Part 1: A Lens on Nature-Tech – Beyond Paper Trails

Sustainable Forest

CMO Blog

In my quest to research and learn more about blockchain technology and how it could improve nature-based solutions, I got to understand more about the voluntary carbon markets and some of its trials, tribulations, and complexities. Nature-based projects are expected to provide 30% of the pathway to net zero in 2050. Various technologies to support nature projects are collectively known as ‘nature-tech’ and can be used to help protect and restore the natural environment, address climate change and biodiversity loss, and develop sustainable solutions. 

A recent survey conducted by Nature4Climate (N4C’s) found that avoided deforestation, reforestation and agroforestry were identified as the leading nature-based solutions investment opportunities for 2024.

In the last few years, a substantial number of businesses are pledging carbon neutrality or Net Zero.  In fact, S&P’s Global Sustainable1 data found that 85% of companies in the S&P Global 1200 have a significant dependency on nature across their direct operations. 

What is a Voluntary Carbon Market?

A voluntary carbon market is a specialized type of financial market where carbon credits are bought and sold. Companies of all sizes can buy and sell these carbon credits to offset their emissions on their balance sheets.  Governments and individuals can also participate. The value of the global voluntary carbon market topped at just under $2 billion in 2022 and could be worth between $5-30 billion per year by 2030, with perhaps two thirds of this channeled into nature-based solutions.

The notion is that a ton of CO2 is put into the atmosphere in one location and taken out somewhere else.  It works whereby supply is where credits are generated that reduce or remove greenhouse gases.  For example, for nature-based projects, this could be planting trees or preserving nature and conservation.  Demand for this supply is where companies, governments, or individuals look to purchase credits to offset their own emissions.  The price of credits is determined by supply and demand, similar to other markets.

Measurement, Reporting, and Verification (MRV) is a multi-step process that involves the review of data supporting the removal of carbon from the atmosphere over some time, reporting it to a third party who can verify the results, and carbon credits can be issued.   MRV plays a vital role in nature-based solutions for forestry and land management, such as monitoring deforestation rates, ensuring sustainable forestry practices, and verifying carbon sequestration projects.  

Issues Facing Carbon Markets

The carbon market has come under heavy criticism with the lack of transparency, accessibility and quality and a lot of lengthy manual processes surrounding these projects for carbon credits. There’s many stories of double counting, fraudulent credits and lack of reporting and tracing what a project says it’s going to do and what happens.

But carbon buyers have a hard time determining the quality of credits they are purchasing so they hire intermediaries who drive up costs.

The statistics in the carbon industry claim between 75-90% of carbon offsets are not doing what they say.  As a result, carbon buyers have a hard time determining the quality of credits they are purchasing and fear greenwashing accusations that their carbon credits are not translating to real, measurable emissions reductions.  Some hire intermediaries who drive up costs, while others are too cautious and deterred by the cost and complexity of the current process.

On the supply side, unfortunately, smaller private landowners, who manage a significant portion of the US’s forests (56% of its 800 million acres, representing 7.5% of global forests), are often excluded from carbon credit programs due to expensive and complex participation processes that favor larger developers.

Lengthy, Paper-Based Processes

Traditional MRV has several limitations today, that are hindering the success of the carbon markets for nature-based solutions, namely lengthy manual processes, paper-based documentation, and infrequent data collection often leading to delays, inefficiencies, and potential errors.

Part of the problem in the carbon market today is how do you verify these claims and how do you keep track of all the credits.  We urgently need to get trust back into the carbon markets with more efficient and transparent methods to track progress if we want to meet the conditions outlined in the Paris Agreement.

A Better Way – Automation, Intelligence and Transparency

While established MRV processes still play a valuable role in ensuring data integrity and project accountability, there is an opportunity to take advantage of the progress the world has made in digital technology over the last 5-10 years with things like satellites, sensors, and internet of things, automated data collection, and technology such blockchain for secure record-keeping.

This is where Digital MRV (dMRV) with Web3 technology and other technology like IoT devices and satellite technology, does a better job of bringing trust and transparency to the carbon markets.  Digital MRV is an enhancement that builds upon the existing infrastructure, adding layers of automation, intelligence, and transparency.  For example, it replaces manual paper gauges with real-time sensors or upgrades static maps to dynamic dashboards. 

Some of the ways digital MRV integrates with existing processes include:

o   Automated data collection: Sensors, satellites, and IoT devices gather near real-time data on emissions and project performance.

o   Advanced analytics: AI and machine learning algorithms analyze complex data sets, producing more accurate and insightful reports.

o   Blockchain integration: Secure, tamper-proof ledgers ensure transparency and traceability of carbon credits throughout their lifecycle.

The opportunity lies in digital MRV tools that can be incorporated into existing software and reporting systems, to minimize disruption and maximize compatibility.  

Digital MRV paves the way for innovative project types, like those in remote areas or involving complex emission sources. Increased market efficiency leads to more carbon reductions, enables inclusive participation of smaller landowners, attracts new investors, and accelerates the transition to a low-carbon economy. There are also other societal benefits: Improved air quality, enhanced climate resilience, and job creation through sustainable development projects.

Carbon-Neutral Blockchain Technology

Blockchain is a powerful tool and technology that can help build trust and confidence in carbon markets and help play a crucial role in accelerating the transition to a low-carbon future.  While some blockchains like bitcoin are carbon-intensive requiring constant computing power and energy sources, many modern blockchains were designed with energy efficiency in mind and carbon-neutral to support initiatives for carbon offsetting.  

Blockchain technology helps to get trust into the carbon market and it is often dubbed a “trust machine”.  It gives increased transparency so that all stakeholders can track the flow of credits from project developers to buyers.  Blockchain is also tamper-proof makes making the carbon credit data immutable and permanent.  The automated processes can streamline issuance, tracking, and retirement of credits, reducing costs and paperwork.  More transparent and reliable markets can attract new investors and make financing available for more climate action projects. 

With tokenization, carbon credits can be represented as digital tokens stored on secure blockchain platforms. Each token is a unique, tamper-proof certificate of carbon captured. The benefits of tokenization include:

●  Every transaction and credit movement is recorded on a public ledger, building trust and confidence in the market. 

●  Streamlined data management and automated processes reduce administrative burdens and expedite transactions. 

●  Tokens can easily be traded on public exchange, making investment in carbon reduction projects more accessible and flexible.  

Blockchain Laboratories is a company that offers Web3 Software-as-a-Service (W3 SaaS) technology for a better future. Its technology empowers businesses and communities to solve pressing environmental and societal challenges with Distributed Ledger Technology (DLT) and Tokenization.   

One such solution is a Carbon Removal Credit Registry.  I will discuss this in Part 2 of this blog series.

In the meantime, to learn more about some of the decentralized applications Blockchain Technologies is powering visit https://blockchainlaboratories.com/ 
Please also join me and others at the upcoming Webinar on March 19th, 2024 at 7am PST/10am EST. https://esgdigitalassets.com/

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