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Improving Transparency of Voluntary Carbon Offsets with Open Source and Blockchain

Voluntary carbon offsets is something we should all be very, very proud of.

Without government oversight, businesses, banks, and even private individuals have come together to support climate programs around the world. Projects from renewable energy to forests to sustainable agriculture to cooking stoves and clean water, in far away places like Bolivia, Nepal, and Uganda were able to raise capital by demonstrating their climate impact.

Types of Voluntary Carbon Offset Projects from Gold Standard, Verra, ACR, CAR in 2020 Vintage Year

It should be a shining example of how the world could come together and do great things.

So why aren’t we celebrating?

A big part of the problem is the very diverse nature of the offsets market itself. The many different types of offsets spread across different registries, each run separately by a standards organization that certifies the offsets. While the standards organizations run their registries well, it has nevertheless created a very fractured marketplace without a central place for buyers. This creates three serious problems for the market.

First, there is not one centralized place to find offsets for buyers. Imagine if you went to a city where there was no Zillow or Multiple Listing Service. How much longer would it take you to get comfortable renting a flat or buying a house? Yet that’s how the offsets market is today.

Second, it means that very few offsets are certified by more than one standards organization. Would you buy a stock that is only covered by one investment research service? Most people wouldn’t. Very few institutional investors or pension funds would invest in bonds rated by only one rating agency. Yet that’s how the offsets market is today.

Finally, by being so fractured, it becomes easy to discredit offsets. All offsets involve both assumptions and measurements. Did those renewable energy projects really require offsets to get off the ground? When was the last time somebody counted the trees in the forest, and what about the areas of the forest outside of the protected areas? A healthy amount of critique is normal for any market. Scientists routinely disagree, sometimes viciously, but without some common forums to hold them together, science as we know it would not exist. Yet that’s how the offsets market is today.

By now you’re probably thinking “the government should fix this.” Well, they tried. And did a lot worse.

The Clean Development Mechanism (CDM) began with high hopes in 2005. Then it ran into problems typical of government initiatives. Only a few types of climate programs were included. Agencies that were supposed to register projects were slow and unresponsive. The governments involved couldn’t agree with each other, so the biggest emitters, United States and China, did not participate. When concerns about the program, in this case the additionality criteria, and even cases of fraud surfaced, nothing was done to fix the program.

All this led to the prices of CDM carbon credits fallling to less than $1 per ton by 2012, and the flow of projects fell to virtually nothing as well. Yet ten years later, we’re still waiting for another round of discussion (COP26 this year) to determine what happens to CDM.

We don’t have that long to wait.

Fortunately, we don’t have to. With open source, we can do something about it. More importantly, open source allows us to solve the most fundamental problem of voluntary carbon offsets:

Diversity.

This is the fundamental reason why the CDM failed, and why multiple standards organizations exist today. The voluntary carbon offsets market spans many countries and many types of projects. Behind each one are governments and industries with, let’s not be naive, their own economic interests. All of this is a natural and even healthy part of a free market economy. It does, however, make it hard for any one entity, be it a government, an exchange, or a standards organization, to cover the entire market.

So as Sherlock Holmes would say, “When you have eliminated the impossible, whatever remains, however improbable, must be the truth.” Instead of waiting for that One Big Player to fix things, let’s embrace the diversity of voluntary carbon offsets.

Let’s create a decentralized central repository for it.

Sound like an oxymoron? Yet that’s what open source is. Developers from all over the world, who have never met each other and probably never will, could work together under very loose structures to create code that run the world. Blockchain is another great example. Without a bank, exchange, or clearing house in the middle, trillions are invested and billions are transacted on distributed ledgers by people who have never met each other.

Their secret sauce? A set of rules which are rigorous enough to maintain the integrity of the collective yet minimalist enough to maximize participation.

This is the idea behind the Open Carbon Offsets Directory: A decentralized repository of all voluntary carbon offsets, intended to be populated and verified by the participants of the market. We have already started it, and you can see a prototype of it here with live data:

You can also check it out at opentaps.org/offsets.

Even something as simple as this already helps answer some important questions that would be impossible without it, such as:

  • How many of each type of offsets are available?
  • Who are the big issuers of offsets?
  • Who are the big users of offsets?
  • Does each standards organization specialize in part of the market?

But with this openly available data set, we could build even more useful applications. For example, offsets could have multiple ratings. They could be fact checked by the community. All the tools that we now have to build trust online, from Wikipedia to TripAdvisor to Ebay and Amazon seller ratings, could be brought to the offsets market.

In other words, once we have transparency, trust could be built on top of it.

Offsets have an important role to play in stopping climate change, but first it must be trusted. And before it could be trusted, it must be made transparent.

If you’re involved in the offsets market, as a developer, broker, trader, retailer, or buyer, please help us (and yourself) by participating in our project. Start by completing this questionnaire to let us know your role and how we could help make voluntary offsets better.

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