The latest IPCC WG3 report on Climate Mitigation was released last week is a dire warning to humanity about the state of our planet. It is a harsh reminder that our reliance on fossil fuels drive our current energy, transportation, construction and agricultural systems is intrinsically flawed. The report outlines strategies that humanity can take to reduce the worst of global climate change (Figure 1; IPCC). It shows that decarbonising our energy grids using solar and wind power is one of the most cost-effective strategies of decarbonising quickly. Solar and wind technologies are not without their own scalability issues in regards to natural resources. Carbon Dioxide Removal (CDR) and Carbon Capture and Storage (CCS) is surprisingly expensive and low impact on this list [in the short term prior to 2030]. But investment now can lead to greater efficiencies in the future. The key point of this is: There is no one killer climate solution. There are many killer climate solutions. Some will be symbiotic. They should all be somewhat scalable. Whether emissions reductions through green technologies, ecosystem preservation or restoration, direct carbon removal or investor divestment due to understanding financial carbon risk. We must act in tandem. Teamwork :)

Two terms have jumped out at me over the past few weeks researching ReFi and scalable climate solutions. Industrialised Nature, and Nature as capital.

Industrialised Nature

Humans have built some incredible technologies. But some of these technologies completely pillage the earth. See: industrialised agriculture (monoculture and synthetic fertiliser use), industralised forestry, industralised fishing, cities etc.

Often our desire for luxuries is a key source of our environmental footprint. 1kg beef vs 1000kg wheat? 1kg of farmed salmon or 100kg wild caught sardines? Luxury use, to at least some level, drives global inequality. We should be conscious of our individual consumption, but sometimes it's not easy. We have nutrition information on our food labels. Why cant we know the environmental footprint of products and services (KgC?, Truck Miles, Breakdown of input materials or similar. There are many steps that our leaders can help individuals lower their net consumption.

We have the capacity to build terrible tools of destruction... But also tools of regeneration and restoration.

Natural Capital

What is the intrinsic value of Nature? Can we put a price on the planet? The climate? Our water sources? How about the financial impact of extreme weather events? What is the price of a climate apocalypse in 50 years compared to engineering climate solutions right now? However, does the financialisation of ecosystems, forests, water sources and other ecological assets have a global commons and ethical issues? We are shared custodians of this planet. We all share our precious and life saving ecosystems.

ReFi (Regenerative Finance)

Crypto and smart contracts are just another tool in the climate warriors' arsenal. Lets move past the crypto-cult, and understand these are just alternative, and potentially highly scalable climate solutions, that may have a small but meaningful impact on the planet.

On-chain carbon

ReFi is suffering from a "Tunnel vision of carbon". This is an accurate and valuable idea which is developed in. It is important we all understand the benefits and costs of integrating carbon price as a climate solution. Bridging legacy carbon credits from the Verra registries into Toucan on chain has been one of the biggest steps forward in blockchain as a tool for climate-change. KlimaDao has been a controversial but major driver in locking up a huge amount of low-quality, legacy carbon credits and even driving a 3x in carbon price. However most of these credits are avoided credits, particularly decade old third-world hydro projects.

There are two types of Carbon credits. Voluntary Carbon Market (VCM) Credits and Compliance Credits (government regulated). Right now we are particularly interested in growing the VCM. There are three key pillars of the VCM: 1) Additionality. It must be additional. Carbon project wouldn't start without carbon credit money. 2) Permanance. Carbon cant get released later and 3) No Leakage (Ie no reduction in agricultural yield).

There are many issues with the traditional VCM. For example, how are additional projects supposed to be additional if they get paid 3 years later down the line and not knowing the quantity of carbon being fixed. The projects also need to be really big, and credits can be expensive and time consuming to validate. On-chain carbon fixes some of these issues. However, the largest on-chain carbon pool, Toucan Base Carbon Tonne (BCT) is generally low quality, old vintages (some of which haven’t been sold on traditional markets for over 10 years and are predominantly from Chinese and Indian hydro-dams, as are classified as avoidance or ‘green bounty’ credits (Figure 2). Furthermore, 85-99% of the 21 MtCO2e pool is older than 2013 and 2016, discounting the use in a regulatory context.

@0xRez BCT Code Source

Toucan understands these limitations pushed by an original ‘sweep the floor’ attitude from KlimaDAO. Toucan released the Nature Carbon Tonne (NCT) in response to a desire for high quality credits, even though pools may not be the best solutions. Toucan is an infrastructure provider that pioneered the TCO2 standard which empowers this carbon-as-lego idea since comparable attributes between projects important. TCO2 is a Base layer carbon infrastructure. Senken.io are one company who plan to build on TCO2 making an NFT style carbon credit market place to link buyers and carbon farmers to aim for quality and unique carbon credit projects. However, other projects like Flow Carbon and C2 are competing with the TCO2 standard want to develop their own equivalent but competitive on chain carbon lego.

The issue is. There is not enough high quality carbon liquidity. Companies want to buy a billion dollars of carbon but they can’t right now. Thus they are spending a billion dollars on funding carbon removal companies. The point is that we need more, higher quality and more transparent credits.

BCT pool contents are exceedingly low quality, and generally take the form of avoidance credits, particularly hydroelectricity projects from second and third-world nations. Even if BCT finds buyers such as Polygon and KlimaDao, these credits are still problematic and companies may expose themselves to greenwashing accusations. There are numerous hurdles we need to overcome before on-chain carbon can really become a powerful incentive for good. The Carbon market is a possibly powerful but currently flawed method of incentivising decarbonisation.

KlimaDAO, and on-chain carbon, albeit controversial has inherited a flawed carbon market, and has created a powerful discussion, and also capital flow to projects. It has also forced price discovery for certain carbon assets in both the on-chain and off-chain world.

On-Chain Capital and coordination into ReFi

Bringing the carbon market on-chain is just one aspect of ReFi. Several DAO’s are currently focusing on capital flow and early funding for either technical or land-based projects get stared. Several projects such as ReFI DAO, Flow Carbon, SolidWorld, Sequestr.io, Regen Network, Ecorise and Carbon Captors aims to direct and mobilise capital inflow to physical land based projects that deserve it. Many of these carbon projects exist in the global south. SolidWorld for example, has liquid pre-purchase agreements to drive funding to promising carbon projects. Gitcoin grants are also worth noting, as many of the ReFi projects have benefited from the crowdloan platform.

On-Chain MRV

Another large hole in this space is the bottleneck of getting carbon on chain in the firstplace, being traditional registry systems like Verra and Gold Standard (Who also give up legal responsibility of these credits after they are bridged). Legacy offchain measurement, reporting and validation (MRV) of carbon credits takes 2-5 years and is considerably too slow (and also expensive) to make meaningful change. It is slow and expensive to accredit projects through these traditional operators. Currently projects need a certain scale to get certified, maybe on chain provides granular scalability. We also shouldn’t get too caught up about the length of carbon storage. Even Decades right now gives us a small carbon loan to the short term future to scale up these projects. Projects such as OpenForest and Shamba geospatial data oracle are attempting to bring the difficult field of MRV on chain using satellite technologies and contractors to validate projects. Earthbanc especially poses some interesting on-chain MRV solutions.

On-Chain Nature

Another key part of ReFi is Nature as Capital. Come in BasinDAO, Ecorise and Sequestr who are trying to lock up land and incentivise land stewardship. There are several rewilding and restoration projects around. For example Acre DAO which released carbon negative NFTs to help fund recharge the Ogallala Aquifer. A smaller idea of nature as capital is KumoDao who are trying to build a carbon-backed stablecoin (I love this concept). Other projects may also look at creating various other types of nature backed stablecoins.

Summary

ReFi and block chain has an interesting value proposition as a highly scalable climate solution that works are cooperative and supportive to overall goals. Storing carbon and nature as appreciating and yield bearing financial assets on-chain provides leverage in a system that promotes extraction and growth over regeneration.

The largest urgency for the ReFi are funding large scale carbon capture projects. Using carbon credits to help make these projects financially feasible. But we can’t just move the carbon between absorbers and emitters. We need real, gigatonne scale carbon sequestration.

Which leads to the second urgency: getting many, many more tonnes of high quality carbon on-chain. I guess my next article should probably discuss the different methods that can physically remove carbon from the atmosphere.

Some call for economic degrowth, or as far as a revamp of capitalism. We do require a complete rethink of our private resources and propose moving to a sharing economy. For example, the future of transport should not be everybody having an electric car. This is a complete waste of communal resources in the grand scheme, even if a step in the right direction.

We need to negotiate a fine middle-ground of playing within the rules of the system, but encouraging systemic change in the thinking and individualism of billions of individuals.

We also need to suck a lot of carbon out of the atmosphere. ReFi can help.

Imagine a collective solarpunk future utopia. Anyone read Island by Huxley? What do you think is the solar-punk or communalist vision for the new world?

Useful Resources

Thanks @0xRez for the conversations, BCT code and proofread :)