Let’s start with some ecological grief to describe the current state of the Anthropocene. In the course of 40 years, an area the size of Europe has been deforested; at this rate, the world’s rainforests will be gone in 78 years. A report from the United Nations Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) estimates that dozens of species are going extinct every day, with as many as 30 to 50 percent of all species going extinct by 2050. 21.5 million people have been displaced by climate change-related disasters since 2010. Every month we eat one Lego brick of plastic, or about 44 lbs. in a lifetime on average.
Next week, global leaders will travel to Glasgow to lay out their plans meet the the global warming limit of 1.5°C, as agreed upon in the Paris climate agreement. In order to hit that target, the world needs to cut climate pollution in half from current levels by 2030, and bring them down to net zero by 2050, which would require negative emissions. Few countries have policies in place to hit these targets.
So how do we get to negative emissions? It’s simple: for every CO2 tonne (or metric ton, the standard measurement for CO2) released into the atmosphere, we need to remove one tonne. That would keep us at a stasis of about 40 billion tonnes emitted annually. But that won’t remove the excess carbon. For that we need to remove 1.5 trillion tonnes before 2050.
To get a sense of that scale, here is rendition of one year of New York City’s CO2 emissions. One metric ton of CO2 could fill a sphere 33 feet across. One year of New York City’s CO2 emissions is about 50 million tonnes, or 0.1% of total global emissions.
Our problems feel overwhelming, hence the eco-grief that many of my generation feel. While leaders in Glasgow discuss the technocratic ins and outs of reporting CO2 targets, and debate how much money to give to poorer nations, there are three main methods in which the Web3 community is already attempting to solve incentivize and remove carbon from the atmosphere.
- Voluntary carbon markets
- Reforestation / Afforestation & Regenerative Agriculture
- CO2 credit and natural resource-backed currency
Voluntary carbon markets
Carbon credits are certificates representing quantities of greenhouse gases that have been kept out of the air or removed from it. One carbon credit equals one metric ton (tonne) of carbon dioxide. The current weighted carbon price traded on markets is $34.99, which is up from around $20 near the end of 2020.
Voluntary carbon credit markets are growing quickly, increasing 20% in 2020 to $272 billion, and have been helping direct private financing to climate-action companies and projects. Many of these projects have additional benefits such as protecting biodiversity, preventing pollution, improving public-health, and creating jobs. This is especially true in the Global South where paying communities to preserve forests and wetlands could significantly improve lives and preserve existing carbon sinks.
The most popular voluntary offsets are often from Reducing Emissions from Deforestation and forest Degradation (REDD+) projects. REDD+ accounted for 53 percent of total “issuances” and “retirements” of carbon credits and are widely considered the highest quality carbon credits.
Problems with voluntary carbon markets
Overall, the market is characterized by low liquidity, lack of transparency, and limited data availability. While reputable standards such as Gold Standard and Verra’s VCS certify projects’ adherence to the requirements of their respective methodologies, buyers typically have limited transparency on the progress of the carbon-reduction projects that have been issued.
CO2 certificates may also trade hands many times and an unknowable number of transactions happen off-book. In many cases, carbon credits that are purchased are never even retired. According to McKinsey, only about half of carbon credits purchased are even retired.
So if you are a conniving oil company, could could just buy carbon credits from a broker, add them to your balance sheet, and then sell them later if they increase in price. You wouldn’t even have to retire them.
How Web3 can improve voluntary carbon markets
Issuing carbon credits on blockchains solves the “double counting” problem which is when two parties claim the same carbon dioxide removal. Many times, the two claiming parties are an organization offsetting its emissions, and the host country of the project trying to reach its nationally determined contribution (NDC), or climate target, under the Paris Agreement. By using Ethereum for carbon issuances you would also have verifiable proof when a tokenized carbon credit is “burned” or “retired.”
Another benefit of Web3 is that decentralized finance primitives and protocols make it easier to collectively pool capital and increase liquidity. With smart contracts, rewards can be automated on-chain, in real time, which makes it easier to incentivize participation. Standardized, tradable carbon credits tokens increase liquidity, and because of open source software and the inherent composability of DeFi, projects can build upon other ideas and smart contracts.
One project that just began to standardize carbon credits as tokens is the Toucan Protocol, which built a “carbon bridge” to bring carbon credits to Polygon. Using the Toucan Protocol, anybody can tokenize their carbon offsets on the Verra registry and make them available to DeFi protocols. They plan on expanding to other carbon registries, like the Gold Standard in the future.
Users of the carbon bridge need to retire the carbon offsets in the "real world" before bringing them on-chain in order to guarantee that a carbon token is unique and that burning a token on-chain is equivalent to retiring an offset. Each of their Base Carbon Tonne (BCT) tokens is backed by 1 tonne of a retired CO2 credit.
Since launch on October 18th, already 6.3 million tons of CO2 have traversed the carbon bridge from the Verra registry and deposited in the Carbon Pool, BCT (Base Carbon Tonne). Incredibly, this is about 12% of NYC’s annual CO2 emissions.
What is driving this rapid retirement of carbon credits? One clue is that members of KlimaDAO are retiring Verra credits and turning it to BCT in order to start earning rewards in a separate DeFi protocol called KlimaDAO.
$KLIMA tokens are fungible and backed by at least 1 Verified Carbon Unit in the KlimaDAO treasury. People can acquire KLIMA by depositing liquidity tokens (KLIMA/BCT and BCT/USDC) to the treasury, or directly from SushiSwap trading pools using the Polygon network. Holders of KLIMA can earn compounding interest on their KLIMA by staking, will have the ability to vote on Klima DAO policy. Staking encourages long-term holding of KLIMA, and allows participants to benefit from the rising price of carbon.
Another project, Flow Carbon, already bridged about 2 million carbon credits using the Toucan’s carbon bridge. In the future they also plan on issuing a token that is a REDD+ carbon credit (meaning a higher quality carbon credit that represents reforrested land). The token will act as a depository receipt for the verified carbon credit on Verra, so instead of retired credits being a one-way bridge like BCT, it is two-way. You could use their token to get a carbon credit issued on Verra in your name, or retire it in the Toucan bridge to get BCT and start earning KLIMA.
Reforestation / Afforestation & Regenerative Agriculture
Outside of voluntary carbon markets, which can contain variety of quality (and low quality) sources of CO2 reduction, some Web3 projects aim to remove carbon by directly funding reforestation projects or carbon reducing regenerative agriculture.
Rewilder.xyz is selling NFTs to raise funds to purchase land for passive rewilding in Brazil. The fund is set up as a 501c3 based in Miami, Florida, which will act as a proxy to own the lands and keys to funds. The fund also plans on keeping the value of ETH donations and maintenance costs by invest in low-risk DeFi projects.
People who purchase the NFT will also get a transparency tool to track exactly how money is used.
Nori is an Ethereum-based app focused on creating a market for sequestering carbon in croplands. Regenerative agriculture is a set of practices that could potentially remove 4.8 billion tons of CO2 a year and includes no-till agriculture, planting cover crops, and implementing crop rotations.
Here is how Nori works:
- Farmers provide operating data to Nori, which is verified by an independent third-party.
- Once data is verified, Nori uses a US Department of Agriculture (USDA)-funded tool to determine soil organic carbon content.
- Nori issues certificates to the farmer in the amount of CO2 they sequestered, called Nori Carbon Removal Tonnes (NRTs).
- Farmers then sell the NRTs to buyers. Buyers can use NORI to pay a fixed price for their carbon removal. Farmers receive a NORI token, which they can then sell for cash.
Already, projects and individuals are using Nori to remove tonnes of carbon, such as the musician Imogen Heap who used Nori to offset 20 tonnes of CO2 after an NFT sale.
And I’d be remiss to not mention my own fledgling project focused on urban reforrestation and maintenance of NYC’s 600k+ street trees. In the spirit of the “environmental personhood” movement, street trees on the NYC Street Tree Map will be registered as an address on Ethereum, not as a property right, but as a contract representing the tree itself. Many blocks in NYC have informal conservancy funds and associations dedicated to street tree care. With this project, funds sent to individual trees are spent on mulching, supplies, watering, protective covers, and new trees. I’ve already raised 1.11 ETH and looking to expand our “Stewards” group. You can read more about it here or purchase the essay as a unique NFT to further fund the project.
Toward a green currency
Each of the projects and methods described above help further bring existing carbon credits and natural resources onto Ethereum and Web3. With more carbon credits and natural resources represent as tokens, we can start imagining distinct “green currencies” that are backed by carbon credits and natural resources.
A few weeks ago Celo announced that it would start the Climate Collective and enter Elon Musk’s $100 million USD carbon removal challenge, XPRIZE. Marek Olszewski, parter at Celo, proposed to have 40% of the $850 million Celo reserve (which backs cUSD and cEUR) transition to tokenized rainforest and other carbon sequestering assets. This would allow the protocol to buy and own $340 million worth of reforested Amazonian rainforest to back the Celo Dollar and Celo Euro stablecoins. According to Marek, “a plot of rainforest the size of Lebanon costs $25 million USD in the Amazon, which would sequester 43 million tonnes of carbon.”
Similarly, Rune Christensen wrote a winding post in the MakerDAO forum on the case for “clean money.” One of the more interesting ideas in his proposal is “backbone collateral” or real-world asset infrastructure that can absorb large amounts of capital into “safe, productive and climate aligned assets,” such as corporate bonds of top rated ESG corporations held in trusts. He also discusses the idea of tokenizing the “status signal” component of each wind turbine, each block of solar capacity, each battery unit and other sustainable flagship collateral projects, and that these NFTs would then have social value to the extent society values those who contribute towards the public good.
Each of these examples of money backed by carbon credits or natural resources brings us closer to a transformation of money to an embodiment of our values and agreements on CO2 reduction. We can embody in our money new agreements about the planet, the species, and what we hold sacred.
In Sacred Economics (2011), Charles Eisenstein wrote,
“The money of the future will be backed by the things we want to nurture, create, and preserve: by undeveloped land, clean water and air, great works of art and architecture, biodiversity and the genetic commons, unused development rights, unused carbon credits, uncollected patent royalties, relationships not converted into services, and natural resources not converted into goods. Even, indeed, by gold still in the ground.”
It is clear that through the process of tokenizing and creating liquid carbon markets and using them to back new currencies, we can again have money that contains agreements about the planet, the species, and what we hold sacred.