Hi there!
Welcome to Edition #26 of Living In A Greenhouse.
Two drastically different worlds met on the Little Blue Bird App earlier this week.
Mark Cuban (!) tweeted to a climate journalist (!!) about carbon offsets and politely enquired at what point they’d be considered ‘hot air’ (!!!)
If that doesn’t amuse you, you must be a special kind of impervious.
Since I started my newsletter, this would be the third edition on carbon offsets. You can read the first two below:
— In 500 words or less: Voluntary Carbon Offsets
— Friday Climate Focus: The Crazy World of Voluntary Carbon Markets
Carbon markets have a demand-side (polluters who buy carbon credits) and a supply-side (emission-removing projects that are sold as carbon credits).
This little tweet exchange is about the supply side.
You can remove emissions through nature-based solutions which include → growing forests, combining agriculture and forestry, restoring peatlands and changing farming practices to trap more carbon.
Or you can do it through tech-based solutions which include → use of machines to selectively filter CO₂ from the air, burning wood in power plants and burying the carbon produced underground, or using crushed minerals to improve soil health while trapping the warming gas
(One is mature, economical, and ready to be scaled. The other is not. You know which is which)
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Verifying that an offset corresponds to a ton of CO₂ removed from the real-world atmosphere is a problem climate experts have been trying to solve for years.
Issues with Monitoring, Reporting, and Verification (MRV) on the supply-side have cascading effects that distort carbon markets entirely.
The biggest distortion — polluters who voluntarily offset their emissions only fund low-integrity emission removal projects.
A lot of people, including Mark Cuban, seem to think Web3 is a solution to channelise capital to high-integrity projects only.
(Hot take: the 3 in Web3 stands for the number of people that understand it)
A few ideas have been floated under the Web3 umbrella. These include: DAOs (or Decentralised Autonomous Organisations), blockchain-based solutions (a digital ledger allowing for transparency, efficiency, and security) etc.
Agreed that DAOs and blockchain-based solutions are brilliant on-paper at addressing this issue of MRV.
If all the subscribers of this newsletter was up for it, we could set up a killer DAO, issue climate tokens, pool capital, and vote to allocate all of it exclusively to high-integrity projects.
But I find it hard to see how DAOs can allocate corporate capital. How would this work for an Exxon, for instance?
Web3 will find its underlying tenet of decentralisation a roadblock to channelise massive amounts of capital towards nature-based or tech-based offsets.
Flawed or not, it is important to test the potential it has before ruling it out. Nothing good that exists in our world right now started out built for scale.
But Web3 and climate is a one-to-watch and not a one-to-rely-on (yet).
If not Web3, then…?
Go back to the market and fix the inefficiencies.
Solving for the demand-side means we are trying to get polluters to do the right thing. I am not entirely certain it is straightforward or easy to engineer intent in large corporations.
What we can engineer however are the options that the polluters have. The supply-side needs an overhaul.
This can happen in two ways:
Low-quality carbon removal projects are weeded out
High-quality carbon removal projects become cost-competitive
The incentive channelising funding towards low-quality projects is that it is cheap and accessible. The fact that there are no incentives to fund only high-quality projects only compounds the problem.
It is this high-quality carbon removal market in need of a bold assist.
And one such assist came from Big Tech this last week.
New technologies are typically expensive at first and get cheaper as they scale. Today, carbon removal solutions face a chicken-and-egg problem. As early technologies, they’re more expensive, so they don’t attract a critical mass of customers. But without wider adoption, they can’t scale production to become cheaper.
Especially in the prevalence of cheaper, low-quality options, it becomes easier for governments and companies to satisfy their ‘net-zero’ commitments, without really removing a lot of carbon from the atmosphere.
This is likely to change with an ‘advance market commitment’ of $925 million from a consortium of Stripe, Alphabet, Shopify, Meta, and McKinsey.
(This idea is borrowed from the vaccines market - in 2010, a set of donors came together and committed $1.5 billion to buy doses of a vaccine for Streptococcus pneumoniae before it had been invented)
In this case, it’s climate startups that are at the ‘frontier’ of carbon removal technology.
Earlier, Stripe offered businesses that used its payment platform to contribute a fraction of its business revenues towards carbon removal in just a few clicks. In two years since its inception, they have invested these proceeds to buy carbon removal from 14 different startups.
The new setup, Frontier, is approximately 30 times the size of Stripe Climate’s operations and is deliberately taking an inefficient approach to carbon removal. Frontier wants to be the buyer of first resort for carbon removal.
May be that’s what breakthrough climate technologies need: commercial inefficiency for planetary efficiency.
I am very, very impressed!