This is the final blog in Klima DAO’s ‘introducing’ series covering some fundamentals on what we’re building, and the market we aim to disrupt.
In this entry we introduce some key carbon offset project types to give readers a flavour of what exactly the KLIMA token will be based upon (and what it is that our Klima DAO-treasury/black hole will be absorbing).
For reference, each carbon offset represents a measurable and verifiable reduction, removal or avoidance of greenhouse gas (GHG) emissions (check out our GitBook for a refresh on carbon offsets). For offsets destined for the voluntary carbon market, where Klima DAO will initially be positioned, they’ve likely gone through two of the major certification standards: Verra or Gold Standard. These certification bodies ensure that the methodologies utilized to calculate the carbon mitigation or removal potential of projects are robust and have gone through critical review by multiple third parties. Individual methodologies differ depending on the technology type being utilized to achieve carbon reduction outcomes.
Essentially, Klima DAO will leverage the existing carbon market infrastructure and the robustness of its existing supply. It will bridge this supply with the liquidity of DeFi to both disrupt the status quo of the market, and develop this new ecosystem built on carbon.
Common Technology Types
To give a flavour on the type of carbon offsets that are anticipated to be locked up within the Klima DAO treasury, let’s start with some of the most common technology types deployed in carbon offset projects. This doesn’t necessarily mean that they’re the ‘best’ projects — indeed each carbon offset is equivalent to 1 tonne of CO2 abatement or removal — it just means that they are the most common to be developed and purchased.
- Carbon sequestration via reforestation: Biological sequestration absorbs CO2 emissions through the growth of vegetation and the continued storage of some of the carbon in plant tissues and organic materials derived from plant tissues (e.g. stored in the soil). An example project is the restoration of degraded mangrove landscapes in Myanmar, carried out by Worldview International Foundation.
- Carbon mitigation via forest protection: An area of forest that would have likely been cut down due to agriculture or timber activities is protected instead to maintain the carbon sinks already present in the existing biomass. These projects naturally entail some level of removal as well as vegetation grows and matures. An example project is the Verra-certified Rimba Raya Biodiversity Reserve in Indonesia.
- Renewable energy. Renewable Energy projects include hydro, wind, photovoltaic solar power, solar hot water, and biomass combined heat and power. It is worth noting that although these projects are common today, Verra and the Gold Standard will no longer support the development of offsetting projects from renewables after 2022, citing a lack of additionality for these technology types (i.e. the finance brought forward by carbon offsets is no longer required to make these projects competitive against new fossil fuel power plants). An example project is the Gold Standard 100.5MW Wind Power Project in Madhya Pradesh, India.
- Methane capture. Methane’s global warming potential is about 21 times greater than that of CO2. This GHG is produced and emitted by landfills, during wastewater treatment, in natural gas and petroleum systems, and from farming and agricultural activities. Methane is basically ‘natural gas’ (that’s the gas that is piped in the gas grid into homes for cooking and heating) and therefore if its captured at a facility (e.g. landfill, wastewater treatment centre, etc) it can then be used as a source of energy to displace newly extracted gas. The West Star North Dairy project in California, USA is an example project that captures methane from a dairy farm and uses it for energy.
Less Common Technology Types
There are many other project types available — ranging from well-established carbon removal (reforestation and soil sequestration) and mitigation technologies (industrial processing techniques), to novel carbon project approaches that have only been developed in the past few years (biochar and ‘blue carbon’) and highly innovative techniques that are far from commercial viability (Carbon Capture Usage and Storage (CCUS) and Direct Air Capture and Storage (DACS)).
- Industrial Processing: These projects include interventions such as industrial fuel switching to decarbonise operations, greenhouse gas capture at a facility to reduce emissions going direct into the atmosphere, and the recovery and destruction of ozone depleting substances. Industrial processing carbon offsets essentially enable market mechanisms to drive industrial and commercial processes to less carbon intensive methods — the additionality attribute of carbon offsets ensures that these projects can only be developed in cases when it would otherwise not be financially viable for the interventions to be made. The Meridian SF6 Carbon Reduction Project is an example of an industrial processing project.
- Carbon removal via soil sequestration: This includes various ways of managing land, especially farmland, so that soils absorb and hold more carbon than it otherwise would. Increasing soil carbon is accomplished in various ways, including: reducing soil disturbance by switching to low-till or no-till practices or planting perennial crops; changing planting schedules or rotations, such as by planting cover crops or double crops instead of leaving fields fallow; managed grazing of livestock; and applying compost or crop residues to fields. An example soil sequestration project is the Kenya Agriculture Carbon Project.
- CCUS: Out of all of the technology types listed in this article, CCUS is the least mature. However, it holds great promise in providing a technological way to scale up carbon removals and deposit carbon into long term storage mediums, e.g., basalt rock. The most well known company operating this technology is Swiss-based Climeworks, which currently has a pilot facility operating in Iceland removing carbon from the atmosphere.
Project pricing remains an element of the carbon markets that is relatively opaque compared to other marketplaces that have highly liquid and dynamic spot markets. That said, there are fundamental criteria that underpin the price achievable for carbon offsets.
- Project co-benefits: high-grade projects typically include additional provisions to deliver resources on the ground and improve the social and economic welfare of the local communities where the project is based. The co-benefits could come in the form of explicit investments into employment opportunities, education resources and community initiatives.
- Varying implementation costs: project costs will be determined by the scale of the undertaking, and the location chosen — the development of a large project in a less developed nation with little track record of carbon project development may cost significantly more than a relatively small project in a more developed nation with a proven track record of carbon project development.
- Technology type: as discussed above, there are a variety of technologies ranging from mature renewable technology to highly innovative approaches such as CCUS and DACS — these technologies have vastly different CAPEX and OPEX costs that are interalised into the cost of carbon offsets. Offsets created off the back of mature technology will naturally have much lower prices.
- Market economics and regulation: to a large extent, prices are determined by supply and demand on the free market; when there’s plenty of credits of a certain type with a modest demand for them, prices will be low. If the supply drops or demand hikes (or both…), then prices will shoot up. Note that as is the case with many things to do with climate change, regulation is never far away, and free market conditions can be disrupted by domestic (or international) carbon pricing regimes that may place additional demands on local markets.
For more reading, check out our previous blog entries to see why now is the time and this is the space to act; and why we’re confident carbon offsets are the right commodity to leverage and fulfil our goals.
Our next series of blogs will delve deeper into the mechanics behind Klima DAO, and how it will interface with the markets discussed in this first series.
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