How Regenerative Finance Can Fund the Future

Starting with the solution

Articles on our climate, whether pessimistic catalogues of the end of the world or optimistic scripts describing the beginning of a new one, tend to start with the problem: under the threat of extraordinary suffering, we need to sequester over 10+ gigatons of carbon every year beginning in a couple of decades, ideally sooner. To accomplish this, UNDO and fellow carbon removal companies must build a hardware industry on software timelines. 

My view from inside a carbon removal company suggests reasons for hope. I see extraordinary support from unlikely sources, fundamental breakthroughs in hard science, and tenacious entrepreneurs leading us into the future. Hiding behind these exciting stories of progress is a practical, unavoidable, block-and-tackle question: How will you pay for it? So instead of starting with the problem, I’d like to start with the solution: we must finance our future via the forward financing of carbon credits. In particular, I’d like to briefly describe exciting progress in the field of regenerative finance (otherwise known as #refi) that is worthy of our attention and stewardship.

Funding the future

Carbon dioxide removal (CDR) is a currently tiny though potentially massive market. Exact figures are hard to come by, but barring unexpected good news, fewer than 20,000 tonnes of carbon removals will likely be delivered globally this year. Given how little is available today compared to a gigaton scale market, all purchases made now are essentially for future carbon removal. Furthermore, because the demand for removal is expected to grow much more quickly than the ability to build supply, buying future removals is likely to continue to be the only way to purchase removals for quite a long time. 

“Even if you are a powerful multinational business with serious net-zero commitments and an unlimited budget, you still have absolutely no chance of offsetting all of your 2022 emissions with in-year high-quality permanent removals.”

So, how do you buy future production? All you have to do is hire a team of climate scientists, build relationships and perform diligence with busy project developers. Oh, and write legally binding forward contracts detailing how and when the carbon will be delivered and liability in the case of non-delivery, negotiate pricing, explore insurance options, stay up on the newest climate tech, and manage delivery across your portfolio. While a small subset of the biggest and best project developers and corporate buyers can hire and fund the team of specialists to play that game, it’s a challenging and demanding responsibility.

How exactly can companies scale up forward contracts? Presently, the choices are limited. One option is to join forces with Stripe and invest in Frontier. However, per tonne costs and investment minimums are high, and perhaps most critically, it’s tough to direct value to a specific set of stakeholders. Another would be to hire a broker or consultant such as Southpole to write bespoke forward contracts on your behalf, as they’ve done historically for oil companies and major corporations. But, these are likely to be gigantic tickets and be limited to nature-based solutions, not durable CDR. Lastly, some traditional institutions may offer a path forward after years of hesitancy: Verra pulled an attempt at a future carbon product in 2020 but looks to be launching Prospective Carbon Units before too long, with similar rumblings from other ICROA-backed standards. Meanwhile, Pending Issuance Units, issued by the UK’s Woodland Carbon Code, allow for monetisation of future forestry carbon today, yet traded volumes remain small. In sum, a bit of progress, but hardly a clear path to gigaton scale financing solutions.

However, there are green shoots a bit further afield, growing on less well-trodden ground that are worthy of our good care and stewardship. Built using blockchains (hic sunt dracones!) as part of the growing web3 #refi community are a group of start-ups looking to make forward contracts appealing to project developers and accessible to buyers. There are now many promising start-ups in this space, such as senkenSolid WorldGreenTradeSequestrthallo and Ivy Protocol, as well as initiatives at more established players like Toucan and Regen Network. I’ve been tracking the space closely, and it’s moving at what can only be described as crypto-speed. The idea of refi didn’t really exist a year ago. Most of these companies didn’t exist six months ago.

Where did refi come from?

This new yet vibrant refi community combines the ethos and technology that inspired decentralised finance and the ethics of the climate community. As someone in climate tech, do you need to understand this? Perhaps not. Though if you want to read more, I’ve shared some materials at the end of this blog.

So then, why bother with crypto?

It’s valuable to address this question, as it gets under a lot of collars and Twitter fingers. There are worthy philosophical answers, but to project developers like us at UNDO, the most reasonable concerns are practical. For instance, can the existing financial infrastructure for climate action scale to coordinate and deliver gigatons of removals? Perhaps? Regardless, we would be well served to support next-gen climate and carbon infrastructure wherever it crops up. And it’s appearing on-chain right now in the refi community. 

But doesn’t crypto hurt the planet? Another good question! Bitcoin, in particular, has an enormous carbon footprint, about the same size as New Zealand. 

“The next generation of blockchains used by refi companies do not have significant carbon footprints as they’re dramatically more efficient.”

Looking to the future, every cash-constrained, non-dogmatic project developer should know their options. I hope everyone from the web3-native crypto-evangelists to weather-beaten climate financiers who cringe whenever I say “on-chain” can see the truth: better forward financing for carbon removal is necessary, and increased competition will improve terms for project developers. Better terms mean more upfront payment, more working capital, and critically, quicker scale and better climate outcomes. At UNDO, we recognise that forward financing for carbon removal must be improved and are looking to forge partnerships across the board to foster industry growth.

So, I invite you to follow (or join) us as we begin to navigate these waters, coaxing dynamism from existing players in the voluntary carbon market while supporting new companies building the scalable infrastructure we need to get to gigatons of CDR. All aboard!

Further refi reading for the curious:

What is ReFi? by John Ellison

Intro climate tech <> web3  | why you should get to know each other, by Ikarus Janzen 

Understanding The Why Behind ReFi, by Alex Corren