Impact Innovators at the Fireside

Arje Cahn: Today, we're discussing a burning question in climate can we trust carbon credits? And to dig into this, I invited Kees van Zanten, founder of cava, over to have an honest conversation with me at the campfire. But first, I hadn't planted tree such that we could then raise the crucial how do we truly value carbon credits? Hayes told me that he discovered that up to 80% of carbon credit money never reaches climate projects. So, so then where does it go? And how can we solve for this? How can we create trust in this crucial market that's meant to help save our climate? It's a question that led him to found Kava with a mission to bring transparency to this very opaque market. So join us around the fire as we unravel the carbon credit dilemma. Hey, guys.

Kees van Santen: Hey. How are you?

Arje Cahn: So we'll do this in English, of course. Thanks for being here. Thanks for planting a tree earlier. We're talking about the carbon credit market today, in particular the voluntary carbon credit market. And I was wondering, before we get started, I just wanted to know, what did you just do there? We took a tree from underneath a much bigger tree. So it was basically, it wasn't going to survive long term. Right. And we replanted it somewhere else where.

Kees van Santen: It had a bigger chance to grow, basically.

Arje Cahn: A bigger chance to grow. So how many credits did you just earn by doing that?

Kees van Santen: Zero.

Arje Cahn: Oh, come on. Really?

Kees van Santen: Zero. I mean, in order to get credits, I would have had to do, like, two years of preparation before planting that tree. And two years, obviously, is an average, but in order to get credits for planting trees, growing forests, you would need to register at a standard, make a project plan, get that project plan approved, and go through a couple of certification steps before being able to get credits in the future after planting the tree. So also, after planting this tree, there's no carbon sequestered yet. So after a year or two years, depending on the size of the tree that you planted, there would have to be, like, an external auditor that would visit the tree and say, okay, the tree has grown X amount of meters, has sequestered X amount X tons or kilograms of CO2.kg, in this case. Okay.

Kees van Santen: And therefore, with the thousands of other trees that other guests to this podcast planet, there is, let's say, 10 tons of CO2 sequestered in the last two years. Therefore, you get two carbon credits. So two credits for two tons of CO2 removed from the atmosphere.

Arje Cahn: I see.

Kees van Santen: So there's a lot more to it than just planting a tree.

Arje Cahn: I see. Yeah, but still, I mean, it's a good idea to plant a tree.

Kees van Santen: It's a first step. Yeah, it's a first step. And I think when we're speaking about carbon credits, which we're going to speak about today, there are two things that we should distinguish, one being the project or the project activity, and the other being the carbon credits that result from that project. So here we're talking about a project like a very small one tree project, and there could be carbon credits issued later as a result from that project activity. But it doesn't have to be the case. And in this case, it's very unlikely that you will go through the hassle of getting it certified.

Arje Cahn: I don't know, maybe I should.

Kees van Santen: I mean, it's a very small plot of land. So for the, for the five trees that you could plant there, I wouldn't advise it.

Arje Cahn: Huh. Okay, so I mean, I understand that, but I'm still curious, you know, if you look at the amount of CO2 that we, you know, we emit on top of what is normal, considering planetary boundaries, I think that number is like 50 something billion tons of CO2. Right. Bill Gates number.

Kees van Santen: Yeah.

Arje Cahn: How much CO2 is this tree going to capture the gunnery bases?

Kees van Santen: Yeah. So an average is like 10kg of CO2 per year for the first 20 years.

Arje Cahn: Right.

Kees van Santen: So it's very small.

Arje Cahn: So we need a lot of trees.

Kees van Santen: Yeah.

Arje Cahn: To get to the 52 billion tons.

Kees van Santen: Definitely. If the only solution were trees, then there would be. Then there should be a lot of trees planted.

Arje Cahn: Right?

Kees van Santen: Yeah, but there are many other solutions, obviously.

Arje Cahn: Yeah, let's. We'll talk about that.

Kees van Santen: Yeah.

Arje Cahn: So let's discuss this market. Right. You are the founder of cava, which is a technology company acting in the market of voluntary carbon credit. Yeah, yeah. Purchasing and selling. Right. Like, let's talk about the markets first. Like what is that carbon credit market and what is the voluntary carbon credit market?

Kees van Santen: Yeah, yeah. So there are two types of carbon credits. So credits that are traded on the voluntary carbon market and on compliance markets. So as we're taping in the Netherlands, the compliance market in the EU is the EU Etsy. That market gives carbon credits to emitters, so for instance, oil companies, steel manufacturers, etcetera, and reduces the amount of credits that they get each year. And if they emit more than the amount of credits that they get, they would have to buy it from others in that same market. So the idea is if we reduce the amount every year, the total amount emitted will decrease with, let's say, a few percentage points each year that is completely different than the voluntary carbon market. So both are called carbon credits, but it's a completely different setup. On the voluntary carbon market.

Kees van Santen: There's a project, so it could be an afforestation project, where there are thousands and thousands of trees planted just like we did. And from that project activity you get carbon credits after the carbon is removed from the atmosphere. So every two years there's this auditor going to the project site and not literally measuring every tree, if it's like tens of thousands of trees, but doing a sample and saying, okay, this is the amount of tons of CO2 removed. There are carbon credits issued for that. And those carbon credits can be bought by companies that want to compensate for their CO2 emissions.

Arje Cahn: Okay, so they. So you only get the credits after. Yeah, the carbon capture has happened. Yeah, it's not like I can get a, I can issue a credit based on the planting of the tree. No, by itself, no.

Kees van Santen: So it is after the fact. And that obviously has the impact that you know more about. Like did the project activity actually happen and did it have the results that you want it? And for the. You have to see it as a project. So if you are planting thousands and thousands of trees, that costs money. And you have to, you know it because you run a forest also you have to maintain the forest, you have to clear trees, etc, in order to let the forest grow. So there's money involved in also maintaining that for a longer period. So if you have a new project, then you raise money to plant all the trees, to buy, lease or whatever, rent land. And you can make a business case based on the carbon credits that you will sell in the 30 years after that.

Kees van Santen: And you obviously can model that, but there's obviously deviations from the exact amount that will.

Arje Cahn: Right. So the business case is for me. And then I still have to do that investment. Yeah, I only get the credits after the carbon has been captured.

Kees van Santen: Yep.

Arje Cahn: Okay, so I didn't know that. And I'm pretty sure that for lots of people this entire carbon credit business is very intransparent. I know you like that word, or rather you like transparency. So what's the problem with this carbon credit market and the voluntary carbon credit market? You know, why isn't it flying yet?

Kees van Santen: Or is it, I mean, it is flying. It has been around for a couple of decades now. So there are a lot of actors involved in the market. There are project developers, there are standards that set out methodologies for these projects. There are Intermediaries, there are buyers, etc. So it is a market that is alive, but it should grow with, I don't know, 100x1000x from today in order to have the real impact that it should have.

Arje Cahn: And. Okay, so now get to the obvious question. How is CAVA going to solve for this?

Kees van Santen: Yeah, there are a couple of problems in the market at the moment. So you touched upon that already. And there are two key ones. So one, it is super intransparent where your money goes, and two, there are many low quality carbon credits out there. So and these two issues we're trying to tackle with cava, and in general those two issues contribute to a lack of trust in the market. So if there's more trust, more people will put their money in it and it will grow.

Arje Cahn: Hold on, so you say low quality carbon credits.

Kees van Santen: Yeah.

Arje Cahn: What's that?

Kees van Santen: Yeah. So as I said, there are two things. There's the projects and there's the carbon credits that result from the project. So I think these things are mixed many of the time in discussions. And you can have really great projects with not so great carbon credits. And it's hard to get very low quality projects and very good carbon credits. But obviously you want to have both.

Arje Cahn: What is a not great carbon credit?

Kees van Santen: So in order to compensate for your emissions, you want that carbon credit to be, for instance, additional. So with additionality, it has meant that carbon credits played a crucial role in establishing the project. So without carbon credits, the project would not exist.

Arje Cahn: I see. Okay.

Kees van Santen: And it can still be a great project because there are trees planted and there's a lot of impact and the local community benefits and all that kind of stuff. So the project can be great, but the carbon credits can be not additional. So that's what I mean with the difference between the two.

Arje Cahn: So this concept of additionality, can you say a little bit more about that? When is that happening? Oh my goodness. Talking about carbon credits. Right. So what has to happen for a project to be additional?

Kees van Santen: Yeah, so the easiest explanation is that what I just said, a project shouldn't or wasn't going to exist without the financing of carbon credits. And with some projects it's really clear because it's the only source of financing. And with other projects it's not so clear because for instance, in a forest you can also sell the timber or sell products of the forest. So there could be additional revenue streams that make it less clear that there is additionality of a carbon credit. And the most striking case, to make an example out of that is previously, let's say 20 years ago, 25 years ago, renewable energy projects. So solar, wind projects were deemed in many cases additional under the large standards, and they are not at the moment.

Arje Cahn: Why is that?

Kees van Santen: Because there's a lot more financing available. The cost of these projects is much lower because the cost of solar panels has decreased over the last decades. And in many of the developing countries there's just a lot more financing available. So issuing carbon credits to make that project happen is not really the case in many of those countries.

Arje Cahn: Yeah. Okay, so you also mentioned to me previously that the whole idea of these carbon credits and the market around it was to kind of bootstrap these projects.

Kees van Santen: Yeah.

Arje Cahn: Is that right?

Kees van Santen: Yeah. Not sure if you would call it bootstrapping, but to make these projects happen.

Arje Cahn: Right?

Kees van Santen: Yeah.

Arje Cahn: And otherwise they wouldn't happen. And that's the definition of the additionality. Yeah, I see. Okay.

Kees van Santen: Yeah, definitely. And I think that's a key concept and it's something that relates to the carbon credits specifically and doesn't relate to the impact of the project. And I think that's something that people confuse a lot of the times because they say, yeah, but this project is great. It has this and this impact. Why are, why are there no carbon credits issued for it? And I think it's really important to have those two things separate. So for instance, if you now look at a renewable energy project in let's say, Zambia, it's a great project, it's good that it's built in many of the cases, but there shouldn't be carbon credits issued for that project.

Arje Cahn: I see.

Kees van Santen: And that's something that the standard. So VERA and gold standard are two of the larger standards in the industry. They now said, okay, these new projects that want to issue carbon credits from these countries, they cannot go through the VERRA or gold standard certification process anymore.

Arje Cahn: So let's fast forward a little bit because I got to get this out of the way. There's a lot of criticism on this idea of carbon credits. If someone comes to you and they say, well, carbon credits is just an excuse, it's a free pass for the big companies. Now you're going to say, well, there's voluntary and non voluntary, but what do you say when someone challenges you on this?

Kees van Santen: It depends what exactly they challenge me.

Arje Cahn: On the whole concept of carbon credits.

Kees van Santen: I think the key thing is what are you trying to do with the carbon credits? So carbon credits in itself is a tool to finance these projects. So there are two things to argue about. Like one Is the goal that you have with the tool, is that worthwhile? That could be something to argue about. Or is the tool the right tool? Those are two things to argue about.

Arje Cahn: Well, I think that in the perception of people, myself included, the goal of carbon credits is for the big companies to pay for the additional emissions that they have that they should actually be lowering. But you're saying no, that's not the goal. The goal is to fund these projects.

Kees van Santen: I think eventually, if you look at a net zero goal, the net stands for that, you are compensating something.

Arje Cahn: Yeah.

Kees van Santen: Otherwise it would be a zero goal.

Arje Cahn: Yeah.

Kees van Santen: You would have zero emissions.

Arje Cahn: Yeah.

Kees van Santen: So it's inherent that something is netting out and the netting out could happen via lots of tools. But the tool that is now available in the market are carbon credits. So you could obviously remove tons of CO2 out of the atmosphere in a different way. But the goal is to net out these emissions. And we can discuss the goal. For me, that's very clear. But maybe for others it isn't. And then we could discuss the tool to get to that goal. So the tool is carbon credit.

Arje Cahn: Hey, Kees, you mentioned the word trust a couple of times. You said that we need trust in the carbon markets.

Kees van Santen: Yeah.

Arje Cahn: Why are you saying that?

Kees van Santen: Because I think that we need to scale the carbon markets in order to get to the goals in all the IPCC reports and the goals that we have as a world, basically.

Arje Cahn: And what's the problem with trust at the moment?

Kees van Santen: Well, it's basically the question that you asked. Like you said, I think that carbon credits, something like that. I think that carbon credits are a way for big companies to get away with their emissions. That is something like one of the aspects of a lack of trust in the market. It's not something that you're not saying like, okay, I'm going to buy carbon credits tomorrow, because you think it's something like a scheme from the big companies trying to get out.

Arje Cahn: I'm sure lots of people think that, yeah.

Kees van Santen: And I think the interesting thing is one, it's a voluntary market. So the easiest thing for companies would be to do nothing and not engage in the market, because they're not. They don't have to. So I think it's quite an elaborate way of getting out of something to get that whole market to blow up, basically to get out of your responsibility for your CO2 emissions.

Arje Cahn: And why would a company participate in it? What's the benefit?

Kees van Santen: I think there are three main benefits for a company. One, a lot of companies set Carbon neutral, net zero like goals. And in order to get there, at some point, they have to compensate for their emissions because even if you eliminate all your air travel and if you switch to electric cars, etcetera, There will, in a lot of the cases, still remain a part of emissions related to your company. So at that point, if you really want to go to zero, if you want to cancel out your emissions, that's when you should go to carbon credits or something similar in order to get CO2 out of the atmosphere.

Arje Cahn: And basically they would do that because. Marketing.

Kees van Santen: Yeah, marketing. Really wanting to do good in the world. Mine sound really crazy, but that is something that actually a lot of companies actually want. Yeah. So it's marketing and doing good for the world and having to comply with their own set goals that they made.

Arje Cahn: And the companies that you're working with, are their customers really asking them to do this?

Kees van Santen: Sometimes I think in general, customers want to buy goods and services from companies that have a positive, sustainable image. And carbon credits can be a part of that. I don't think that there are many customers that really say company X, I want you to buy this type of carbon credits from this market, otherwise we won't buy your goods. So more indirectly.

Arje Cahn: So you mentioned you're working with a coffee company, a producer of coffee beans, and they are very proud of the fact that they are net neutral, which is kind of. It's only possible with those credits you're saying without mentioning the name of the company, obviously. Is it a good example or is there another one we should use?

Kees van Santen: It's not a good example, but I'm trying to see, like what the. What you want to.

Arje Cahn: Then we'll use a different example.

Kees van Santen: What do you want to explain?

Arje Cahn: So do you have an example of a company, you know, a customer or otherwise, that is really embracing these voluntary carbon credits? And why are they doing it?

Kees van Santen: I think the key aspect. I have an example. So there's a company that has locations throughout the Netherlands, so physical locations like co working spaces, etc. Where they really want to make a positive impact with their company. So they did everything. So they calculate their carbon footprints, or they take reduction measures, improve the sustainability of their buildings, fleet, etc. Everything. And they saw eventually that there are still emissions related to their buildings. So they use carbon credits to neutralize basically the emissions that are related to their buildings. And the funny thing is that was the first time that actually the carbon emissions got a price.

Kees van Santen: So you also saw sort of a feedback loop in the company, like, hey, There is like 10 tons of CO2 emitted in this particular building that now costs us X amount and we should reduce further because now we have to pay every month this particular amount, this additional cost.

Arje Cahn: Yeah, and are they acting on it?

Kees van Santen: Yeah, they're acting on it. So that's interesting to see that a ton of CO2 is quite abstract and if you put a price to it becomes a real thing. Right.

Arje Cahn: Tell me about those projects. So you mentioned that you've evaluated about 150 different carbon projects.

Kees van Santen: Yeah.

Arje Cahn: Can you give us an example of a really great one that you're particularly fond of?

Kees van Santen: Yeah. So maybe one thing. So we're always using the example of trees and a forestation because it's easy to explain, everybody gets it. But there are many types of climate projects. But I will still use a tree example because then everybody knows what I'm talking about. So we're working with a climate project that operates throughout East Africa. And what they do is they work with lots and lots of local farmers in order to plant trees on degraded land that they have. And so they train the farmers how to plant trees, what trees to plant on specific soil. They help them monitor the growth, they help them maintain the trees over time. They give them the seedlings or the small trees that they are planting. And with that they have created immense impact all over East Africa.

Kees van Santen: And the interesting thing is that one, okay, these farmers plant trees. Some of the trees are also fruit bearing trees, so they can get fruits out of the trees, basically. And second is that there is a benefit sharing agreement. So once carbon credits are sold, a percentage of the carbon credits sold gets back all the way to the farmer. So one, they do something different than, for instance, cattle grazing on a specific piece of land. They get fruits from that. Yes.

Arje Cahn: Multiple benefits coming from the same project. And to get back to the additionality, if this project wouldn't exist, then this land would simply just be degraded and nothing would really change.

Kees van Santen: That would be the baseline. Right.

Arje Cahn: So by funding this project, something material is changing with this land and also in the situation for the farmers.

Kees van Santen: Yeah. And I think the interesting thing is like the combination of the carbon credit money getting to the farmer also creates an incentive for them to keep the trees growing on their land and to maintain it, et cetera, because otherwise you get your auditor going to the specific site and if there are no trees anymore, then there's no carbon credits and then there's no carbon credit money flowing to them.

Arje Cahn: Yeah, yeah. So it's also a longer Term.

Kees van Santen: Yeah, that's the idea.

Arje Cahn: So what is your origin story with carbon markets? Where are you coming from? How did you come up with this idea of starting this business? When was the moment you thought, okay, I gotta do something with this?

Kees van Santen: I mean, there's an origin story on like the climate side for me. So working on the climate issue in the broader sense. So when I was studying in Delft, I was always focusing on renewable energy.

Arje Cahn: What did you study?

Kees van Santen: Systems. I cannot even pronounce it.

Arje Cahn: What's that?

Kees van Santen: No, it's systems engineering, policy analysis and management.

Arje Cahn: Yeah, makes sense.

Kees van Santen: And it's basically a lot of words for a combination of scientific type of courses and business type of courses. So you're always looking at the intersection of basically the TU Delft world and the business world. And a part of that at that time was renewable energy being not a new thing, but like coming up. And so from the start of my studies, I always focused on renewable energy as a key aspect of my study. So you had to choose after, I think it was like after six months, what trek you were going to do for the other four and a half years. And for me that was clearly the focus on energy, renewable energy. So that was always the path also later in my work basically. So it's always been renewable energy.

Kees van Santen: And later on it went into, like broader into climate and sustainability as a whole.

Arje Cahn: But then. Okay, so when was the moment you thought, okay, I need to start a business and I have to do something about this voluntary carbon credit market?

Kees van Santen: Yeah, there was actually before I started with gawa, there was, I think a year before, there was the moment when I was sitting with a friend and discussing specifically tree planting and how to get tree planting on a larger scale. So basically thinking about the different ways of incentivizing tree planting. And that could be through donations, that could be through carbon credits, that could be through all kinds of other stuff. And we actually thought about that issue like, okay, how do we get trees planted at a larger scale? And it was basically because we looked at a specific company that was planting trees and my friend was a CEO of a scale up and he wanted to do something good.

Kees van Santen: He engaged with that company and then he saw like, they're making really not that much impact, like it's really small scale and how can we do it on a much larger scale? And do we have to buy land everywhere? Do we have to set up something really big in order to make a lot more impact? So that's when the idea started sort of, we didn't do anything with that specific idea or with that brainstorm, which was like a couple of weeks I think. But that sort of started the idea of initially for, okay, doing something in the carbon credit or in the carbon space.

Arje Cahn: So it's a way for you to do something about this at scale.

Kees van Santen: Yeah, and I think that's the key thing. Like we can plant a few trees and have nice marketing about it and have feel really good about ourselves, but eventually to solve climate issues we need to do it at scale. And therefore the carbon credit market is a tool to finance climate action at scale. So that was basically when I first started to think about that. And before that I lived as I said, like when were walking through the forest. I lived and worked in Tanzania for a while and the company I was working for was selling off grid solar home systems. So for the house, like here. So were selling that in rural Tanzania, Kenya, Rwanda, etc. And obviously like there's also a lot of other climate projects around that area.

Kees van Santen: And so eventually we also sold clean cook stoves, which is very typical call carbon credit project. And we got listed on the gold standard as well.

Arje Cahn: Yeah.

Kees van Santen: So there were carbon credits issued from the project I was working for. And at that time, as I said, there are two things to think about, like the climate project and the carbon credits. At that time I was much more focused on the climate project and I was not focused on the carbon credit side. But obviously it gives the reality on like what do these projects do on the ground and how, like what does it entail to set up something in rural parts of Africa and how to get impact again at scale.

Arje Cahn: So this wasn't your first plant, your first tree that you planted?

Kees van Santen: I think it was my first tree that I planted.

Arje Cahn: Right. Good. Okay, so you were in Africa, you were working on this project and then like, you know, the origin of Kawa. How old is the company now? Like one and a half years? Two years?

Kees van Santen: Yeah, two years.

Arje Cahn: Two years. When was the moment you thought, okay, this is a business.

Kees van Santen: I started to speak on a weekly basis with my co founder and we had this idea around. It wasn't necessarily carbon credits at the beginning. So I think that's interesting as well for our discussion on it's a tool. So what we wanted to do is to fund climate action in a transparent way. So right now if you compensate for a specific good or service online, it feels like your money goes into a black box. So you add €10 in whatever checkout and there it Ends. Yeah, so you have.

Arje Cahn: So this is when I. Okay, so I was on a plane this year for the first time, a long time, by the way. And so I booked my ticket at the agency and I had this option to compensate for my CO2 emissions. So that moment when I tick that box, I have no idea where that money is going to go. And it's kind of. It's such a downer. Right. And I'm sure many people don't take that box. Why would you? Are you helping kind of mitigate for that?

Kees van Santen: Yeah. So that was where the initial idea came from. Like, okay, where's the money going? Does it eventually end up at a climate project? How much of it? What is the impact? Like, what is happening? Basically, so we thought about a way to, with technology, just show literally, like, okay, from my €10, how much ends up where, at what time and what is the impact of that? So that was the core idea. And then we looked into a way, okay, so the money flow is the first part, that's the technical part. And my co founder is a cto, so he could think about like a.

Arje Cahn: Whole geeking out about it.

Kees van Santen: Yeah, there's something to work on. And the impact side we thought about, okay, what if we integrate with. What if we make donations to specific climate projects and how can we verify the impact that was made? Because eventually our geeky minds were like, okay, you want to contribute an amount of money and you want to know how much CO2 was removed, how much.

Arje Cahn: What percentage of that money actually flows towards the CO2 capturing. And how much of it is kind of stuck in the middle.

Kees van Santen: Yeah. So there are two things like the money flow and what is the impact of your money. Right.

Arje Cahn: Are you able to quantify that?

Kees van Santen: Yeah, I mean, that's the whole thing of carbon credits. So that's why went to carbon credits, because there's already a whole way of quantifying what CO2 is removed from the atmosphere or reduced. So that's how we got to that side. And that's why we are not engaged in tree planting projects that say, okay, I'm exaggerating a bit, but, like, say, okay, Case planted a tree over there that is 10 kg a year. So, okay, now you pay for it because you don't know what's going to happen. Maybe Arya is going to take out that tree tomorrow and he's going to let it replant by his next podcast guest.

Arje Cahn: Well, yeah, it does. I mean, when we. So we took the tree from underneath another tree and when we dug it out. I'm sure we, you know, we messed with the roots.

Kees van Santen: Yeah.

Arje Cahn: And so the question is it going to be able to.

Kees van Santen: To survive? Yeah. To survive. Yeah.

Arje Cahn: We don't really know.

Kees van Santen: Yeah. And that's why we, when we looked at donation type of project.

Arje Cahn: Right.

Kees van Santen: It was really hard for us to quantify the impact and make that. Because we are geeking out about it, like, make that transparent to the end buyer. And that's why I'm saying, like, it's not that the project is bad because it could be that you are growing a beautiful forest and I planted the first tree.

Arje Cahn: Yeah.

Kees van Santen: It's just really hard to quantify and therefore to prove that it actually happened. So that's when we shifted from, okay, we're giving money to charity to plant trees and do other stuff to carbon credits. Because there's a whole. Yeah.

Arje Cahn: There's a system around it.

Kees van Santen: There's a system around it to quantify the impact. Right.

Arje Cahn: So if I would sell a credit based on you planting this tree. That's what you said in the beginning. I would have to jump through all kinds of hopes to get. To get someone here, like in a year's time to measure the impact that was created by you planting the tree. And only then I would be able.

Kees van Santen: To sell the crop. Yeah. So there's a lot more.

Arje Cahn: So it's actually a very solid system is what you're saying.

Kees van Santen: Yeah, in theory, it's a very. A solid system.

Arje Cahn: In theory.

Kees van Santen: Yeah. Because obviously, like, if it were all super clear.

Arje Cahn: Yeah.

Kees van Santen: Then there wouldn't be a use for Kava if it was just like, super solid.

Arje Cahn: Yeah.

Kees van Santen: Super transparent, super well structured, etc. That's not the case at the moment. And that's why Kava has an. Yeah. As a reason to live.

Arje Cahn: Okay, cool. Let's dive into the technicalities a little bit. You mentioned your co founder being a cto. Now, he's not here, but explain to us the. Like, what's the technical solution that you provide with cava?

Kees van Santen: Yeah. So in essence, it's really simple. We connect a buyer to a climate project, we track the money flowing from that buyer to the climate project, and we give the carbon credit, or the proof of the carbon credit, we give it back to the buyer and we automate all that. That is basically the core of our platform. So you do a transaction and you get approved back. That's one part. And then we have a layer of APIs on top of that makes it possible to integrate that into, in the future, the checkout for Your flight maybe, or into a platform that calculates the carbon footprint of a company or into xyz. So that's at the very basic level is what we've built.

Arje Cahn: Yeah. So as a consumer, I wouldn't be buying these credits from you, I would be buying them from some other company that integrates with you. Right.

Kees van Santen: Like the airplane could be done in both ways. Yeah.

Arje Cahn: Right. And so who are your target customers?

Kees van Santen: So we've obviously, as it is a set of APIs, you can do it and you can plot that use case in many different areas. What we've done until now is we integrate with carbon accounting platforms. So basically platforms that calculate the carbon footprint of a company and in all these platforms there is a way to calculate the footprint, there is reduction measures that they advise you to take and then in the last step there is an option to compensate for your residual emissions. And in the backend that is powered via our APIs. So that is that core use case. And these platforms, they want to work with us because one, it is something completely different than calculating a company's footprint is scouting, vetting, analyzing all these climate projects and then also making deals with them.

Kees van Santen: So it is something that is really not their core business. But it's interesting for them to integrate with us because there's a lot of reporting regulation also in Europe, for instance with csrd and they want to have the carbon credit data basically also inserted into the sustainability reporting of the company.

Arje Cahn: Right.

Kees van Santen: So that's for them an interesting solution to add to their platform.

Arje Cahn: And this reporting, you know, for how many companies is this relevant? What kind of companies?

Kees van Santen: Yeah, so it's companies. There's a couple of thresholds. So it's from 250 employees. That's I think the easiest way to.

Arje Cahn: That's the current European Union.

Kees van Santen: Yeah, that's for csrd. That's it. Yeah. So it's a lot more companies than used to have to report on sustainability. So for a lot of companies this is the first time actually that they're doing sustainability reporting in a really like rigid way. Right. And it is quite heavy on some companies. So that's why they work with these platforms to help them also with preparing for this regulation.

Arje Cahn: And this number of 250 employees, is that going down or is that.

Kees van Santen: That is it for now and it might go down over time, but 250 employees is the.

Arje Cahn: Not like a mom and pop shop is going to have to do this kind of reporting in future?

Kees van Santen: No, because it's I mean, that would be quite insane because it's really a lot of work. So I don't think that would happen. But it could go to, I don't know, 100 employees or another threshold case.

Arje Cahn: If you. I mean, you're a founder, many founders have a really hard time sleeping, relaxing, in general, what keeps you up at night, if at all?

Kees van Santen: There are two things related to Kawa that keep me up at night. I think the main thing is that I see things not going fast enough. So I see that if you zoom out, then everybody agrees that it's a bit in the market or knows something about sustainability, that eventually you need to have carbon removal on a large scale. But everyone assumes implicitly that we're going to magically go from 0 to 100. Right. So for the carbon removal industry to scale to the levels that we need in 2030, in 2040, 2050, we need investment now because there's not going to be like a magical, a really huge carbon removal industry alive if it's not being financed at this moment, because it will not. It will not evolve in a few months. So I think.

Arje Cahn: And you're saying that this is why we have to do the credits, right? Because we have to invest in these kinds of projects?

Kees van Santen: Yeah. I mean, if everyone wants to. Wants to donate their money to these type of projects, also, fine by me. But we have to finance these type of projects in order to be ready very fast, in order to remove enough CO2 from the atmosphere. And I think a lot of people are missing that. And I think a lot of companies are like, oh, yeah, I have my net zero goal in whatever, 2040, and I'll just figure it out by then. And in that way, we don't channel enough finance to the projects that we need and we will just sort of miss the boat.

Arje Cahn: Right.

Kees van Santen: And I think that realization, it is not necessarily related to carbon credit specifically, but just to the whole concept of net zero on a specific date.

Arje Cahn: This is what keeps you up at night.

Kees van Santen: Yeah, sometimes.

Arje Cahn: And you're going to solve this with Kava?

Kees van Santen: We'll try to add to solving that. Yeah.

Arje Cahn: Let's think about 2040. You just mentioned 2040 as a date. So if you're wildly successful with Kava, what does that world look like?

Kees van Santen: I hope somewhat similar today. But I think that companies will be held accountable for their carbon footprint. At the moment, many companies are not. So I think that for every ton emitted, there will be a ton removed from the atmosphere. And there are many ways of how that can be Done. But if we're focusing on carbon credits and the market that we are in, I think that there will be. Every transaction will be coupled to a carbon footprint of that transaction. So a transaction for Glass or a transaction for something else, and that a company will have to compensate for that footprint one way or another. So it can be on a product level or on a company level. That's all technicalities.

Arje Cahn: And you're going to be in between these transactions every single time.

Kees van Santen: Yeah, that's the idea. Because eventually we want to make it affordable and easy for those companies to integrate those CO2 compensation actions into their business.

Arje Cahn: And that's how you're going to make a living.

Kees van Santen: Yeah, eventually.

Arje Cahn: So you're taking money away from the actual project.

Kees van Santen: Yeah. So that's not how we see it, obviously.

Arje Cahn: Well, I mean, it's business.

Kees van Santen: Right.

Arje Cahn: So you got to make a living. Yeah, I got that.

Kees van Santen: But so how we see it is that at the moment, if you have your company and you buy carbon credits on the market, it is super intransparent where your money goes. So you buy your carbon credit and eventually you want as much of your money as possible to go to a climate project. But because the market is super obscure and intransparent at the moment, we see that by far the majority of the money goes to middlemen.

Arje Cahn: How much is that?

Kees van Santen: Yeah, so percentage wise. Yeah, obviously because it's obscure, it's hard to get that data.

Arje Cahn: Yeah.

Kees van Santen: But we see many examples where like 80% of the money, 85% of the money goes to intermediaries.

Arje Cahn: Really?

Kees van Santen: And there are two ways that can be done. So one, it is one intermediary just selling. Buying a carbon credit for a couple of euro and selling it for right margin on top. Yeah, but then like not like 10%, but like 80% on top.

Arje Cahn: But aren't you doing the same thing?

Kees van Santen: No, because that's the key of our. Like that's how we started out. You want to know how much money ends up where.

Arje Cahn: Yeah.

Kees van Santen: So we take a fee and we show exactly how much of the money that was transferred eventually ends up in the bank account of the climate project. So we couple the bank account of the climate project to our software. So eventually you can always see how much of your euros goes to the climate project and how much ends up at what date. Where, like with the farmer, that's the next step. And that's funny that you say that, because now we have the flow all the way to the climate project, which is happening in very few cases in the market. Right now, but we're actually speaking to the companies that work on dispersing the money to the farmers.

Kees van Santen: So you can imagine, like if you have 10 participating farmers, you can just send them the money, but if you have tens of thousands of farmers, then you need to have a system for that. So we have. One of our projects is working with a software provider that disperses that money and we want to integrate with them so we can show it all the way to the farmer. So you can literally see like your euro went from you to the climate project to the farmer, and this is how much ends up, percentage wise, at that group of farmers. So that's the next step.

Arje Cahn: So ultimately you provide this kind of transparency to your customers. Yeah, and ideally the consumer eventually, so they get to really see where their money is going and the impact it has.

Kees van Santen: Yeah, wonderful. That's the idea and that's what we're working on.

Arje Cahn: What's the. So do you have a metric that you use to quantify Kava's impact as a business?

Kees van Santen: Yeah, I think that's the key thing of carbon credits, because one carbon credit is one ton of CO2 removed or reduced. We didn't speak about reduction credits. But.

Arje Cahn: What'S that? Are they different reduction credits?

Kees van Santen: Yeah, so they're actually called avoidance credits. So you basically avoid that 1 ton of CO2 is released into the atmosphere.

Arje Cahn: I see.

Kees van Santen: So with Kaba, we only focus on carbon removal. But for instance, if you build a renewable energy plant, you are not taking CO2 out of the atmosphere with the building, like with the impact of renewable energy, like a solar plant or a windmill. So what you do is you reduce the emissions from a coal plant. That's the rationale behind it. Or for instance, if you conserve a forest, then you protect it from people that cut down the trees or burn the forest or do something else. So those are avoidance credits.

Arje Cahn: And do you deal with those as well?

Kees van Santen: No. And that is different market or it's the same market. So it's all under carbon credits. And we don't deal with it because of a few reasons. One, it is a lot harder to quantify the impact. And you've also seen that in the scandals around the carbon credit market. So usually if there's a headline, it says carbon credits in general. And there's no.

Arje Cahn: Right.

Kees van Santen: There's no distinction between the two.

Arje Cahn: Right.

Kees van Santen: But many of the articles in the last one or two years have been about conservation projects. So the conservation of rainforest, for instance, and the key fact. Why? I mean, there's a lot written about it. But the key fact why it is difficult is because you have to make, as they said, a counterfactual baseline. So you have to say, okay, with this project, I will protect the rainforest. And if I wouldn't have done that, there would be, let's say, 10% cut down or burned every year.

Arje Cahn: Right.

Kees van Santen: And it has just proven that. It's just really difficult to quantify that in a meaningful, robust way, which is.

Arje Cahn: Why you're focusing on the type of credits that are actually measured better to.

Kees van Santen: Like, relatively easier to quantify.

Arje Cahn: Right.

Kees van Santen: And also. So that's one reason. And the other reason is that eventually we need to move from avoidance credits to removal credits in order to get to the net zero goals.

Arje Cahn: Yeah. Yeah, makes sense. All right, so your impact metric for the company is simply the number of credits that you. Yeah, it's tons of CO2 that flows through your system.

Kees van Santen: It's tons of CO2.

Arje Cahn: Tons of CO2.

Kees van Santen: Yeah. And eventually, we will also look into other metrics because many of the projects have CO benefits, as they're called. So obviously, when you plant a lot of trees, you also have local community working for your forests, so you increase their income. You can maybe educate them as part of the project. So there's a lot of other SDGs impacted with most of the projects, and eventually we also want to quantify them. So we can not only talk about carbon, but also talk about the other benefits.

Arje Cahn: Kees, you're literally sitting in the smoke here. Carbon is all around us. So you planted this tree by 10 kilograms of CO2 sequestered every year. I think this was. I don't know how much was there in that tin?

Kees van Santen: Not sure.

Arje Cahn: 20, 30 kilos. But there's still some water in it. It's not 100% carbon, is it?

Kees van Santen: No, it is not 100% carbon. No.

Arje Cahn: So how many years of growth for that tree to get this out of the air again? What do you think?

Kees van Santen: This is more like an estimation question, because I'm not gonna really quantify it, but it will take a long time. I mean, you've seen, like, the really small tree that we planted.

Arje Cahn: Yeah.

Kees van Santen: So.

Arje Cahn: And that tree was about five years old, I guess.

Kees van Santen: Yeah. And I think that the. The key thing is that today I saw on the national news, I saw that there was this article about the impact of deforestation in the last year, and just the amount of deforestation is so huge that globally. Globally, yeah. In the Netherlands, there are hardly any trees left. So. Yeah, we have to do a lot to conserve and to replant trees and obviously, as I said, have other carbon removal projects set up. And now you're sitting in the smoke.

Arje Cahn: No, absolutely. All right, so let's Fast forward to 2040 again. What does Kava look like? Are you going to expand into additional products and businesses? How do you see yourself? I mean, if you're being successful, eventually Kava wouldn't have a purpose anymore, wouldn't it?

Kees van Santen: I think there will always be, or at least for the foreseeable future, there will be a way for companies to pick specific carbon credits through a middleman because a lot of companies will not have the manpower basically to dive into all these projects and pick the ones that work best for them, etc. So companies want an easy solution and that easy solution can be Kawa. On your other question, like, how do we evolve what we're doing now, as I also said, with the complete connection from the buyer to eventually the farmer, is that you basically connect that whole chain. And there are a lot of things that we can develop to make that whole chain work better.

Kees van Santen: So for instance, at this moment you have climate project developers that still manage a lot of their carbon credits and the inventory of those carbon credits manually. So as we automate our whole back end, basically we can also offer them ways to automate their side of carbon credit inventory, carbon credit retirement. So that's the cancellation of a credit in the name of a company and that whole flow, basically. So I see that we can develop a couple of new products that fit on top of our infrastructure.

Arje Cahn: Yeah. So you've got a long way to go. Right. It's not going to be done overnight.

Kees van Santen: No, definitely. And I think it's still relatively early days for the voluntary carbon market. And that's why it's possible for actors to ask for insane markups. Right.

Arje Cahn: Yeah.

Kees van Santen: There's no grown up market.

Arje Cahn: Yeah.

Kees van Santen: Where you can easily get away with like an 80% margin on top of.

Arje Cahn: Yeah, that's ridiculous.

Kees van Santen: Yeah.

Arje Cahn: That's a real thing.

Kees van Santen: That's a real thing. Yeah.

Arje Cahn: Crazy.

Kees van Santen: So there are two things there, as I said. Like one, it's somebody asking for like six times the price they bought it for.

Arje Cahn: Yeah.

Kees van Santen: And then there's the second thing which is an intermediary buying from another intermediary and everybody adding their fee on top of the credit.

Arje Cahn: Yeah. You can't see what's going on.

Kees van Santen: And you can't see what's going on. So you don't know as a buyer how much money ends up at the climate project that will eventually do the work.

Arje Cahn: This realization that it's such an intransparent market kind of works the other way around as well. Right. For you, like, you know, your buyer could be, you know, you could facilitate greenwashing for your buyer. How do you deal with that? Is that something that happens?

Kees van Santen: Yeah, I mean, it has definitely happened in the market. So it's interesting to pose the question back to you, like, what do you see as greenwashing first to get that out of the way?

Arje Cahn: Well, for me, greenwashing is, you know, whenever a company is painting this picture that they're carbon neutral and I can't really tell whether it's true or not. Right. But I guess that goes back to this transparency thing that you're so keen on. And as a consumer, I can't differentiate between companies that use greenwashing for marketing and those that invest in, as you call them, good projects or high quality projects that really make a difference. I just, I don't know.

Kees van Santen: Yes, I think the key thing in distinguishing between greenwashing and actual climate action or good intentions is basically around the transparency, around all that. And in Europe.

Arje Cahn: So you're going to solve this problem.

Kees van Santen: I think this will already be solved by regulation. So in Europe, you have the Green Claims Directive coming up and you also have national variations on that directive that will basically say, this is what you can say and this is what you cannot say as a company around your sustainability efforts. And it will get clearer and more elaborate over time. But it's really clear to me that, let's say five years ago you could get away with really bold claims that didn't have much substance at the moment. You can get away with some things and in three to five years, it will be way harder to get away with greenwashing claims because you'll basically, you cannot make any claim anymore. You cannot make just a claim. And if you make a claim, you have to give transparency on.

Kees van Santen: Okay, how did you get to this claim? If it's with carbon credits, what carbon credits did you use and are they of high quality, how much did you invest, etc. So it will still happen.

Arje Cahn: Is this a European Union regulatory process or is this something that's happening globally?

Kees van Santen: The Green Claims Directive is from the eu, but there are more similar trajectories happening across the world. And in most cases, like with sustainability regulation, Europe is. Or the EU is leading the way.

Arje Cahn: Is it?

Kees van Santen: Yeah.

Arje Cahn: Cool.

Kees van Santen: So like, in three to five years, I see the risk of greenwashing way less than it is now. And Now, I already see the risk as less than a few years ago.

Arje Cahn: So just keep plowing on, keep doing it.

Kees van Santen: Yeah, I think so. And for us specifically, there's even less risk at the moment for us to engage in greenwashing. So, one, obviously, we ask companies, hey, what are your sustainability plans before we work with them? So is this part of a real strategy or is it just a quick way out? And the other thing is, because we offer higher quality, newer technologies, we are also not the cheapest credits in the market. So if you want to get your quick way out, you buy the cheapest thing.

Arje Cahn: Yeah.

Kees van Santen: And because we are not.

Arje Cahn: Sure. A lot of people do.

Kees van Santen: Yeah. And because we are not the cheapest thing, it would be a weird way to greenwash.

Arje Cahn: Okay. But it. All right, so should I just purchase the more expensive credits? Is that the way for me to differentiate between the wrong and the right kind of credits, or.

Kees van Santen: No, not necessarily.

Arje Cahn: But you're going to provide the transparency into this, and that's how I decide.

Kees van Santen: Yeah. So eventually you want your credits to have an impact. And if the credits are inexpensive, that doesn't necessarily say that they are bad. Yeah. It doesn't have to be expensive to be good.

Arje Cahn: They could be great projects.

Kees van Santen: Yeah. I'm just saying that specifically the type of carbon credits that we have and how they are rewarded in the market at the moment. So the carbon removal credits are, as a group, more expensive than the avoidance credits that we discussed.

Arje Cahn: Yeah.

Kees van Santen: So if a company really wants to greenwash.

Arje Cahn: Yeah.

Kees van Santen: And wants to spend just a little money to make some bold claim, they'll go with avoidance. Yeah. All right, so you can still, in theory, greenwash with expensive projects, but it's unlikely that you would do so.

Arje Cahn: Keesh, you're building a real business out of this. As a founder, what's your biggest oh, shit moment that you've encountered so far?

Kees van Santen: The biggest oh, shit moment was just, I think I was working on Kawa for like a month or so officially, and I spoke to people in the market already for like, the months before that as well. And then a trader called me. So a trader in carbon credits called me, like, hey, we need to have this amount of carbon credits by tomorrow. Do you have that? Oh, and I didn't have any.

Arje Cahn: What amount?

Kees van Santen: A thousand carbon credits.

Arje Cahn: So 1000 tons of CO2 of a.

Kees van Santen: Specific project range and all quite specific details by tomorrow. Yeah. And basically, if I would have it, I could have sold it to him and I could have made money within a day. Right. So. And I asked like, okay, who is the end buyer? So which company are we doing this for?

Arje Cahn: The shell?

Kees van Santen: No, it was. I mean, I don't know.

Arje Cahn: You don't know. Okay.

Kees van Santen: Because that was the key thing. Like, this guy also didn't know because he was an intermediary. Right.

Arje Cahn: He was in this system.

Kees van Santen: In this system of intermediaries. And I knew about this problem conceptually. Right. That this intermediary buys from intermediary. Buy some intermediary. And now I really saw it firsthand. Right. I was in this chain, if I would have done the transaction. And that was for me, like, hey, this is not. Because were not an established trader at that time. Right. So were not a big party that you would call for carbon credits. So that was, for me, the oh, shit moment. Like, hey, this is actually happening.

Arje Cahn: Yeah.

Kees van Santen: And this is how it goes. And this is what we're trying to solve for. Because if I would charge my fee, this guy would charge his fee, and you don't know how many others. Then there's only 10% or 20% of the money going to a climate project eventually.

Arje Cahn: So did you do it?

Kees van Santen: No, I also couldn't do it at that time.

Arje Cahn: But you didn't.

Kees van Santen: Yeah, we didn't do it now.

Arje Cahn: So it was a turning point for you, like a realization where you thought, okay, I have to solve for this intransparency problem.

Kees van Santen: And were thinking really more about the consumer perspective before.

Arje Cahn: Yeah.

Kees van Santen: So like, okay, as a consumer, you want to know where your money goes.

Arje Cahn: Right.

Kees van Santen: And now we actually saw it from, like the intermediary perspective. And we saw, like, okay, this is how this market works and this is how a lot of carbon credits are sold and resold and sold to others. So that was a realization for us and basically like an oh, shit, this is actually. This is how it goes moment.

Arje Cahn: So what's next?

Kees van Santen: Growing gava and having more impact.

Arje Cahn: How can we help with that at the moment?

Kees van Santen: As I said, like, the main thing that I. That keeps me up at night, as you asked, is that not enough companies are engaged in the voluntary carbon market.

Arje Cahn: Right. Funding these projects.

Kees van Santen: Yeah. So.

Arje Cahn: And there's something material in return for them.

Kees van Santen: Yeah. So eventually companies, like many companies, are doing something on sustainability.

Arje Cahn: Yeah.

Kees van Santen: Like above a certain threshold of size. Like, if you're two people, you're probably not doing really active work on sustainability because you don't have the time, but.

Arje Cahn: You have different issues to deal with.

Kees van Santen: But at a certain stage of the company, there are really. It's really hard to find. Especially, like in Western Europe, companies that don't do anything on sustainability.

Arje Cahn: Yeah.

Kees van Santen: But the initiatives are really wide in variety and in many cases not yet super focused. So what I would like to see and what we can also help companies with is to make a sustainability strategy that makes sense, that is robust and that indeed involves eventually carbon credits to compensate for residual emissions and then really go towards. Okay, this is my responsibility as a company and I am accountable for the carbon footprint that I have.

Arje Cahn: All right. Well, thank you, Kees, for explaining how this world works. It's been wonderful, like just learning and I wasn't aware of all the details and I'm sure lots of people are unaware, so that's been incredibly helpful. Good luck with that and I wish you all the best in your endeavors.

Kees van Santen: Thanks a lot and thanks for inviting me in this beautiful and now dark forest.

Arje Cahn: Yeah. Sitting in the smoke feeling the urgency of the problem.

Kees van Santen: Yeah, definitely.

Arje Cahn: Right Case. Thank you. Cheers.

Kees van Santen: Thanks.