COP has also created tools to prevent the end of the world. Economic instruments such as voluntary and enforceable carbon markets, carbon credits, green bonds and other green assets tied to positive environmental impacts play a critical role in global decarbonization efforts. However, they are often not available to small and medium-sized companies from developing countries. The main reasons are high initial costs and complex structuring processes in accordance with global environmental standards.
Positive and negative impacts on the environment must be predicted and described in accordance with approved methods. This information is used for future monitoring and reporting and verified by assurance providers. This is where greenwashing or misleading eco-claims can happen. On-chain verification ensures data integrity and transparency, incentivizing issuers to meet their environmental obligations.
12% carbon offset and the birth of ReFi
It’s no secret that the issuance of green finance instruments has long been monopolized by Web2 financial infrastructure players such as banks, exchanges, registries and standards. Therefore, it is not surprising that at this stage Web3 brings the most disruption.
The most obvious use case for Web3 in green finance is the transfer of assets from traditional centralized ledgers to the blockchain using fungible or non-fungible tokens (NFTs). Launched by DAO IPCI in 2017 and scaled up by Toucan and Klima DAO in 2021, carbon credit tokenization has led to the decommissioning of 20 million tons of CO2 – almost 12% of the annual voluntary carbon sequestration in the market. As a defensive move, the leading carbon standards immediately banned tokenization. This initiated an ongoing public discussion and highlighted the need for a broader approach than increasing liquidity.
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This approach, originally described by the untimely deceased founder of DAO IPCI Anton Galenovich, is now being implemented by new generation infrastructure solutions. One of these is the Guardian, an open source tool that provides verifiable, traceable and reproducible records documenting the emissions and lifecycle of sustainable assets. It provides a minimal code environment for instantly launching new applications, resource types, and even standards. Blockchain-based infrastructure has generally proven to be faster, more cost-effective, and more transparent. This is critical to unlocking green finance opportunities for SMEs and eliminating green laundering.
Web3 also offers the opportunity to develop innovative tools that enhance the liquidity of previously illiquid assets or combine the strengths of multiple tools. Take, for example, carbon bonds. They combine features of green bonds and carbon credits, giving green bond investors more incentives and allowing issuers to receive lower coupon rates. Biodiversity credits value ecosystem services, and my own Evercity’s carbon forwards allow for financing of carbon projects at an early stage before the 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.
Combining blockchain technology with monitoring tools such as the Internet of Things and satellites can provide additional transparency and traceability of impact reporting across the green finance value chain. All of the above use cases have already begun to have a significant impact on the achievement of the Paris Agreement and the UN Sustainable Development Goals. The companies behind them see themselves as part of the growing Regenerative Finance (ReFi) community.
Convergence of Web3 and Carbon Markets
In 2017, Glocha and DAO IPCI, the world’s first voluntary carbon lending deal, introduced a blockchain booth at COP. The Climate Change Coalition was formed with the support of the UNFCCC Secretariat to bring together blockchain pioneers who then faced a lot of skepticism from traditional players in the wake of the initial coin offering. Five years later, the picture has changed dramatically – COP27 in Egypt marked the convergence of the world of green finance and Web3.
As nation states fail to meet their climate commitments, new players have stepped up. Sunny Sharm El Sheikh hosted a record number of Web3 companies. The United Nations Global Innovation Center was at the center of all the climate technology talks, with top speakers and important topics discussed. The Web3 agenda was also presented at the Singapore Pavilion, the International Emissions Trading Association, the Climate Chains Coalition, the Gulf Research and Development Organization, and several other organizations. At dinner parties and hotel conferences, such as those hosted by Hubculture, Hedera, and the HBAR Foundation, carbon market veterans mingled with the Web3 crowd. What should be a more convincing sign of industry acceptance?
The two most important carbon market standards, Verra and Gold Standard, have been presented at blockchain events, but no official announcements have been made regarding tokenization. At the same time, some of the carbon market veterans have already adopted Web3, led by the AirCarbon exchange, Climate Trade, Climate Check and Ecoregistry.
This COP also marked Africa’s growing openness to carbon markets and climate finance as the continent seeks funding and technologies that enable sustainable independent growth. But first you need to deploy key infrastructure elements. Web3 and its open source portion offer 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 WEF’s hottest trends
Held annually in a trendy ski resort in the world’s most expensive country, the World Economic Forum (WEF) is the opposite of CS in many ways, but above all in inclusiveness. While COP always changes host country, WEF stays in the snowy fortress of Davos. The temperature outside this year was around -17 Celsius, but hotel prices were even more extreme. The absence of snow has shown that climate change is indifferent to wealth and status.
Access to the WEF events area was restricted to politicians, business leaders, and friends of the organization, and a pass was required to enter. Outside stakeholders gathered at conferences in hotels and on the Promenade, a street of boutiques that had been converted into advertising spaces, also known as Homes. The houses were mostly occupied by corporations, blockchain companies, and countries like India, Indonesia, and Saudi Arabia that wanted to promote themselves on the international stage.
The main topics of discussion at the WEF were the economic downturn, geopolitical issues, sustainability and Web3. The intersection of the last two was one of the main trends. In September 2022, the WEF launched the Cryptocurrency Sustainability Coalition, which aims to explore how Web3 and blockchain tools can be used to achieve positive climate action. Among other thematic events, meetings of the working group on carbon credits and climate action were held.
Key Web3 houses included the Global Blockchain Business Council, Hedera, Blockchain Hub Davos, and ReFi creative space with digital art. In addition to the ReFi project, speakers at these events included representatives from the Commodity Futures Trading Commission, Will.i.am, and Naomi Campbell. Each day ended with night parties where participants had the opportunity to interact with high-profile individuals and investors from around the world.
What will happen in 2023?
Web3 companies performed the strongest at both COP and WEF, demonstrating robust use cases and broad global support. Climate and Web3 were some of the hottest topics, and the ReFi sector was growing. 2023 and beyond promise further growth for this trend, with the potential to become a leading trend in the blockchain space. The industry is waiting for guidance from carbon standards and regulations to drive the market, but there are also untapped opportunities in areas beyond climate, such as biodiversity.
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Web3 standards and frameworks like Guardian are coming soon and poised to shake up the market. Established players need to act fast to stay relevant. Adoption is well underway and emerging regions, including Africa, are ideally placed to take full advantage of sustainable Web3 solutions.
The Conference of the Parties (COP) of the UN Framework Convention on Climate Change brings together about 40,000 people from 196 countries. Governments, international institutions, financiers, businesses, non-governmental organizations and local communities are gathering for a two-week sprint to discuss measures to tackle the climate crisis. The iconic 17 United Nations Sustainable Development Goals were also presented for the first time at COP21 in Paris, along with the historic Paris Agreement. It aims to limit global warming to below 2 degrees Celsius above pre-industrial levels, with the aim of limiting it to 1.5 degrees (by most estimates it has most likely already been reached).
This article is for general informational purposes and is not intended and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are those of the author only and do not necessarily reflect or represent the views and opinions of Cryptooshala.
Credit : cointelegraph.com
