The Future Economic Rural Network officially announced its partnership with Solid World DAO on February 18, breaking new ground on alternative uses for the rural environment. However, in the week following we’ve had questions on what this means in practice.
Who is Solid World?
“Solid World DAO is a decentralised carbon derivatives marketplace that acquires companies to turn the carbon market on its head.”
According to Solid World’s white paper, the project aims to incentivize tree planting by linking them with cryptocurrency trading.
What is a ‘DAO’?
A decentralised autonomous organisation (DAO), sometimes called a decentralised autonomous corporation (DAC), is an organisation represented by rules encoded as a computer program that is transparent, controlled by the organization members and not influenced by a central government.
How will Solid World achieve this?
Solid’s objective is to solve the critical problems of the carbon markets:
- 1.
It’s hard to finance new carbon projects
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- It can take years to get revenue for credits as the credits are generated sometimes years after the climate-positive activity has taken place.
- Lack of easy access to funding makes starting a project a risky investment and higher quality credits suffer more from this.
- The projects that require financing the most are the projects that are the most financially additional. Financial additionality is a core component of carbon project quality.
- 2.
Carbon credits are not a commodity, because every project has different SDG-s
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- There is no price and volume transparency in the carbon pre-purchasing market
- There are no price signals for high-quality carbon credits with specific SDGs
- 3.
The carbon economy is driven by external incentives
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- Driven by ESG, taxonomy, regulations, marketing and corporate responsibility
- Current motivation incentivizes the purchase of cheap lower-quality credits. The bar is set by how much the company cares about potential reputational damage.
Solid World DAO aims to create a voluntary carbon marketplace where we turn pre-purchased carbon credits into a commodity layer called SCT. The DAO will pre-finance new carbon projects by pre-purchasing some of the credits that will be certified in the future. The DAO will focus exclusively on quality carbon credits.
How does the finance work?
Solid World and FERN aim to reimagine how we are able to finance carbon capture sequestration projects through innovative financial planning and tokenisation.
A carbon credit is a unit of value that represents one metric ton of CO2 reduction. These credits are generated by individuals, companies and organizations that are taking some type of action to reduce carbon emissions in the atmosphere.
Sometimes these credits are generated when existing businesses become more sustainable and other times they are generated when new projects or efforts take proactive measures to plant trees or develop carbon capture technology.
There are markets where these credits are sold by participants hoping to earn a financial return for their sustainable efforts, and purchased by those who want to offset their own carbon footprint.
How will Solid World monitor partner activities?
Solid world carefully screens projects and only offers pre-certification sales contracts to those we trust. We use conservative credit generation forecasts, which means that projects should always produce more credits than we forecast. If our forecast happens to be wrong for some reason, Solid World will take the responsibility and cover the cost.
What types of carbon credits with the DAO focus on?
The following are a few of the most important categories of credits that Solid DAO will be focusing on:
Agriculture – Agricultural carbon credits are awarded to farmers that improve their sustainability practices and work to improve their soil. Some of these measures include reductions in plowing or chemical use, but also extend to planting trees and additional crops.
Blue carbon – 83% of the global carbon cycle is circulated through the ocean, so the health of coastal and marine ecosystems is incredibly important. “Blue Carbon” is focused on improving carbon conditions in marine ecosystems
Reforestation – Reforestation projects earn carbon credits for every ton of CO2 that they capture from the atmosphere in tree biomass in regrown ecosystems.
Carbon Capture – Carbon Capture projects use innovative technologies to remove carbon from the atmosphere.
