chile took an action said this is a national treasure or a national asset. It's worth 3 million you harm comes to it. But as a monetary fine, at least of 3 million. The captain of the ship says Well, I have an insurance contract. The reinsurer says no, you don't have that, for that asset, you're on your own. Now, this is not the end of the game. This is actually the beginning of the game. Because the owner of the tanker doesn't want to be uninsured. Yep. So he or she is going to say, Is there anybody out there that has some technology that I can put on my ship that would keep that keep me away from the whale or keep the whale away from my ship? And of course, all these wonderful smart people. And this is called innovation market innovation, that I've been applying their technology somewhere else because the money was somewhere else will come and say yeah, I have this gadget similar to the gadgets in the water and Zoo will tell you, you know, or keep the whales away without harming them or keep you away from them. So what we really described here is the action of the government Got the insurance company to act, got the agent to act to internalize the cost of their action, and brought the markets around the protection and regeneration of nature. And now the owner can come back to Lloyd's or whatever, and say, I can install this, you know, this device on my ship, would you insure me at a premium, and I'm sure they'll be happy to do so in fact, the government itself can sell them the insurance if they put that thing. So what we're really describing here is how the markets can come. But around the protection and regeneration of the of the whale itself. But it needs a policy action. Right? So there are three pillars, four pillars to this work, the work that I've been doing, you need to know what you have, in terms of nature, we need to value what you have, but that's a model valuation that that basically convinces the policymakers that, hey, there's something here. Yeah, they take an action. The punishment, by the way, is not to punish is, it's a mech is a commitment mechanism, that the markets say, you really mean what you're talking about. So now we're going to try to figure out how to create markets around it. And then the markets come in. And I can many ways I can describe to you how the market is coming, the insurance companies come in, because that's a natural field for them. And that brings in all kinds of other services. But now it's it's services around the regeneration, the protection and regeneration of nature. This is not about extracting stuff from nature. So it's a completely different paradigm. It is a currency. And then, and then we can discuss how would the revenue come in and all that stuff?Tom Raftery:
Yeah. And it's not just whales?Ralph Chami:
No, no that so when we did the whales, I had no idea I was going to be here today talking to you about the paradigm. I started it as, by the way, it's not my job a day enough. I mean, at first, they made fun of me to call me the way the whisper which I took it as a badge of honor if the whales could whisper to me, I mean, I called self enlightenment. I mean, you really, you really arrived anyway. No, not at all. It was a hobby of have, you know, it's literally to cover my life. Up until now I have yet to take a vacation. This is to declare on radio. For the past four and a half years, it's really just grabbed me and I couldn't let go. Because I realize at first was just to help my scientist friends and help the cause of the whale. And but I realize right away I mean, anybody could do it. Who else is out there? Remember, usually when you talk about carbon sequestration, people think of trees. Yeah, trees is a small game in the bigger picture. four fifths of the planet is water. Right? And, and and and, anyway, so what happened is right after that, I got a phone call from Paris. And this scientist named Fabio bizagi, who's now a dear friend says, Hey, guy, you valued the whale and you got a lot of attention. We just did. We just published in the journal Nature that the elephants forest elephants of Africa, also helps sequester carbon in the forest. And I said, Oh, yeah, I saw this. The New York Times had basically I reported on it. And he said, Yeah, but their situation is far worse than the than the whales. The These are not the savanna elephants. These are the forest elephants. He said they're dying at such a high rate that they used to be 1,000,200 dead down to 90,000. And IUCN basically says in the next decade, there'll be no elephants left in the wild. Can you help me? Can you help me tell this story? And size told five years if you work with me, because I know nothing about elephants, and we have to build the logistic model for the elephants. So he said yeah, so we work together, our team and with Fabio and, and we produce the second paper which is the so the elephants is fascinating. The forest elephants, they walk around the forest, and they forage and they eat small shoots and ever they have a taste for the trees with very low fiber and and that's what they like to feed on. But as they walk around, they traipse on the small shoots allowing you know allowing bigger shoots and bigger trees to grow bigger and wider because there's more there's more sun, sunlight coming in, there's more water and and of course they eat and desiccate and they and they're referred to as fertilizers, of the forest. They So what, what, how, for us for what five, you discovered this is really his work that he discovered with his colleagues that that action allows for us to capture an additional 7% of carbon in above soil just in the trunk in the tree itself, not in the roots. Even Sure, he didn't have enough funding to study the roots. This is current above ground literally. And so so so as a result, what happened was elk. The other thing he found, it's not a correlation is causality. When you lose the elephants, the forest loses the ability to capture carbon carbon by, by a certain amount. So I the 7%. So it's a causality. So what does this tell you number of things. It's not about trees, it's about the life within those trees. It's about the elephants, their keystone species, it's about the gorillas because I learned from the famous Ian Redmond, who's my colleague, what gorillas also helped, you know, produce within the forest, how important they are. The elephants are important, the gorillas, the every single, you know, it's the fauna and the floor together. That's what we refer to as biodiversity. So it's not about planting trees and saying, Oh, no, we're not we're not at all. It's about the life within the forest. That's what makes the forest so valuable to us, in terms of even carbon sequestration and other ecosystem services that we have yet to uncover. So breath, we did the whale, then we did the elephant valuation lifetime, and we got one elephant, just in carbon destined carbon. And by the way, not the carbon on its body, the carbon in the trees, so unlike the whales, where we looked at the value of the carbon on its body, in the case of the elephants, I chose not to do that, because elephants when they die, they say on the surface, sure, they don't. And therefore, that you can make the argument that that carbon does not interact with the atmosphere. And as a result, we just looked at the carbon in the industries. And the lifetime service of a single elephant is worth over in terms of carbon sequestration is over $1.75 million. And that's when the price of carbon was $24. Now the price on the European exchange is $70. So you can imagine what happened to that value. Since then, of course, other scientists and activists came around and said, Can you help me? Can you help usTom Raftery:
I've got this species ofRalph Chami:
you knows. So by the way, that's not my day job. But I kept telling them, I'll do it because I can't say no. And, and, but, you know, it was weekends, it was night. I mean, my family thought I was going nuts because I would talk to myself the whole time around and I you know, because, you know, you're working on it, it's, it's, it took up it literally took over my life. And during the day, I'm working for the IMF and and at night and weekends and holidays and working for everyone else trying to, to, to do this. So as a result, we were you know, valuing all these different assets. And we so for example, I'll tell you something really cool to really brand new. We were asked by the UNDP and Rondo to help them value seagrass. Just in terms of carbon sequestration, seagrass helps in terms of carbon sequestration, fish stocks, flood control, you name it, they do it. People don't realize how valuable it is would you like to know how valuable it is seagrass globally, just in terms of carbon sequestration, over $1.2 trillion? Well imagine just in carbon, we haven't even added flood control and flood control or or impact on fish stocks or their filter their water filtration because they're very important for the coral reefs, just in carbon. seagrass is a huge of huge benefit to humanity. So you know, you look at this and we're looking we're working in Florida on on mangroves. We're we're starting work with our colleagues in the UK on on salt marshes of the of England. And and the evidence is everywhere. Again, the valuation is not just to put $1 amount is to bring funding.Tom Raftery:
Sure. So people have financial instruments placed into Yeah, biodiversity.Ralph Chami:
Yes, yes. Because, and especially now especially now because right now everybody's focused on climate change. You see, but what's what sort of David Attenborough has been telling everybody his, his his, we are we are destroying our natural capital. And and so the world is done if I may, we are facing dual risk. We're facing climate risk. And we're facing the risk of losing our nature natural world. And if we lose, if, if any of these two risks were to materialize, we're gone as a species. So focusing on on just climate and thinking, Oh, well, it's about capturing carbon. I hear that and I'm like, Really? So let's assume for a minute, we find this wonderful technology that people that are enamored with high tech, they always say, Well, you know, let's, let's get grabbed this huge engine is going to suck up the carbon from the atmosphere. Let's assume for the minute that we can do something like that, okay. I don't know where you're gonna put it. But let's say you can pump it back into the ground from where it came. All right. Does that stop the whales from dying? The answer is no. Because whales I'm dying necessarily from the climate change. They're dying from ships, right? They're dying from the pollution of plastics. They're dying from the fish nets. They're dying from sonar testing the blows out their eardrums and have them lost completely in the in the ocean. That's why they beached themselves. Does that stop the elephants from dying? The fact that you're grabbing carbon from the atmosphere? No, because the elephants are dying from poaching from human encroachment on their on their habitat. Does that stop the this the seagrass? No, because the tourists don't like their feet to get stuck in seagrass. So now you have all these resorts basically going out early in the morning chopping away at the seagrass. Can you imagine this strike? Does that stop the mangroves? No, because they we need more more marinas for the rich folks to park their yachts. And they never use them just to say I have one. Okay, so that's what so but if we lose the the whales in the ocean, you have a dead ocean and we die. If you lose the elephants in the forest, anybody will tell you, it's a sorry, looking forest that's not doing, you know, even according to Redmond, even even the great apes won't be able to make their home. Without the elephants in the forest. They need them. There's this beautiful relationship between the two. Okay, so that's why they're called keystone species, and so on. And the dolphins and all of these have a role to play. So high tech focus in terms of climate change, I think, in my own opinion, I'm not saying there is no role for high tech. But putting all our eggs in the high tech basket is a diversion. That is actually caused the original sin of divorcing us from our natural world. Yeah. So let me repeat that. We thought through high tech, we can act we can pretend that we are outside of nature, in a sense, like replacing nature with something else, and I'm asking, really, what do you replace soil with? What do you replace water with? Oxygen with? Nature is the home where we live. Any other proposition that divorces you from that idea is incredibly dangerous. For when I say dangerous for our own existence? Yeah. So the natural world is dying. So the whole idea behind this work is to say, Come partner with me. Let's save the natural world. Let's have an equity stake and our nature and therefore protect the natural world. Our nature and nature will look after us. After all, it's been looking after us since time immemorial. Sure. So that's the that's the secret rather than, you know, focus on the high tech only my colleague, my dear colleague, she always calls it first tech versus high tech. And Earth tech is far cheaper. And I say it's not necessarily versus it's together with. We need both, but not just one play.Tom Raftery:
Yeah. How do we operationalizeRalph Chami:
this? Okay, so, the I'm actually finishing the paper that uh, you know, I've been given talks and I would talk about how to open it. And finally my colleagues said, Well, why don't you take the time off and write it down? So I'm finishing that. Basically, they're trying to say in a nice way, why don't you shut up and put it down. So people can you know, can say okay, so this is what it takes. So how do you operationalize this, okay. So, we have, we need a proof of concept. We need a case study. So We bring this good news literally is good news to the rest of the world. But whatever we do has to it is based on four pillars and two principles. So allow me, the first thing is for any country with for the let's take the UK, the UK for example and say what do we have an A in terms of natural capital? Right? Right now my colleagues and I are trying to work on valuing this salt marshes of the United Kingdom. Okay, so what do we have we have salt marshes, seagrass mangroves, we have whales, we have elephants, we have whatever. Okay. Next thing is, how valuable are they? That's the next pillar of this work. And what I provide is a service that basically says this is a model based valuation using market data of how valuable it is. But now you got to take what you think is valuable and go to the market. Right? market is supply and demand. So I have the supply now question is, is there demand? And the demand is, is a huge demand insatiable demand. Why? Well, if it's carbon, Paris accord says by 2050, or now even before that, we need to go carbon zero. How do you go carbon zero? Well, the couple of ways you can reduce your carbon emission by using alternative technologies or doing something, or and or through carbon offset, so people don't realize it. So economists have this cool concept we use which is stuck in a flow. people confuse stuck with the flow. So think of a think of a tub. Okay, you have a tub, that tub is full of water. Okay, replace water with carbon dioxide, full of carbon, and you have a spigot that's still dripping in to it. That's us emitting more carbon dioxide into the atmosphere. So the atmosphere is already full, can take anymore, and we're still emitting. So we need to solve. So what's in the tub is the stock that already exists, what you're putting into that tub is what we call is the flow. Okay? So So when we say we need to reduce our emission to me, and for people that are visual in your audience, it's like having a leak in the tub. That takes out whatever comes in through that faucet. Sure, a drainage see graded drainage, but that is reducing what's being what's coming out. But the tub is still full, you still need to take away from the tub. Yeah, yeah. So reduction is not enough, you need also to offset what you have, you need to suck up more from the atmosphere and bring it back way it used to be in either liquid form or in solid form before we released it into the atmosphere. So there's room for reduction, and there's room for offsetting. Okay. So nature is about is basically we can use it to offset whatever we're producing into the atmosphere. Is there demand for it, of course, is demand the price of carbon keeps going up, because the demand is reflecting the demand for carbon. What's missing is the supply because we have to bring nature to the markets. And we have to bring new technologies to the market that can do so. And that's not a trivial exercise. So what I described to you is, first question is, what do we have on the supply side, we have high tech, perhaps, we don't know its side effects. But let's say we have some, or the promise of it. We have also nature nature is sitting there saying why don't you? Why don't youTom Raftery:
have been doing this for billions of years?Ralph Chami:
Exactly. I've been here. There's no side effects. You live in the side effects, you are the side effect. There's no externality here I am your home where you live. So why are you treating your job? Exactly. We give you everything we give you the water, I give you the water, I give you the soil, I give you the oxygen and I suck up your carbon. So why don't you give me a break so I can help you out. Literally that's that's earthtech leaving nature to give us a break anyway, in for your audience that likes numbers, there's about 45 Giga tons that we need to offset annually, about 30 and about 37% of it or more could come through the natural world. So the demand supply is there. But that doesn't get to a market. I used to work on international market development. So you need as I said before the action of the government, you need the policy space. The policy would be these natural assets with we're gonna call them now financial assets. They have rights. We have obligations towards them, and if any harm is done to them here The monetary fine. That's all you need. Okay, that calls it codifying it into the law. And codifying it. The law is not economics is an act of the government based on the fact that the government, as I said before, sees that it can get future cash flows through taxation or fees or what have you. Okay, sure, the markets will look at this and say, I can make markets in it now. Now, how do we make markets and well, let me give you an example. We're starting this work in Gabon. But the UK can do this for its salt marshes if you like. So let's start with the species, which is a bit more interesting, but more difficult. So how so what are we doing in Gabon, Gabon has 45 or 50,000 elephants, is still because they've done an excellent job of reducing the risks of them visa v other African countries where the forest elephants still. So let's start they have 45,000, they can go up to 200. And some Why? Because that is what their land can handle based on optimal density of an elephant to a square kilometer such that it behavior continues to be positive on the forests and not doesn't turn negative because if you stack up too many, if you stuffed too many elephants in one area, they'll have you know, your love destructive behavior, the scientists according to their science, is you need to you need to have between point five in one elephant per kilometer square, okay? If you follow that you can have up to 200,000 and some so that's your potential. All right now, one thing for our colleagues who love red plus our add plus, which is the the what countries are using to get carbon credits for the forests, that plus was built for another time, for a time where it was about autonomy, what are you adding or, you know, reclaiming, or, you know, in addition to what you have, but that was built at on, on science that was in its infancy about nature and biodiversity. We've come a long way. reason I'm saying that because now I'm talking about species, not for not trees. And if you only go on to the word Gabon for additionality, meaning going from 45,000 to 200,000. That means you're not going to pay double for looking after 45,000 elephants. And if Gabon stops does not realize that there's value in looking after the 45,000 elephants, there's an alternative use to them, which is called poaching. Yeah. So what I'm trying to say is, we need to, if there's no stock, there is no flow. If you lose the 45,000 elephants, where will the babies come from? So we need to, okay, so the model is saying the 45,000 elephants of Gabon or whatever is 50,000 are worth about $30 billion. Nice. Can you imagine, for all the work that they've done of adding the additionality into the forest, and then the going from 45,000 to the 200,000, is an additional $11 billion. So Gabon could potentially get about $41 billion in today's price of carbon, which, and that price keeps going up. Now, how do we operationalize that? Well, that's safe, what to do with retail wise, we can go to Microsoft. And we say you made a commitment, and just picking Microsoft, because they made commitments about their carbon footprint. And say, Would you like to offset your carbon footprint? Yes, well, you have two options. There's a high tech and there's Earth thick. Now, let's go with the earth tech before we let me make the case for the earth thick. How much carbon Do you need to offset a year let's say they say 100 tons. Okay, I will assign four elephants to do that for you. We're gonna call them Ralph, Claude Charles and grace, these are these are my siblings names, okay. And, and you can track them in real time. They're not tied to a tree because the elephants can only increase carbon sequestration in the forest if they are allowed to live freely and frolic freely in the forest. Okay? And but you got to be able through new technology to actually follow them. To make sure that your asset is alive and well and doing what it's supposed to do. enrich return what you going to do is you're going to pay for that service. That service is going to be part of a fund that's going to look after the elephants Principle number one in perpetuity. Now why is perpetuity because this is a living asset. This is the centurion being we have moral ethical obligations. The word This is not an A an engine that suck up carbon dioxide from the atmosphere. mothball anytime we need to look after these elephants, even long after they've, they've exhausted all of their carbon sucking capacity, if you like, yeah, morally, ethically. So that money that that Microsoft gets to invest into the elephants that will go into looking after them in perpetuity, if you like. But what does that mean? perpetuity that means how do you look after them in perpetuity, that means you have to pay this, the stewards of these elephants and look after them also in perpetuity in terms of employment and income. And who may they be? while they're the Rangers, and they're the local communities and indigenous population where these elephants exist, some of it will go to compensation or damages they may have done by traipsing, and some of it to look after the elephants taking pictures, looking after them, building services around the protection and regeneration of the elephant population. How wonderful is that? Why, because let's say what Microsoft gets out of this gets to put on their website, we're helping to save the elephants of gobble. That's one SDG. Another one, we're helping to save and look after the local communities and indigenous population, stabilizing them in their land. So they don't have to migrate and move. Okay, How valuable is that? All of that on on their website? What does that generate for them? Eventually, it's a lot of money. But first, it's warm glow feeling among the consumers and investors. Wow, look at this company, what they're doing. And they also get the carbon offset. Three things. Alright, what does the community where the elephants live, they get the money, the income to compensate them for any damage, but also employment, looking after the elephants and that's an employment in perpetuity, also and income. So what does the local government of Gabon get out of this? Well, first of all, they get percentage of that revenue, I'm sure. But the tax base expands because there's more businesses coming in. The people have money, they spend more money, their tax base expands their feeds expand. What does also Gabon as a whole get healthier nature, more forests, more elephants, it's a gift that keeps on giving. What do we get, we get part of this world continues to be in that absorber of of carbon. Right. So by having more trees by having more fun and flora, more biodiversity, the world benefits. So really the public good, which is a global public good in this case increases. And it's increasing. Because you're solving one problem, I'm avoiding talking about theory for you not to bore your audience. Because you're really what you're doing is there's a public good, and we all know about the problem of the commons, but you're solving it by localizing the benefit. So the country where that benefit is taking place, sees that, hey, if I look after this good on behalf of humanity, I also benefit a wonderful is that So Microsoft gets to offset its carbon. Microsoft gets to tell the world that it's helping to save the elephants of Gobble, Microsoft gets to tell that it's helping local and indigenous population and they're not pushing them off their land. Gobbo gets the income. Gabon gets the better nature, the end, the world gets a better nature. I call this the wind wind model. And that's just the elephants but I could be talking to you about the mangroves, salt marshes, seagrass coral reefs, these are all natural and of course, the whales, and these are all natural assets. And the more we have of them, the more we have of us. Right? Yeah,Tom Raftery:
the potential is endless.Ralph Chami:
It's endless. And that's why I call it it's a newfound wealth. And it's not a figment of our imagination. This is by the way, the first pillar is science. The four pillars the first what you have is not an accountant that goes and does your job is the scientist has to go and tell you you know, she has to say well, you have you have mangroves they sequester this much. You have seagrass you have this, you you have elephants or you have whales or you have and by the way, the science By the way, the science of the elephants is 2019. So the beauty of this is the more we invest in this, the more the more good news you're going to find out about what nature has for us. How wonderful is that? Amazing. So the more we invest in this, the more we bring money into, into into to help the scientists so that they can tell us what more is out there or we don't know about and that's Why I call it the new paradigm if you like, that's the paper that I'm my colleagues have now forced me to sequester at home. to basically lay out the vision and lay out how you get there. Okay, okay. Okay, so and that's what we're doing in Gabon.Tom Raftery:
And if we because we're coming towards the end of the podcast now rather than it's been really amazing. If people want to know more about yourself, or about the whales, or the elephants, or the seagrass, or the mangroves, or any of the things we talked about in the podcast today, where should I direct them?Ralph Chami:
Well, a number of number of places, you know, I don't, I can't unfortunately, you know, give the exhaustive list but you can start off by looking for the proof of concept of this paradigm. And the website is the it's a purely volunteer, where there's 60 of us worldwide it's called rebalance rebalance dot Earth, rebalance dot Earth. It's there's a website, you can go there and see what we're doing in Gabon, if you want to see at the overall paradigm, my other outfit, it's called Blue Green future, that org and there you can see all of our videos, you can see the scientific papers, all the publications are there, all the videos, and and about our work. And from there, you can always write to me. You know, I mean, I give my email, I'm sure I give my so it's our Shammi music. Our Xiaomi is not sh unfortunately, it's the French, I say ash. That's what people say Is it charmi or caminos Shami is our ch a. m as in Mary I music. Whenever I have time I play play email@example.com. And I'll be more than happy to help direct you to other wonderful. I mean, they're whale dolphin Conservancy. They do wonderful work. There are also colleagues of mine all of them. And I if you're interested in the whale dolphin work, and you know you should go to their website. And and I'm sure they'll direct you there. And I'm leaving out on the blue boat initiative. You can google it on the website and the Mary foundation they're in Chile doing incredible work there. And I'm leaving out of course is Nature Conservancy, the much bigger organization. But you can start there and you will find your way and you can always shoot me an email. And I promise to respond.Tom Raftery:
Super, super. Rob, that's been fantastic. Thanks a million for coming on the podcast today.Ralph Chami:
I'm honored. Thank you for giving nature of voice on your on your show. Oh, by the way, just want to say something. This is not the story about nature. Really. It's the story of us. When people talk to me about climate change, I said, Listen, if you want to see earth without humans, it's very easy to do. So they said Be aware. I said, look at Chernobyl. There's a camera that takes live pictures of Chernobyl in real time. And if you look there, you'll see that nature is back. Even the animals are back. Yeah. Humans can never go back. Okay, now we want to tell a good story. You want to end this on a positive note. We can do this. Yeah, we get what I'm telling you is is doable. All things is a policy action, and we're off to the races. But in this race, there are no losers. Everybody is a first for all holding handsTom Raftery:
for to get policy action. Would cop 26 be a good place to kick this off?Ralph Chami:
Yes. And I'm going there. And the reason I'm going there because I'm going to say we can do you know we can do science up the wazoo. Science is cumulative. Every time you reach a point, you know that, Tom, you have this Oh, you can always improve on it. The question is, what does the science tell you now that can get you to act today. And what the science is telling us is nature is incredibly valuable to us beyond its intrinsic value to our own lives. So what's left is enough talk already. Let's act. Let's act because we have an obligation to our future generations, from whom we stole another Earth. Right? Because right now we're consuming two Earths. One belong to us, you can make the argument the second one belongs to our future generations doesn't belong to us. We need to give it back and fast. Yeah. And we also took from those that have no voices. They can't vote. And and you know, the poor among us. And the poor in the other parts of the world that they have no voice. We had no right to do that. So we need to give back and we can give back. And this is a new source of wealth, folks. This is not about me having more than you having nothing. No, everybody will have something. Man. Thank you. Thank you, Tom.Tom Raftery:
Thanks so much, Ralph. Really, really fabulous stuff.Ralph Chami:
Thanks so much. Thank you. Thank you. Bye bye.Tom Raftery:
Okay, we've come to the end of the show. Thanks, everyone for listening. If you'd like to know more about climate 21, feel free to drop me an email to Tom firstname.lastname@example.org or connect with me on LinkedIn or Twitter. If you liked the show, please don't forget to subscribe to it and your podcast application of choice to get new episodes as soon as they're published. Also, please don't forget to rate and review the podcast. It really does help new people to find the show. Thanks. Catch you all next time.