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However, some jurisdictions created regulatory uncertainty, requiring consent from authorities for export of domestically originated carbon credits. To record the environmental claim, a carbon credit is retired through a registry and no longer tradable. The combination of both markets creates an ecosystem https://www.xcritical.com/ of buyers accessible to farmers whose operations generate carbon offsets. Third-party validators (registries) guarantee each carbon offset results from real-world emission reductions.
What should you consider before starting a Regenerative Finance project?
It is deeply rooted in the theories of regenerative economics and encourages individuals to generate income by working on and funding public good projects. In this model, individuals and companies focus on how their choices create positive externalities for the rest of society, rather than just financial profits. Carbon stocks allow investors to support the transition to a low-carbon economy and mitigate the effects of climate change. Streaming and royalty companies are businesses that provide financing for the development of projects in exchange regenerative finance for future cash flows.
Blockchain at Sea: A New Horizon for the Mariti…
Regenerative Finance (ReFi)[iii] is an emerging financial system focusing on the power of blockchain and Web3, combined with regenerative economics to address climate change, support conservation, and encourage financial inclusion, sustainability, and biodiversity. This addresses the circular economy[iv]to increase the supply of raw materials by recycling waste. Regenerative Finance (ReFi) is an emerging subset of the broader blockchain and Web3 development landscape.
Transforming Finance and The Regenerative Economy
ReFi’s expansion demands substantial investment and integration with traditional financial markets. Success in funding by ReFi initiatives such as Flowcarbon, which recently raised $70 million, highlight that when there is financial backing, it can help significantly with scaling and social impact. We believe that our finance-driven economic system is in urgent need of a regenerative redesign, one that is grounded in the universal laws – not theories – of living systems.
How to Create a DEX like PancakeSwap. Complete Guide
International regulations continue to drive a strategy via carbon registry[xiii] regulation to apply a carbon tax. ReFi aims to correct many of the excesses of globalization we have seen over the past 40 years. ReFi projects and proponents want to return the focus back to more local communities, build resilient supply chains, and create economic systems that do not prioritize shareholder growth over these ReFi goals. Economic systems based solely on increasing shareholder value can often have negative effects on the people, communities, and the environment.
Companies that reduce carbon amounts in the atmosphere, by planting trees or renewable energy investment, can issue carbon offsets in the VCM, which is global and self-regulating. These measurably decrease CO2e emissions by carbon avoidance (renewable energy projects/methane capture) or carbon removal (reforestation/direct carbon capture). ReFi leverages the principles of DeFi development to create transparent, decentralized financial ecosystems. These ecosystems facilitate the flow of capital into projects that restore natural resources, enhance biodiversity, and promote social equity.
This is heresy in classic economics and in a Wall Street world in which more investment is always thought of as a good thing. But it is essential if we are to begin dialing down the throughput of natural resources that is eroding ecosystem health and the ecosystem services we depend upon to live. Arithmetic tells us we will never achieve a steady state if financial capital compounds indefinitely and is reinvested in more growth rather than in ways that enhance social and natural capital. Despite the challenges, ReFi offers a great opportunity towards a new financial path ahead, leveraging emerging technologies for environmental benefits.
The goal of ReFi is to create an economy that thrives off mitigating climate change, reversing some of the effects of carbon emissions, and pursuing social change. Carbon Exchange Traded Funds (ETF), with diversified holdings and tracking of a specific index, are a low-risk way to invest in carbon markets and diversifying portfolios. The shipping sector is responsible for 3 percent of global CO2 emissions[ciii] and can start a decarbonisation program by utilising the VCM and purchasing deforestation credits from farmers.
Both RES and NBS are subject to natural catastrophe risk, which requires reinsurance via capital markets such as insurance-linked securities (ILS) in the form of catastrophe bonds that cover low-probability, high-impact events. Investors cover losses from earthquakes, floods, typhoons, and wildfire in exchange for a monthly coupon payment. Carbon credits vary in quality, and credits may be invalidated so insurance will protect commitments to emissions reduction against loss of carbon offsets on the balance sheet with cover for third-party negligence and fraud.
The Paris Rulebook at COP27[xxviii] addressed double counting where a carbon credit is counted only once, either in the host country or another country, and blockchain registries are required to prevent leakage here. There are several kinds of carbon credits/offsets, but the two main types represent the NBS and RES markets, respectively. The REDD+ Result Unit™ (RRU)[xxi]is a forest carbon credit applied to reforestation/deforestation[xxii]. A Renewable Energy Certificate (REC)[xxiii]is a regulated market instrument certifying the holder owns a megawatt-hour (MWh) of electricity from clean energy sources such as solar, wind, hydropower, and electric cars. Once energy goes to the grid, the RECs produced can be sold on the market as an intangible energy commodity to carbon-intensive companies and retired.
If the developing world and emerging local and regional economies in the first world were to recognize their common interest in transforming the way the world works, it could be the basis for a bottoms up strategy to create the new reality. If you count the value of the gift economy, the value of natural ecosystem services, the problem part of the economy is really just a small part of the total system. And great strides are being made in the numerous place-based economies the world over that are on a path to a Regenerative Economy. Once the system has been shrunk, simplified, de-levered and made more resilient in the process, the foundation will be laid for Regenerative Finance to emerge.
It builds on the principles of its predecessor, and interweaves them with theories and approaches from regenerative economics. ReFi expands on some DeFi principles and replaces others to realize the idea of a regenerative and inclusive economic system. Many traits of ReFi are derived from DeFi, for example, that people have control over their funds, and that applications, services, and transactions are transparent and openly accessible.
However, ReFi opens the door to investment to a much broader range of people through decentralised finance initiatives. Blockchain technology allows each transaction to be recorded transparently, visualising the way that each contribution is being spent, tracking the environmental impact clearly and measurably. The traditional financial markets have long been modelled on the extraction of value and exploitation of people – empowerment for the few whilst relying on the labour of many. Resources and wealth are funnelled towards a tiny number of places and individuals. Regenerative finance goes a step further than environmental, social, and governance (ESG) investing and focuses on actually recovering and improving the environmental and societal impacts of traditional capitalism instead of just reducing the negative side effects. Michael Kramer, managing partner and director of social research at Natural Investment Services, introduced the concept of “regenerative investing” in 2003.
- Offsets are often thought about more as compensation to an environmentally conscious organization or individual rather than as digital assets that could be traded on the carbon credit market.
- These include agriculture that replenishes soil fertility, the sharing economy, collaborative ownership structures, economic democracy, investments in renewable energy and resilient communities and much more.
- Important inventions with many productive applications, they are misused, now, as highly leveraged speculative instruments reducing system resilience, which becomes apparent in times of crisis.
- ReFi projects and proponents want to return the focus back to more local communities, build resilient supply chains, and create economic systems that do not prioritize shareholder growth over these ReFi goals.
Decentralized lending platforms can be compared to bank accounts with a peer-to-peer lending function. They allow users to earn interest on their crypto holdings, or borrow crypto assets from others. In contrast, DeFi lending platforms are accessible to everyone (as long as the lender is able to provide collateral), and they often offer very competitive interest rates. In this article, we’ll explore the basics of ReFi and look into what it can mean for individuals and businesses. And a new generation prioritizing environmental and community well-being enters the workforce.
The following shows the landscape of the current carbon market from Source Sustaim[xvii]. Carbon offsets, generated by removing a carbon unit from the atmosphere, trade carbon revenue between companies, which others purchase to reduce their carbon footprint. Approximately 2.5 trillion tons of carbon were released into the atmosphere since carbon dioxide (CO2) records began, with 50 billion tons of CO2eq released each year[v]. In July 2023, the planet started to see temperature rises above 1.5 degrees centigrade, which may become permanent by 2027; [vi] so digitisation of the carbon market is needed to avoid leakage. The carbon market was established in the Kyoto Protocol in 1997[vii] and ratified by the Paris Agreement[viii] in 2015.
The work that Savimbo and IPLC do in the Colombian rainforest is mainly about protection and conservation of existing ecosystems and biodiversity, alongside some reforestation work. Through the preservation of forests and protection of biodiversity, they support a number of projects which create different types of nature credits (including relating to carbon, biodiversity, water, trees and agrobiodiversity). They pay subsistence farmers monthly micropayments to assist in the preservation of natural ecosystems, which work creates credits which are then certified and sold. They share their gross revenue and their not-for-profit arm helps farmers who may need funds to participate initially. Flowing capital to projects that seek environmental and/or nature restoration, together with social and community benefits, can be described under a category of finance called “ReFi”.
Although the price of carbon emission allowances in EU ETS have reached US $85 to US $110[xxxiii], the price in other ETS jurisdictions is lower. Countries without a tax or ETS mean the three-quarters of global emissions are starting from zero. Globally, the average carbon price is $3 per tonne[xxxiv] so the price needs to be greater than $75 per tonne[xxxv] to meet the Paris Agreement. The stage has been set, the policies are falling into place and opportunities for green business are expanding by the day. The old world of profit at any cost is dead, killed by a New Market where customers, investors, regulators and the future workforce reward those who show true Green Leadership. At the Greentech Festival, we bring together best-in-class examples of Green Business Innovation, technology and leadership so you can stay at the frontier of this incredible new movement.
Many notable venture capital institutions such as a16z and USV are actively investing in the category; new funds like Allegory are focused exclusively on the intersection of crypto and climate. A bit about me, my name is Nihar Neelakanti, Co-founder and CEO of Ecosapiens, a metaverse enabling consumers to fight climate change. By the end of this read, I hope you, too, become optimistic about the power of crypto to make a dent in climate change. Women and people from developing countries often hesitated or were not able to access education that provides the technical skillset to participate in this new industry. They might also be more hesitant to take big career risks, or prefer to focus on working for established tech companies rather than experimental startups. Additionally, ReFi projects often have a strong community of users and developers who are invested in the success of the project.
Many cryptocurrency and blockchain projects have begun working on developing technology that is founded upon ReFi ideals. In this ostensibly utopian society, we will put in value to get value without losing elements of the free market, instead giving people freedom in bettering their world. Hence, individuals and companies will not worry about the financial profits of business decisions, but rather about how these choices create positive externalities for the rest of society. We at Flowcarbon are creating infrastructure to tokenize COUs, allowing anyone to access them and use them across the DeFi ecosystem.