The carbon credit tokenization track is becoming increasingly popular. Which early projects are worth paying attention to?

Author: Biscuit, Chain Catcher

More than 130 countries and regions around the world have proposed carbon neutrality goals, and green low-carbon and sustainable development have become international consensus.

As one of the fastest-growing energy-consuming industries in recent years, more and more crypto projects are also facing this issue. On one hand, many exchanges and mining companies purchase carbon credits to offset the carbon emissions generated by their operations. On the other hand, many projects are helping to reduce carbon emissions through changes in strategy or increased investment, such as Ethereum's transition to a POS mechanism, Ripple's commitment to invest $100 million in the carbon neutrality market, and Polygon's plan to achieve carbon negative emissions in 2022, pledging $20 million to fund projects that use technology to address climate change.

In addition to these conventional actions, many startup crypto projects are attempting to tokenize traditional carbon credits, utilizing blockchain encryption technology to transform carbon credits into divisible, easily tradable, and transparently managed tokens to address issues in the voluntary carbon market. Compared to traditional models, carbon credit tokenization can build an efficient carbon trading market and carbon regulatory environment, further promoting carbon reduction.

The main model of carbon credit tokenization acts as a platform for carbon credit trading, mostly serving institutional investors or companies. Common solutions include carbon offsetting, carbon reduction, and carbon capture and storage, involving industries such as forestry, agriculture, and energy.

Recently, carbon credit tokenization projects like Flowcarbon and Allinfra have received funding from venture capital firms, making this sector a hot trend in the industry. Chain Catcher will provide a brief introduction to seven representative projects, including Flowcarbon, Klima DAO, Nori, JustCarbon, Toucan Protocol, Coorest, Powerledger, and Moss Earth.

Project Introduction

1. Flowcarbon

Flowcarbon is an open-source protocol for carbon credits based on Celo, promoting institutional capital to enter climate change mitigation efforts by tokenizing carbon credits from traditional exchanges. Additionally, the protocol aims to become a transparent, barrier-free carbon trading market, continuously helping companies achieve net-zero or net-negative carbon emissions.

The Flowcarbon team believes that the most effective way to mitigate climate change is through carbon credit tokenization trading. The traditional voluntary carbon market is inefficient, opaque, and has high barriers to entry. Various brokers and consultants charge commissions of up to 20%, and there are often instances where a single type of carbon credit is sold to different buyers at different prices. Currently, every step in carbon credit trading (issuance, clearing, settlement, and custody) is expensive and slow.

According to a16z on their official website, on-chain carbon is an innovative tool within the Flowcarbon protocol that can be integrated as a novel financial instrument into the existing DeFi ecosystem, and is seen by builders in web3 and a16z as a new way to inspire climate-positive behavior. Flowcarbon's GNT is fully backed by the real-time value of off-chain credits and can be used as collateral, protocol treasury assets, stablecoin reserves, or to offset on-chain carbon credits. On-chain carbon credits will become a key part of the financial architecture, driving the creation of a zero-carbon future.

Flowcarbon is supported by Adam Neumann, the founder of WeWork, and completed a $70 million funding round led by a16z at the end of May. a16z believes that the carbon credit market could grow to $50 billion by 2030, and on-chain carbon credits can facilitate this expected growth.

However, crypto KOL Feng Liu stated on Twitter that many carbon credit tokenization projects emerged as early as 2018, and the Flowcarbon organized by a16z seems to mimic the approach of Klima DAO.

Official Website: www.flowcarbon.com

Related Reading: 《Flowcarbon Raises $70M to Tokenize Carbon Credits and Build an On-chain Market》

2. Klima DAO

Klima DAO is a protocol that aims to accelerate the appreciation of carbon assets through its KLIMA token to promote climate action. By driving up the price of carbon assets to encourage emissions reductions, each KLIMA token is backed by real-world carbon assets.

The reserve asset of Klima DAO is Base Carbon Ton (BCT), which is a carbon offset index token representing a basket of carbon emissions, including TCO2. Each unit of TCO2 represents a single carbon offset, and users can purchase it on the Polygon blockchain through the Tucano carbon bridge. Additionally, TCO2 carbon offsets include features such as project name and type, serial number, and verification year.
Klima DAO is a branch of the popular Olympus DAO protocol, providing users with two incentives:

• Bonding: Encourages other carbon reduction protocols or application projects to participate in the Klima ecosystem. If they are willing to forgo their share of on-chain assets from other protocols or application projects, they can receive Klima on-chain assets equivalent to the public market value and corresponding discount rewards as compensation.
• Staking: Encourages participants to hold Klima on-chain assets for the long term, allowing holders to earn rewards and participate in governance. Participants who stake Klima will receive sKlima at a 1:1 ratio, and holding sKlima will yield corresponding returns based on the duration and floating interest rates of the rebase.

Klima DAO launched in August 2021 and accumulated over $110 million in treasury assets within a month. As of May 2, 2022, according to official data from Klima DAO, over 17 million tons of on-chain carbon credit assets have been registered in its ecosystem.

Official Website: www.klimadao.finance

Related Reading: 《How Does the Carbon Trading Market DAO Organization Klima DAO Operate?》

3. Nori

Nori is a blockchain-based carbon removal platform founded in 2017 and headquartered in Seattle, Washington. Nori's goal is to create a market that addresses issues of double counting and fraud in existing markets and to build a robust economy around carbon removal.

Suppliers first register their carbon removal projects on the Nori platform, report the carbon removal cases they have undertaken, and provide sufficient data to establish an accurate project baseline. Once the project data is fully entered, the Nori platform commissions independent third-party carbon quantification tools to estimate the carbon removal amount, which is then used to determine the number of NRT tokens created for the supplier. Buyers can then purchase NRT directly from suppliers in the Nori marketplace and receive carbon removal certificates. In Nori's marketplace, suppliers receive the total price for the purchased NRT, and Nori charges buyers an additional 15% transaction fee. One NRT represents one ton of removed carbon dioxide.

Nori's first carbon removal product is soil sequestration, primarily targeting farmers using regenerative farming practices involving soil carbon sequestration. This product can isolate carbon dioxide from the atmosphere and provide rewards to farmers.

Official Website: https://nori.com/

Related Reading: 《How Nori Protects Landowners》

4. JustCarbon

JustCarbon is a trading platform that simplifies carbon emissions offsetting and supports high-quality carbon removal projects to address climate change, aiming to solve these challenges through a symbiotic token system: JustCarbon Removal Unit (JCR) and JustCarbon Governance (JCG).

JCR tokens can be generated after physically removing verified tons of carbon from the atmosphere, serving to connect project developers and buyers more directly. Holders can "burn" or "retire" JCR to offset carbon emissions. JCG holders will have the right to propose and vote in the centralized autonomous organization DAO.

The carbon removal assets procured by JustCarbon must be from producers certified by the Gold Standard or Verra (VCS) and have minted additional CCBA certifications within the past five years.

According to JustCarbon's official website, JustCarbon only provides personalized carbon offset services for buyers over $10,000. Buyers can fill in the carbon offset amount they wish to purchase and their contact information on the official website, using PalPay for payment, during which JustCarbon charges a 5% service fee.

Additionally, JustCarbon focuses solely on carbon offsetting based on carbon credits, rather than carbon reduction. The team believes that reducing carbon emissions does not fully address air pollution issues, and carbon removal offset solutions can effectively prevent further deterioration of the atmospheric environment. While many teams focus on reducing carbon emissions, removing carbon dioxide from the atmosphere is JustCarbon's primary mission.

Official Website: www.justcarbon.com

Related Reading: 《JustCarbon Whitepaper》

5. Toucan Protocol

Toucan Protocol is a protocol that brings carbon as a currency Lego block into Web 3.0, aiming to turn carbon credits into programmable assets, fundamentally improving the traditional carbon market. The protocol primarily achieves tokenization through two functions: Carbon Bridge and Carbon Pools.

Specifically, these carbon credits are transferred from the traditional market to on-chain via the Toucan Carbon Bridge, minted into BatchNFTs containing all information about the carbon credits. Carbon Pools further split BatchNFTs into TCO2 tokens for easier circulation in the market. This bi-directional anchoring and traceable method avoids the double-spending problem of assets.

On May 25, the standard-setting organization Verra stated that it would no longer allow carbon credits from its database to create new crypto tokens, but it could explore carbon credit tokenization by introducing a "fixed" status into its registry. Subsequently, Toucan suspended the use of the Carbon Bridge and stated that the suggestions from this announcement could reduce the risk of duplicate carbon credit calculations, opening the door for tokenized credits to be transferred back to their source registry from the blockchain.

Official Website: https://toucan.earth/

Related Reading: 《Raising standards in the on-chain carbon market》

6. Coorest

Coorest is a blockchain carbon credit solution platform supported by real-world assets (land, buildings, and trees), aiming to address the inefficiencies in carbon calculations.

Coorest's NFTrees are non-fungible tokens associated with real-world trees. The carbon tokens $CCO2 generated by NFTrees are equal to the amount of carbon removed from the atmosphere by their real-life counterparts. Holders of NFTrees will start collecting $CCO2 tokens from the moment the trees are planted. Currently, Coorest has fruit trees and forests in Zaragoza, Spain, and New York, USA.

Coorest features that the carbon offset token $CCO2 cannot be resold or recycled. The trees corresponding to NFTrees absorb carbon dioxide from the atmosphere, and the amount of offset carbon is represented in the form of $CCO2 tokens. Users can burn $CCO2 tokens on the decentralized exchange ("Coorest DEX") and register the corresponding amount of CO2 offset as proof of carbon offset ("PoCC"), which is then transferred to the compensator's crypto wallet to prove that the user has completed the carbon credit purchase. The PoCC NFT contains relevant compensation data, including amount and date, and can optionally include the holder's details.

Official Website: https://coorest.io/

Related Reading: 《Coorest Whitepaper》

7. Moss Earth

Moss Earth is a climate tech company focused on environmental services, simplifying the offsetting process and ensuring traceability and transparency through blockchain technology. In 2020, it used 150,000 carbon credits generated annually by the Amazon rainforest as asset reserves, which were certified and registered by the standard organization Verra. By freezing carbon credits in Verra's centralized trading center, it minted MCO2 on-chain assets for trading. Users can purchase, store, and offset MCO2 to protect the atmospheric environment.

Moss Earth primarily uses the funds from carbon credits on the platform in three areas:

• Protecting native forests: Reducing greenhouse gas emissions by protecting forest land and preventing forest degradation, while creating monitoring, patrolling, and other job opportunities for local communities.
• Reforestation: Projects that sequester greenhouse gases from the atmosphere by reforesting with native species.
• Carbon sequestration credits: Collaborating on projects that promote sustainable agriculture through agroforestry systems or reducing the use of chemical fertilizers, thereby reducing greenhouse gas emissions.

Currently, Moss Earth has established partnerships with many large companies. Amazon has purchased over $15 million in MCO2, helping to protect approximately 800 million trees. Brazil's largest airline, Gol, uses MCO2 to offset its flight carbon emissions.

Official Website: https://moss.earth/

Related Reading: 《Crypto's Carbon Emissions Addressed by One River and Moss》

Conclusion

As the importance of global carbon reduction becomes increasingly prominent, whether it is the recently funded Flowcarbon and Allinfra or Moss Earth, which has already partnered with numerous companies, it shows that carbon credit tokenization may be more convenient than traditional governance methods. This is a solution that allows the public to participate more easily in carbon neutrality climate governance, and blockchain-based tokens can be integrated into DeFi projects for incentives.

However, due to the overly complex overall trading process of carbon trading and the inability to bypass centralized verification agencies, the effectiveness of carbon credit tokenization is significantly diminished. Additionally, some carbon credit tokenization projects engage in false trading for short-term profits without genuinely fulfilling their environmental protection responsibilities, which requires clearer and more standardized regulatory processes.

On May 25, the carbon credit standardization agency Verra stated that crypto projects related to carbon credits have caused confusion in the market, and many crypto projects cannot deliver the promised climate improvement effects, thus stopping support for the verification data required for carbon credit tokenization projects. Verra is the largest issuer of carbon credits and the standard setter for carbon credits. This restriction poses a severe blow to carbon credit tokenization projects, as without the endorsement of carbon credit standard organizations, the process of transferring carbon credits from off-chain to on-chain cannot be completed. However, Verra also stated that it would reopen data support for crypto projects under the premise of stopping fraud and genuinely maintaining the environment.

Currently, both carbon trading and blockchain are industries lacking regulation, and their integration process will inevitably encounter various chaos. However, we cannot stop moving forward out of fear of failure. a16z quoted McKinsey in its announcement of investment in Flowcarbon: these challenges are formidable but not insurmountable.