Renewable energy innovation with BlockChain
In an earlier blog post called "Crypto, Blockchain, and the Environment: The Other Side," which is the first of a series examining the positive applications of blockchain and cryptocurrency in battling climate change, I discussed some general use cases of these technologies in fighting climate change. In this post, I’d like to focus on one specific application that has gained significant attention recently – tokenizing carbon sequestering assets.
Cryptocurrency is often criticized for its environmental impact, but crypto projects worldwide are revolutionizing climate finance by developing innovative ways to promote a low-carbon future. One primary method is through the tokenization of carbon sequestering assets, which involves backing a token with an asset that helps mitigate climate change, such as trees or carbon credits.
Tokenizing Carbon Credits
KlimaDAO, a well-known project that emerged in 2021, has recently gained significant attention for its protocol that tokenizes carbon credits.
KlimaDAO is taking a novel approach to tackling climate change by creating a "carbon-backed, algorithmic digital currency." Each token is backed by one tonne of verified, tokenized carbon reduction or removal. In essence, KlimaDAO supports each minted token by purchasing carbon credits. By removing these carbon credits from the market and storing them in the KlimaDAO treasury, the project aims to speed up the appreciation of carbon assets, provide token holders with returns, encourage companies to transition to a low-carbon future more quickly, and make carbon removal projects more profitable.
Carbon markets enable emitters to offset their carbon emissions by purchasing carbon credits, with each credit representing one metric ton of removed CO2. Buying up carbon credits reduces their availability in the market, driving up prices and incentivizing emitters to decrease their carbon footprint as carbon credit purchases become more expensive.
At the time of this blog post’s publication, KlimaDAO had secured nearly 14.5 million tonnes of CO2 in its treasury. This is equivalent to over 70,000 hectares of forest, 3.1 million passenger vehicles annually, and more than 7.4 billion liters of gasoline.
As the world urgently strives to stay below the critical 1.5°C threshold to prevent irreversible climate change, and as corporations and governments work to reduce their carbon footprints, many will turn to voluntary carbon markets. It will be fascinating to observe KlimaDAO’s impact on these markets.
Another creative application of tokens in combating climate change involves tokenizing carbon sequestering assets, such as trees and rainforests. This is precisely the Celo Foundation’s objective with their new Climate Collective.
In October 2021, the Celo Foundation announced the launch of a Climate Collective to fight climate change via Medium. The Climate Collective will compete for XPRIZE’s $100M carbon removal challenge funded by Elon Musk’s Foundation.
The Climate Collective, comprising ten companies like Curve Labs, Kolektivo, Moss, and Regen Network, will adopt a community-driven approach that focuses on tokenizing rainforests and other carbon sequestering assets. Over the next four years, the initiative aims to add tokenized trees to the Celo reserve, partially backing the Celo stablecoin with rainforests.
Rainforests play a vital role in combating climate change, and it is crucial for organizations and governments to protect them. As demand for the Celo stablecoin increases, it enables the preservation of larger areas of rainforests, as more tokenized rainforest is added to the treasury. This creates a carbon sink:
"As currency demand increases, the reserve programmatically preserves rainforests and other carbon sequestering assets. This provides for a monetary system in which any economic growth—any increase in money in circulation—would lead to a