COMMENT: Response to IETA Council Task Group on digital climate markets

Published 11:32 on March 30, 2022  /  Last updated at 18:12 on March 30, 2022  /  Africa, Americas, Asia Pacific, Australia, Canada, China, Contributed Content, EMEA, International, Japan, Mexico, Middle East, Nature-based, New Zealand, Other APAC, Other Content, Paris Article 6, South & Central, South Korea, UK ETS, US, Voluntary  /  No Comments

As the largest player in this nascent space, we feel it is necessary to respond to some of the concerns communicated by the IETA task group on digital markets, as well as highlight important areas of collaboration and innovation moving forward, with the ultimate objective of scaling climate action, write two of the core members in crypto carbon outfit KlimaDAO.

By Dionysus and 0xymoron, KlimaDAO

KlimaDAO welcomes the comments from the IETA Council Task Group on digital climate markets.

IETA’s work to bring key stakeholders together to discuss emerging opportunities and challenges within the voluntary carbon market (VCM) is critical to ensure that the industry as a whole can engage with opportunities to scale the VCM and mitigate emerging risks.

As the largest player in this nascent space, we feel it is necessary to respond to some of the concerns communicated, as well as highlight important areas of collaboration and innovation moving forward, with the ultimate objective of scaling climate action.

Data repositories: One of the main strengths of enabling VCM market activity to take place on the blockchain is to ensure alignment and interoperability between credit issuers and exchanges. However, this is only possible when trading activity takes place in a transparent and permissionless fashion (e.g. via Polygon DEXs, or decentralised exchanges) rather than paywalled and opaque platforms that do not offer anything beneficial (in terms of liquidity, transparency, and interoperability) to the market beyond the status quo.

Credit tokenisation: KlimaDAO is fully aligned on the benefits that tokenisation can bring to the market. However, we question the focus on speculation when there are existing instruments in the VCM, such as carbon ETFs, which also provide retail exposure to carbon markets, including compliance markets, and have thus far escaped such concerns.

Additionally, focusing on functioning decentralised autonomous organisations (DAOs), where decision-making is transparent and publicly trackable, appears misguided when there are private companies transacting far more carbon with very little transparency as to their inner workings. We urge you to consider the benefits of carbon transactions conducted through DAOs alongside the potential risks.

Furthermore, in regards to the transparency aspect of our work, it’s key to consider how VCM transaction data is often collected today – retroactively (e.g. Ecosystem Marketplace reports wherein market participants provide survey data on trades they have completed in previous months/years). This is not the case with the current on-chain carbon market, where transactional data is freely available in real-time.

Credible standards: The increased integrity of carbon credits, from the work undertaken by the leading carbon standards and endorsed by IETA’s ICROA have been fundamental to unlock growth of the VCM. KlimaDAO’s own impact is possible due to the integrity of the carbon standards, and from the projects that are validated, verified, and registered against these standards. KlimaDAO is in full alignment with maintaining the integrity of tokenised carbon in line with the work undertaken to-date.

Tokens: We strongly align with only supporting tokenised carbon credits that are ex-post, however we view the current bridging strategies employed by Toucan Protocol and C3 as legitimate insofar as they are ‘transferring mechanisms’ and require the elimination of double counting risk by ‘retiring’ the credits on the Verra registry. Until a new state, such as ‘tokenised,’ is deployed on existing credit registries to indicate that credits have been moved on-chain, we believe retirement is the best practice. We look forward to collaborating with registries to further develop this process.

Consumer protection / Transparency / Know Your Customer (KYC) / Anti-Money Laundering (AML): Current bridging mechanics employed by Toucan and/or C3 require the use of a registry participant that, to our knowledge, has already been KYC’d by the host registry and thus this requirement is currently satisfied. Our question would be to what extent is this requirement being pushed onto current offset retailers when they sell to retail consumers?

Claims: KlimaDAO fully aligns with this requirement related to carbon offsetting claims and look forward to working with VCM participants to define best practices regarding what token “burning” looks like as well as how data is recorded into the tokens themselves.

LOOKING TO THE FUTURE

The values of Web3 prioritise the development of open and interoperable systems that can leverage the power of the market to make positive change through good design and collaboration. The carbon market is the perfect place to integrate decades of work from market leaders with the blockchain technology stack to scale and increase efficiency in the delivery of capital to high-impact carbon mitigation and removal projects globally. We can think of nothing more important for the future of ourselves and our planet, and look forward to collaborating with industry leaders to realise this vision.