Where Web3 meets Climate

Web3 technology is dovetailing with the onset of climate tech, revolutionizing how we support and interact with sustainability projects.

There’s been a lot of discussion on how crypto is killing the planet. People have long been highlighting the energy consumption of bitcoin mining as a looming downside when it comes to blockchain technology, and the energy consumption from Ethereum transactions is staggering. Up until recently, the term cryptocurrency has been viewed as almost antithetical to sustainability.

At the same time, web3 is allowing users to pioneer new means of community action and ownership unlike ever before. Web3 mechanisms provide decentralization of power and interoperability, making it particularly well-suited to climate applications. In my opinion, one of the most compelling aspects of web3 is its potential for decentralized public goods projects. Web3 infrastructure allows people to invest time and money into things they really care about — and for many people right now, that’s combating climate change.

We’re seeing climate and web3 intersect right now in a variety of ways, mostly centered on new distributed financing or governance platforms. DeFi (decentralized finance) for carbon markets is opening up the notoriously opaque and poorly-tracked carbon offsets world to individuals. Other DAOs (decentralized autonomous organizations) are more focused on enabling the funding and operability for new pro-climate ideas.

DeFi is enabling the growth of the carbon economy by making the carbon offsets market more accessible to individuals. Voluntary carbon markets (VCMs) enable individuals or small organizations to purchase carbon credits. These trades are (surprise) voluntary, as opposed to being mandated like traditional carbon credit markets. While carbon offsets have been criticized for their lack of transparency and accountability, the VCM world has historically been even less regulated. Identifying the status quo baseline level of emissions is hard to do on the small scale of fragmented VCM projects; as a result, many initiatives that claim to reduce emissions have generally been too small to accurately measure. Consequently, VCMs have been plagued with issues around transparency, accountability, and greenwashing.

Web3 technology has the potential to remove some of these obstacles. DeFi applications in carbon markets allow individuals to purchase tokens that are backed by real-world, traceable carbon offsets. For example, Toucan is a decentralized finance project that lets users who own carbon credits link them to digital tokens called BCT (Base Carbon Tonne) which can be traded on existing cryptocurrency exchanges. The thought behind this approach is to provide real-time price tracking and greater transparency into who’s able to take credit for carbon offsets projects. Klima, a separate DAO, issues their own tokens in exchange for BCT, offering an accessible open market for carbon. The nature of DAO governance also provides better programmability for carbon offset purchases, meaning buyers benefit from a more reactive and balanced platform.

Ultimately, making it easier for the average person to purchase carbon offsets could seriously drive up demand, and that’s potentially a great thing — it creates better liquidity for project owners and turns up the pressure on large corporations. At the same time, the rising price of carbon offsets could fall down around us if we don’t continue to improve tracking & visibility capabilities, making it possible to better verify the actual impact of these initiatives.

One of the other great opportunities of web3 is community ownership; this model lets individuals put their money where their mouth is vs. waiting for centralized organizations (e.g., governments or global coalitions) to get the ball rolling. In a landscape where climate initiatives might feel too little too late by the time they’re implemented, it’s easy to see the appeal of a DAO when it comes to speed and efficacy. This use case has the potential to produce hyper-local public goods initiatives along greater diversity in the option set when it comes to pro-climate projects.

We’re seeing some building in this space already. EarthFund.io is a DAO whose ethos is explicitly empowering individuals to take control over sustainability outcomes. It allows participants to discover and back verified projects addressing issues they personally care about. Other solutions are tackling the industry’s aggregation issue as well. For example, ECORISE is a DAO for verified, transparent, and scalable solutions investing in the planet’s ecosystems. Its goal is to aggregate otherwise disparate organizations and businesses as members of the DAO to form a de-facto hub for eco-minded governance.

These initial moves are just the beginning of the potential for web3 climate applications. Even beyond web3, there’s lots of exciting opportunities in the climate/fintech intersection, like risk and insurtech, ESG investing, and fintech solutions for consumer-facing climate platforms. As people have pointed out, climate is not a new industry — it’s an economy shift. The onset of climate tech and the transition to web3 are two simultaneous and fundamental changes that have the potential to transform every industry: climate as the why and web3 as the how.