Let’s use Web3 to grow projects that fight climate change


A lot has been said about the potential of blockchain and other Web3 solutions to transform carbon credit markets by ushering in a new era of transparency, fraud protection and disintermediation. What hasn’t been talked about enough are the fruits of this transformation. More specifically, how can the on-chain carbon credit be used to scale the pace of climate impact?

Make no mistake, on-chain carbon credits have so much more potential than simply being a better mechanism for the “buy and retire” process we have now. For one, they can plug directly into decentralized financial services. They can also be the primary asset within the regenerative finance (ReFi) ecosystem, acting as a sort of “gold standard” for ReFi currencies and other economic activity.

For concrete examples, we can look to other on-chain real-world assets, such as real estate, bonds and art, to understand what’s possible with Web3 beyond basic transaction facilitation. Things like collateralization, cash flow financing and providing retail investment instruments are the kinds of activities that can achieve the kind of climate impact scale we need in the fight against climate change.

Access to short-term loans

One of the great hopes of a Web3-powered carbon market is a more consistent pricing framework for carbon credits. With this framework in place, along with the fact that credits hold their value for about a year, on-chain carbon credits will become an asset that can be used as collateral on decentralized finance (DeFi) protocols. This is important for projects because they can get access to short-term loans as a way of ensuring consistent cash flow while they search for a buyer or await confirmation of a sale. 

Web3 carbon marketplaces could implement this feature directly as a way of building trust between lenders, projects and buyers. You can imagine a scenario in which escrow smart contracts are utilized to facilitate the sale of carbon credits and automate repayment of the loan.

Project ‘pre-financing’

One of the challenges that carbon offset project developers face is securing the financing to get their projects up and running. The lag between project initiation and the first revenue from carbon credits is the primary reason for this. It can take two to three years for actual credits to be issued, leading to significant cash flow issues.

A solution already employed by carbon offset project developers is to sell a portion of estimated carbon credits as discounted forward carbon credits. In other words, the project estimates that it will issue 10,000 credits in two years and then sells some percentage as forwards. The remaining portion helps account for delivery risk.

While this specific process can be done off-chain, issuing forward credits on-chain opens up a wealth of possibilities with respect to project pre-financing. As with the on-chain credits themselves, on-chain forwards can be used as collateral. But they can also be sold directly to buyers, who will then take ownership of the credits upon issuance and can retire or resell them as desired. Both are effective ways for carbon offset project developers to get the upfront capital they need. 

Expanding investment opportunities

Carbon credits have not traditionally been seen as an investment instrument, and rightfully so. For one, they are designed to be retired immediately upon purchase so that buyers can offset their carbon emissions. Carbon credits also have the tendency to decline in value over time. A 2021 vintage issued in 2023, for example, will be most valuable in 2023 and lose value in each subsequent year. On-chain credits are unlikely to change this dynamic because we still want the buy-and-retire model to prevail.

That doesn’t mean investors will be left out of the tokenization equation, however. On the contrary, on-chain credits and forward credits will allow investors to participate to a much greater degree in pre-financing projects and providing liquidity for loans. Retail investors, in particular, can participate in decentralized autonomous organizations that pre-finance carbon offset projects and profit off the difference between the discounted forward price and the sale price of the issued credit.

Shifting incentives toward sustainability

Regenerative finance aims to engineer a shift away from our existing profit-driven financial system and toward a system that prioritizes ecological and societal regeneration. Web3 solutions and philosophies underpin these goals by making things like universal basic income, cultural preservation, and climate asset management a lot more efficient and accessible.

Part of the ReFi approach is developing financial instruments and climate assets that empower new incentive frameworks. On-chain credits have an important role to play here because they are currently the most widely recognized and accepted climate asset. They could, for example, be used as collateral for a stablecoin or even as currency in their own right. At scale, such a concept would provide the needed incentives for companies and governments to choose regeneration over-exploitation.

What we know for certain is that Web3-powered carbon credit markets are only the first step toward a larger goal. Much innovation and experimentation are needed to get where we need to be, but the initial signals are beginning to demonstrate the power of on-chain carbon credits as a means to scale climate impact. The next step is ensuring that the carbon offset projects working toward these same goals have the funding and support they need to incentivize the next generation of climate defenders.

How Web3 can help island nations fight climate change: Opinion


The cruel reality for small island nations across the Asia-Oceania region is their position at the tip of the climate change spear. Our collective march toward convenience and wealth at the expense of the environment has sea levels on pace to rise two-thirds of a meter by 2100. To put that in perspective, the countries of Kiribati and Maldives are estimated to be totally submerged by 2050. And that is not even to consider the impact of increasing weather events like cyclones.

In this absence of real commitment to sustainability, island nations have been left to fend for themselves. Rising sea levels are regrettable, say the large polluting nations, but are not nearly enough to warrant systemic change. It has left island nations searching for solutions to an existential problem. Namely, what can be done now to ensure, or at least prolong, the future existence of their homes.

Web3 has been offered up as a potential solution to the problem of climate change. It doesn’t have all the answers, to be sure, but it can be a useful tool. For island nations in particular, Web3 presents opportunities to issue revenue-generating climate assets, find new sources of funding for climate projects, and ultimately create a system of sustainable wealth transfer from the world’s biggest polluters.

On-chain climate assets as a revenue stream

The concept behind climate assets, such as carbon and renewable energy credits, is to incentivize regeneration, preservation and sustainability. And while the spirit behind the scheme is good, the implementation has created issues — the opacity and complexity of carbon markets, for one. Another is the cost associated with getting climate assets to market. These all add up to a supply shortage when corporate demand for carbon credits is at an all-time high.

Island nations are rich in climate assets — mangroves, rainforest, seaweed, seagrass, wind and sun. What they don’t have is a means to leverage the potential of those assets to meet global demand and create new revenue streams. This ultimately furthers the case for exploitation, a double-edged sword that both reduces a nation’s climate assets and puts it at even greater risk of rising sea levels and other climate events.

Web3 and its underlying technology are making it easier for island nations to leverage their climate assets. Carbon and renewable energy credits can be issued on-chain through asset tokenization, sold on a transparent voluntary market, and retired in a way that prevents fraud and double-selling. This process effectively turns climate assets into a legitimate asset class because once you have them on-chain, they are accessible by all and can be used in decentralized finance and regenerative finance

But it isn’t just about tokenizing the assets themselves. Climate asset provenance and quality can also benefit from Web3. Decentralized protocols and open-source methodologies can be used to issue new, Web3-native climate assets. Imagine a scenario in which an island nation is able to issue blue carbon credits using a peer-reviewed methodology for mangroves. The revenue earned from the sale of these credits can then be reinvested back into further mangrove regeneration. 

Sustainable wealth transfer

The model referenced above — corporations purchasing renewable climate assets — can be seen as a form of wealth transfer from the big polluters to island nations. This is in stark contrast to the standard approach taken by the large polluting nations, which is to throw money in the general direction of the primary victims of climate change in the hope that it will make up for all the environmental damage. It’s a one-way “solution” that is shockingly short-sighted and arrogant.

The reality is that climate change is not something we can just throw money at, especially while the incentives for exploitation remain higher than those for regeneration and preservation. We need sustainable wealth transfer — sustainable incentives for regeneration and preservation where any nation, not just island nations, can move away from exploitation and generate recurring revenue from their climate assets.  

Web3 has an important role to play in realigning these incentives. Aside from facilitating the generation and sale of climate assets, it can open up access to new funding streams for island nations looking to implement climate impact projects. Special-purpose DAOs (decentralized autonomous organizations), for example, can be employed to coalesce funding around a particular project or initiative, say a reforestation project in Indonesia that benefits local communities. Revenue earned from the climate assets can then be used to repay investors.

How island nations can take advantage of Web3

Web3 adoption is a journey that starts with an openness to embrace a new way of doing things and a willingness to explore alternatives in the fight against climate change. It’s the kind of forward-thinking that is needed to solve a multi-faceted problem like climate change.

There have already been examples of island nations taking the lead. We’ve seen Palau — an island nation already dealing with the impact of rising sea levels — implement a Web3-based digital residency program as a first step towards becoming a global DeFi and digital asset hub. The Marshall Islands, in turn, wants to become the global hub for DAO incorporation. These are clear indicators of their commitment to exploring Web3 solutions.

Beyond that, there are other steps island nations can take to begin on-chaining their climate assets and move toward a sustainable wealth transfer model:

  • Conduct evaluation of existing climate assets and potential for new climate assets.
  • Work with credible partners in Web3, environmental science, and climate tech.
  • Pass legislation recognizing the legality of tokenized climate assets.
  • Share knowledge and experience with other small island nations.

At the same time, those of us in the large polluting nations should actively look to support small island nations in their fight against an existential threat we are at least partly to blame for. Web3 is making that easier than ever. We will be able to buy blue carbon credits as part of our offset strategies, directly invest in climate projects, and raise awareness of the plight of island nations. And while it may not be the perfect solution, it just might be the best chance island nations have of doing something about a problem they had no part in creating.