The COP has also created tools to prevent climate doom. Such economic tools as voluntary and compliant carbon markets, carbon credits, green bonds and other green assets associated with positive environmental impacts play a crucial role in global decarbonization efforts. However, they are often not accessible to small and medium-sized companies from developing countries. The main reasons are high upfront costs and complex structuring processes according to global green standards.
Positive and negative effects on the environment must be forecast and described using recognized methods. This information is used for future monitoring and reporting and is verified by exam providers. This can lead to greenwashing or misleading eco-statements. On-chain verification brings data immutability and transparency, stimulating issuers to meet their green commitments.
12% carbon offset and the birth of ReFi
It is an open secret that green financial instrument issuance has long been monopolized by Web2 financial infrastructure players such as banks, exchanges, registries and standards. So it’s no surprise that Web3 is the most disruptive part of this phase.
The most obvious Web3 use case in green finance is transferring assets from traditional centralized registries to the blockchain via fungible or non-fungible tokens (NFTs). Carbon credit tokenization, launched by DAO IPCI in 2017 and scaled up by Toucan and Klima DAO in 2021, resulted in the retirement of 20 million tonnes of CO2 – nearly 12% of the carbon market’s annual voluntary retirement volume. As a protective measure, leading carbon standards immediately banned tokenization. This sparked an ongoing public debate and highlighted the need for a more comprehensive approach than increasing liquidity.
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Such an approach, originally described by the timeless late DAO IPCI founder Anton Galenovich, is now being implemented by a new generation of infrastructure solutions. One of these is Guardian, an open source tool that provides auditable, traceable and reproducible records documenting emissions and the lifecycle of green assets. It provides a low-code environment to instantly launch new apps, asset types, and even standards. Overall, the blockchain-based infrastructure is proving to be faster, cheaper, and more transparent. This is critical to unlocking green finance for small and medium-sized businesses and eliminating greenwashing.
Web3 also offers the opportunity to create innovative instruments that increase the liquidity of previously illiquid assets or combine the strengths of multiple instruments. Take carbon-bonded bonds for example. They combine the characteristics of green bonds and carbon credits, offer green bond investors more incentives and allow issuers lower coupon rates. Biodiversity credits value ecosystem services, and my own Evercity’s “Carbon Forwards” allow early-stage carbon project funding before actual carbon credits are issued. There are already Web3 exchanges, Decentralized Autonomous Organizations (DAOs) and liquidity pools like Solid World that deal with such assets.
The combination of blockchain technology with monitoring tools such as the Internet of Things and satellites can ensure further transparency and traceability of impact reporting along the green finance value chain. All of the above use cases have already started to have a significant impact on achieving the Paris Agreement and the UN Sustainable Development Goals. The companies behind it see themselves as part of the growing Regenerative Finance (ReFi) community.
Convergence of Web3 and carbon markets
In 2017, Glocha and DAO IPCI, which ran the world’s first voluntary carbon credit transaction, introduced a blockchain booth at the COP. The Climate Change Coalition was formed with the support of the UNFCCC Secretariat to unite blockchain pioneers who, at the time, faced much skepticism from traditional players amid the first wave of coin offerings. Five years later the picture had changed dramatically – the COP27 in Egypt marked the convergence of the green finance world and the Web3 world.
Since the nation states are not meeting their climate responsibility, new actors have emerged. Sunny Sharm El Sheikh hosted a record number of Web3 companies. The United Nations Global Innovation Hub was at the center of all Klimatech talks, with high-level speakers and crucial issues. The Web3 agenda was also presented at the Singapore Pavilion, the International Emissions Trading Association, the Climate Chain Coalition, the Gulf Organization for Research & Development and several others. Carbon market veterans mingled with the Web3 crowd at dinner parties and hotel conferences like those organized by Hubculture, Hedera and the HBAR Foundation. What should be a more solid sign of industry acceptance?
Two of the main carbon market standards, Verra and Gold Standard, have been presented at blockchain events, but no official statements have been made about tokenization. At the same time, some of the carbon market veterans have already taken over Web3, with AirCarbon Exchange, Climate Trade, Climate Check and Ecoregistry leading the way.
This COP also marked Africa’s growing openness to carbon markets and climate finance as the continent seeks finance and technologies that foster sustainable, self-sufficient growth. But the key pieces of infrastructure must be deployed first. Web3 and its open-source portion provide such an inclusive, decentralized infrastructure with peer-to-peer payments and transparency that builds trust between green issuers and investors.
Regenerative finance is one of the hottest WEF trends
Held annually at a swanky ski resort in the most expensive country, the World Economic Forum (WEF) is the opposite of the COP in many ways, but most notably in terms of inclusiveness. While the COP keeps changing host countries, the WEF remains in the snowy fortress of Davos. The outside temperature this year was around -17 degrees Celsius, but the hotel prices were even more extreme. A lack of snow made it clear that climate change is indifferent to wealth and status.
Access to the WEF events zone was restricted to politicians, business leaders and friends of the organization and you had to have ID to get in. The outside stakeholders gathered at hotel conferences and the promenade, a street lined with boutique shops that have been converted into advertising spaces, also known as houses. The houses were mostly occupied by corporations, blockchain companies and countries like India, Indonesia and Saudi Arabia looking to showcase themselves on the international stage.
The main topics of discussion at the WEF were economic crisis, geopolitical issues, sustainability and Web3. The intersection of the last two has been among the top trends. In September 2022, the WEF launched the Crypto Sustainability Coalition to explore how Web3 and blockchain tools can be used to achieve positive climate action. In addition to other thematic events, the working group meetings on emission certificates and climate protection took place.
Key Web3 houses included the Global Blockchain Business Council, Hedera, Blockchain Hub Davos and a creative ReFi space with digital art. Aside from the ReFi project, these events featured speakers including someone from the Commodity Futures Trading Commission, Will.i.am and Naomi Campbell. Each day ended with late night parties, where attendees had the opportunity to meet with high profile personalities and investors from around the world.
What’s coming in 2023?
Web3 companies made their strongest showing ever at both the COP and WEF events, presenting solid use cases with broad global support. Climate and Web3 were among the hottest topics, with the ReFi sector on the rise. 2023 and beyond promise continued growth for this trend with the potential to become the leading focus of the blockchain space. The industry is awaiting guidance from carbon standards and regulations to drive the market forward, but there are also untapped opportunities in non-climate issues such as: B. Biodiversity.
Related: 5 tips for investing during a global recession
Web3 native standards and infrastructures like Guardian are coming soon and ready to shake up the market landscape. Established players need to act fast to stay relevant. Rollout is well underway with developing regions, including Africa, ideally placed to reap the greatest benefits from Web3’s sustainable solutions.
The Conference of Parties (COP) of the United Nations Framework Convention on Climate Change brings together around 40,000 people from 196 countries. Governments, international institutions, financiers, businesses, NGOs and local communities come together for a two-week sprint to discuss action to tackle the climate crisis. The United Nations’ famous 17 Sustainable Development Goals, along with the historic Paris Agreement, were presented for the first time at COP21 in Paris. It aims to limit global warming to below 2 degrees Celsius above pre-industrial levels, with a target of limiting it to 1.5 degrees (which, by most assessments, has most likely already been achieved).
Alexei Shadrin is co-founder of the Carbon Fund and Evercity.io, a Web3-based platform for green finance origination. He is also leader of a finance group in the Climate Chain Coalition and a frequent speaker at high-level events at the World Bank, UN and WEF. He is also co-author of a book published by Elsevier on using blockchains for climate finance.
This article is for general informational purposes and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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