Putting Carbon Credits on the Blockchain

You may remember Adam Neumann, the WeWork co-founder who built a cult of personality and promised to “raise the world’s consciousness” through office rentals. You may also remember when his tower of cards finally collapsed in 2019 when WeWork tried to go public.

Now, after burning through billions of dollars and getting booted from the company he founded, Neumann is back. And this time he wants to help save the world – or at least that’s what he wants us to believe.

Neumann and his wife, Rebekah, are co-founders of Flowcarbon, a company that aims to tackle the climate crisis by promising to “democratize access to offsets and incentivize high-impact climate change mitigation projects.” Translation: The company plans to sell a cryptocurrency backed by carbon credits. They call it the nature sign of the goddess.

Flowcarbon claims that their crypto token will help finance several projects aimed at decarbonizing the world and combating the climate crisis. But it’s hard not to see Flowcarbon as an attempt to use the largely unregulated crypto ecosystem to profit from a booming industry — one that has its own dubious connection to actually helping to stop climate catastrophe.

Climate change red herring

After decades of delay, the worsening climate reality is finally forcing many of the world’s largest companies to respond with commitments to reduce their emissions. Sometimes that means making changes to the way they do business. But many companies seem more interested in opportunities to say they are heading towards net zero without doing the hard work of actually decarbonising their business.

Enter carbon credits. The idea, which emerged in the 1990s, is that companies can pay to “offset” their own carbon emissions by buying credits, which are then used to reduce emissions or store carbon elsewhere in the world. Proponents argue that the credits are a key tool to get money for projects that play a crucial role in the fight against climate change, such as protecting forests from logging. Enabling companies to pay a fee to reduce other people’s emissions – rather than forcing them to pick up their own contribution to climate-warming pollution – has also made carbon credits big business. McKinsey estimates that the credit market could reach $50 billion by 2030.

If it all sounds too good to be true, that’s because it is. A growing body of research has found that many carbon offsets do little to actually help the environment. A 2016 EU report on carbon credits found that 85% of the offset projects they studied had a “low probability” of delivering real emissions reductions. And the most common type of offset project—those involving forest conservation or other “nature-based” efforts—has a long history of dubious benefits. In 2019, ProPublica published an extensive and damning investigation into forest conservation offsets, showing that many credits “saved” forests that were in no real danger of being cut down in the first place. And in cases where the credits protected forests at risk, polluters received the benefits of the offsets even though the trees could be cut later, without penalty.

ProPublica found repeated cases where “polluters were given a guilt-free pass to continue emitting CO2, but the forest protection that was supposed to balance the ledger either never came or didn’t last.” In 2014, for example, FIFA bought credits to offset the emissions from the World Cup in Brazil, supposedly by protecting the forests in the western part of the country. But after the games, more trees were logged on the protected site than all the credits sold.

Similarly, a project launched in 2008 with funding from the Clinton Foundation claimed to protect 13 forest areas in Cambodia – but satellite images found that the forest cover in these areas actually decreased by almost half between 2008 and 2017. One of the protected areas, in fact, had been completely removed by logging – but by 2019, polluters were still trading credits for the project certified by Verra, a nonprofit carbon credit registry, to “offset” their own emissions.

An investigation by Bloomberg in 2020 found that offset projects run by the Nature Conservancy also failed to live up to their claims. The environmental organization sold carbon credits to large corporations such as JPMorgan, Disney and BlackRock, who then boasted about offsetting their carbon footprints without actually reducing their own carbon emissions. But by reviewing hundreds of documents and interviewing landowners, Bloomberg found that the projects “were often preserving forested lands that don’t need to be protected,” because some of the forests “preserved” by the credits had actually been protected for decades.

Despite these profound flaws, companies continue to use such projects to promote their climate credibility. Apple, for example, launched its Restore Fund last year to transfer $200 million to “forestry projects to remove carbon from the atmosphere,” and touted the “robust international standards developed by reputable organizations like Verra” to allay concerns. Amazon, meanwhile, is making investments in its own forest-based offset projects to show how much it cares about the environment, even though the company’s own emissions rose by 15% in 2019, then by another 19% in 2020. The partner on the initiative? None other than the Norwegian Nature Conservancy.

The crypto spin on carbon credits

Even though the overwhelming evidence suggests that carbon credits don’t actually help the environment, investors like Neumann are trying to cash in on this growing and lucrative market. And they do it by tying carbon credits to an equally dubious financial tool: cryptocurrency.

The skyrocketing values ​​of crypto over the past two years started a hype cycle in the tech industry where a number of companies and venture capitalists claimed that blockchains, the technology behind the currencies, were the solution to almost all of the world’s ills. Instead, the technology was used to steal billions of dollars from crypto users while generating carbon emissions as high as many mid-sized countries.

Now crypto promoters like the Neumanns want to enable companies to buy carbon credits with crypto – combining the worst of both worlds. Flowcarbon, which recently raised $70 million in a funding round led by venture capital firm Andreessen Horowitz, claims its Goddess Nature Token will shed light on the “opaque and broken market infrastructure” for carbon credits. Flowcarbon converts the credits into crypto-tokens, which people can then buy and sell on their platform. The company says tokenizing carbon credits will make them easier to trade, better track who owns which credits, and help offset projects access funding more easily.

But experts say making the credits easier to buy and sell won’t solve anything if the underlying carbon projects do nothing to actually help the climate. When asked by Vox how Flowcarbon would ensure that the credits traded come from high-quality projects, a spokesperson for the company said it would “follow the criteria of the global carbon market.” But as years of investigative reporting have shown, those criteria don’t add up to much. Flowcarbon may well make money selling its crypto-carbon tokens – but if they’re backed by the same kinds of pointless carbon credits that already plague the market, the company won’t do anything to curb climate-warming pollution.

The former WeWork visionaries aren’t the only ones getting into the game. In April, the Financial Times reported that nearly 20 million carbon offset credits have recently been converted into crypto tokens, particularly the cryptocurrency climate. Klima’s pitch is similar to Flowcarbon’s – tokenizing carbon credits to make trading easier – but it’s become clear that many of those involved are just looking to make a quick buck. Carbon market watchdogs and traders told the Financial Times that instead of helping to increase demand for high-quality credits, many traders are simply gobbling up “junk” carbon credits and flipping them to make a profit while doing nothing to reduce emissions.

Other climate-related crypto projects have faced similar problems, leading experts to worry that these startups may actually be doing more harm than good. Even Verra, the credit verification marketplace that has come under fire for its practices, has stopped allowing the carbon credits it verifies to be turned into crypto-tokens for fear that the process is actually making things more confusing.

Time is running out

The problem with offsets is not whether they are available enough, or whether there is enough incentive for companies to buy them. That is if they actually work as promised. Putting carbon credits on the blockchain enables easier speculative trading, but it’s essentially selling something that doesn’t work. “Offsetting projects simply do not deliver what we need – a reduction in carbon emissions entering the atmosphere,” Greenpeace has explained. “Instead, they are a distraction from the real solutions to climate change.”

As crypto companies like Flowcarbon rush into the growing market for carbon credits, we’re presented with a big question: Is this really about addressing the existential threat we face as a species? Or is it about creating a new way for investors, traders and the financial industry to extract profits as our global ship sinks? Adrienne Buller, senior fellow at Common Wealth, has argued that financial institutions are “betting that ecosystems can be to the 2020s what subprime lending was” to the 2000s.

What we are witnessing, says Buller, is the emergence of “nature as asset”—a new financial system that involves “the transformation of the natural world into a new series of tradable assets.” Companies like Flowcarbon essentially seek to market the end of the earth, trading symbols while the planet burns – symbols that themselves produce huge amounts of carbon pollution. It’s pretty clear at this point that you can’t stop climate change with cryptocurrencies. But if you can convince enough buyers to invest in your Goddess Nature Tokens, you can make money while you’re at it.