Closing the emissions gap with KlimaDAO
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Closing the emissions gap with KlimaDAO

Published Thu Feb 10 2022

How KlimaDAO is helping to solve climate change

Introduction

Climate change is the number one issue of our generation, and tackling it requires coordination and action across borders, and across society.

Averting catastrophic scenarios will depend on keeping global warming below certain levels.

The Paris Climate Change Accord (often referred to as the ‘Paris Agreement’) adopted in 2015 is a legally binding international treaty on climate change which has come to define our climate objectives. The goal of the Paris Agreement is to ‘hold the increase in the global average temperature to well below 2°C above pre-industrial levels and pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels’. The scientific community have achieved consensus that keeping warming under these limits is crucial to keeping climate change from spiralling to unmanageable levels.

A number of nations have already committed to reducing carbon emissions and/or achieving carbon neutrality at a date that would align their own emissions trajectory to the Paris Climate Accord via their Nationally Determined Contributions (NDCs). However, when considering NDCs as a whole, they fall short: there exists an Emissions Gap — the difference between necessary emissions reductions, and those that nations have committed to making.

In this article, we first define the emissions gap, we discuss the impact of Voluntary Carbon Markets on closing this gap, and how KlimaDAO is driving development of these markets to close the emissions gap.

Defining the Emissions Gap

The Intergovernmental Panel on Climate Change (IPCC) models a variety of climate scenarios to 2100, based on the rate of global warming forecasted from greenhouse gas emissions into the atmosphere. The analysis is compared with a baseline of pre-industrial emissions and temperatures.

The models developed indicate that temperature increases are of geometric significance, carrying a serious risk of spiralling effects which will have serious impacts on our existing climate and way of life. The Paris Agreement climate targets have been established to avoid the worst impacts of climate change.

The NDCs developed by each country outline the policies, mechanisms and budgets that will be deployed in each country to tackle climate change and deliver their fair share of emissions reductions to deliver on the Paris Agreement. NDCs may include provisions to modernize the energy system, protect natural habitats, and improve the social and economic welfare of communities at risk from climate change. The NDCs are all published and can be viewed on the UNFCCC’s website.

The Carbon Budget defines the amount of carbon emissions that can be emitted to deliver on the Paris Agreement and remain within the parameters which will avoid the most severe impacts of climate change. Because greenhouse gas emissions are cumulative, the Carbon Budget estimates the total amount of anthropogenic CO2 that can be emitted post-industrial revolution. When we subtract from the amount of CO2 that has already been emitted by humans, we get the remaining carbon budget.

The IPCC estimates that between the late 19th century and the year 2020, humans have emitted about 2390 Gigatons of CO2 (GtCO2). For a 67% chance of limiting warming to 1.5℃ by the year 2100, the remaining carbon budget is about 400GtCO2. For the same chance of remaining within 2℃, the remaining carbon budget is about 1150GtCO2. The chart below illustrates the 1.5℃ scenario.

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The IPCC estimates that current actions included within the submitted NDCs would lead to annual CO2 emissions of 55 gigatons in the year 2030, and a global temperature increase of 2.7℃ by 2100[1]. In order to meet the 2℃ or 1.5℃ limit, annual CO2 emissions should not exceed 39Gt or 25Gt respectively, by the year 2030.

In fact, accounting for the NDCs shows that the 1.5℃ carbon budget would be exhausted by the year 2030, as we are currently on track to emit 400–560 GtCO2e before then[2].

In other words, meeting either of these targets will require significant reductions beyond those that nations have already committed to.

The anticipated shortfall in emissions reductions against the Carbon Budget is known as the Emissions Gap. The Emissions Gap enables us to understand what additional reductions are needed in order to meet warming goals, and ultimately to minimize the most severe consequences of climate change.

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This emissions gap, conceptualized either in terms of annual emissions or overall carbon budget, is of major concern. While it is hoped that many nations may adopt more ambitious NDCs to close the gap between the expected and needed, significant political and economic pressures make it highly unlikely that NDCs will close the gap on their own. Russia and China for example, two nations that collectively make up an estimated 34% of global emissions, were considered uncompromising (and largely absent) at the COP26 Summit negotiations in Glasgow. The United States, which comprises about 14% of global emissions, has also frequently wavered in its commitments as governments have changed.

The Role of the Voluntary Carbon Market

Clearly, NDCs leave a significant emissions gap which must be bridged by other tools if policy is unable to fill it.

One of the most promising tools to close the gap is the Voluntary Carbon Market (VCM). The VCM allows companies or industries to offset their own carbon emissions by purchasing carbon credits. The originators of carbon credits are specific projects that verifiably show that their activities lead to the abatement or removal of carbon from the atmosphere. In order to be verified, these projects must follow the processes developed by the carbon standards (such as Verra and Gold Standard), and are audited by third party validation bodies.

The VCM is a market-mechanism for climate action that enables the carbon project developers to secure capital to maintain and scale their projects, with the end-user paying to take that ‘credit’ to offset their own emissions. By setting a price on initiatives that have a positive carbon impact and enabling the market to coordinate the flow of finance from emitters to projects the VCM drives sustainable development and decarbonization.

The VCM is therefore a tool which can be used to invest in projects that enhance the efforts of co-ordinated climate action. They are additional to the impacts of regulations and funding developed at the nation state level.

The carbon ‘credit’ generated within the VCM can increase the difference between our existing emissions trajectory, and our carbon budget. The VCM can help close the emissions gap.

The Taskforce on Scaling Voluntary Carbon Markets (TSVCM) states:

“A liquid voluntary carbon market at scale could allow billions of dollars of capital to flow from those making commitments, such as carbon neutral or net-zero, into the hands of those with the ability to reduce and remove carbon.[3]”

Indeed, VCMs have been widely recognized as a necessary tool in the drive to bridge the carbon gap. The UN Special Envoy for Climate Action states:

“To facilitate this global decarbonization there is a need for a large, transparent, verifiable and robust voluntary carbon market, one that promotes genuine action of high environmental integrity.[4]”

Modelling by the Taskforce on Scaling Voluntary Carbon Market suggests that a 15-fold scale-up of voluntary offsetting in 2030 versus 2019 is required to deliver the 1.5℃ pathway[5]. Their analysis suggests that forecasted demand-side growth means the market is capable of trading around 4–5GtCO2e by 2030 with a market volume of US$60–100bn. However, 2019’s figures show that only 104mtCO2e was traded on the VCM. Significant work is required to scale it up to its potential.

The Role of KlimaDAO

KlimaDAO leverages the supply of high-integrity carbon credits generated within the VCM, and uses them to back the supply of KLIMA (KlimaDAO’s native token). Maximizing participation in the VCM by increasing the adoption of KLIMA will in-turn increase the volume of climate finance flowing towards individual carbon projects. This in turn enables the projects to secure demand, become economically viable and scale-up their impact against our carbon budgets.

KlimaDAO is a proponent of the VCM’s development. Based on KlimaDAO’s performance to-date, it is estimated that over 200 million tCO2e (annualized) will be traded through KLIMA pools on Decentralized Exchanges alone in the next year. This is near double the entire volume of carbon offsets that were traded in the legacy VCM in 2019. Based on this, we can expect that KlimaDAO can contribute significantly to the TSVCM’s forecasted 3–5GtCO2e volume of credits traded by 2030.

In terms of helping close the emissions gap, KlimaDAO’s treasury currently represents just over 0.015GtCO2e of carbon credits removed from the market; a feat achieved in just 4 months. By tapping into latent demand for carbon in the Web3 space and beyond, it is anticipated that KlimaDAO will have an increasingly significant impact in moderating our carbon trajectory and enabling it to remain within our carbon budget to keep global warming below 2 degrees pre-industrial levels.

KLIMA enables users to not only get exposure to the forecasted growth of the carbon markets, but also to actively participate in the market over a period of time and help deliver the benefits that KlimaDAO brings to the whole market.

Currently, KlimaDAO is focused on the ‘Integration’ phase of its Roadmap. The main objective here is to encourage adoption of KLIMA as a means to embed carbon into DeFi and unlock participation in the carbon market. To date, there are over 60,000 holders of KLIMA.

On 16th February, KlimaDAO will launch its Klima Infinity programme which gives protocols and corporates the opportunity to manage their carbon offset programme via KLIMA and further accelerate the on-chain carbon market.

What has been lacking for climate action is a real and practical way of getting involved, and KlimaDAO changes this. KlimaDAO has demonstrated the art of the possible and has developed a strong foundation for the Regenerative Finance economy.

The DAO will continue to build and execute on its roadmap, with the primary goal of positive climate impact.

If you are interested in learning more about how KlimaDAO can enable coordination and financial activism to tackle climate change, join us on Discord and follow us on Twitter.

Sources

[1] UNEP Emissions Gap Report, pg. XXIV, Table ES. 1.

[2] Rogelj, J. et al., 2016a: Paris Agreement climate proposals need a boost to keep warming well below 2°C. Nature, 534(7609), 631–639, doi:10.1038/nature18307.

[3] Taskforce on Scaling Voluntary Carbon Markets, January 2021, pg. 2

[4] Taskforce on Scaling Voluntary Carbon Markets, January 2021, Preface

[5] TSVCM, January 2021, pg. 4

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