📡 Making carbon credits more accurate, faster, and cheaper with decentralized MRV
3 steps of MRV, problems with the current process, Open Forest Protocol
We need more carbon projects to reach net zero, but it's not easy!
McKinsey says that by 2030, we could have up to 12 GtCO2 carbon credits available per year. But there’s a problem with the current process for creating these credits. It’s not accurate, takes a long time, and is expensive. If we keep doing what we're doing, we'll only have 1-5 GTCO2 per year. Leaving us far behind the Paris net-zero targets.
The main problem with carbon credits is that it's hard to make sure that the claims of reduced or avoided carbon are real. Such as highlighted by the recent Guardian article “Revealed: more than 90% of rainforest carbon offsets by biggest certifier are worthless, analysis shows”.
Why can this happen? Isn’t there a process for creating carbon credits?
Yes, it is called MRV, which stands for Monitoring, Reporting, and Verification. In simple terms, this is the process where audit and monitoring take place. But the current process is not well suited to the digital world and relies too much on outdated technology and trust.
In this article, I'm going to talk about the problems with MRV and how a Web3 project called Open Forest Protocol could solve them.
Let’s dive in!
📖 3 steps of MRV
Creating carbon credits is not as simple as printing fiat money. There's a lengthy process that makes sure the credits are legitimate. This process checks and validated how much greenhouse gas emissions a project has reduced or avoided over time.
MRV (Monitoring, Reporting, and Verification) is important because they make sure that the carbon credits are high quality. It needs to be additional, meaning that the project would not have happened without the credits. Long-term, like 100 years instead of just 10. And verified by credible registries.
Here is a summary of what the conventional MRV process looks like:
1. Measurement
When someone wants to create carbon credits, they need to do a lot of work upfront. This is called a pre-feasibility study, and it's kind of like creating a business plan with carbon emissions reduction or avoidance as the main goal and following the methodology from registries such as Verra or Gold Standard.
The study includes things like measuring how much carbon the project will reduce or remove, figuring out how much money the project will make from selling carbon credits and other things, and checking how the project will impact the local community. The project developers also need to make a plan to prevent problems like forest fires or social conflicts.
It's a long process, so many project developers work with consultants who have the technical expertise to help. Especially for local and traditional developers who might not have the same level of technical knowledge.
2. Reporting
After doing the pre-feasibility study and planning, it’s time to report. The report is submitted to the registry to be assessed for readiness. A third party, like TÜV, will also check the information to make sure it's accurate and follows the standard methodology.
The project developers also need to keep updating their information and progress over time, either every year or every few years. This might involve collecting data in the field or relying on others to provide accurate information.
3. Verification
The final step in the process of creating carbon credits is to get them officially verified.
Emission reduction results are then compiled into a report to be validated and verified by a credited body (VVB) per the requirements of the selected registry.
If everything checks out, the registry will give its seal of approval and the credits will be official. These credits can then be sold in the voluntary carbon market to companies and institutions that want to offset their own carbon emissions. This market is called the voluntary carbon market.
Source: Enjoy the Weather
🤔 Problems with the current MRV process
The current way of creating and verifying carbon credits isn't perfect. Here are some of the issues with the current MRV process:
Accuracy
In the Guardian’s article, the main argument is the overstating of emissions reduction by the rainforest carbon projects, by up to 90m tonne of CO2. The current process of MRV for carbon projects is not accurate because it relies too much on manual paper-based methods and human intervention, and lacks real-time data monitoring.
For example, a project developer has to trust the people on the ground or local agents that the data that they received are accurate. This leads to the possibility of errors and inaccuracies in data collection and calculation.
Many companies already use digital BI dashboards to track various KPIs relevant to manage the business, but this is not the case with carbon projects. Most reporting in the MRV process is done on an annual basis or after a period of several years, which makes it difficult to take necessary actions in a timely manner.
Time
The process of creating carbon credits is taking too long and we need to act fast! The many steps involved in the current MRV process take a long time, similar to how tax returns used to take a long time before the invention of software like Taxfix.
There is a growing demand for carbon credits, but the registries can't keep up. There are not enough skilled resources to do review and verification. According to recent research by Thallo “Fast Forward: Challenges to Scaling the Voluntary Carbon Market”, It takes about 2 years from pre-feasibility to verification.
Cost
The process of creating carbon credits is not just slow, it's also expensive. Project developers have to pay various fees throughout the process, like upfront costs for setting up the project, fees charged by carbon registries, and paying for consultant support. That's not including the cost of human resources to gather data and monitor the project.
🌲 Open Forest Protocol: The world's first on-chain MRV platform for any forest on earth
The World Bank believes that we need to find better ways of doing MRV, using digital technologies like smart sensors, satellites and drones, artificial intelligence, and blockchain encryption.
Last year, ReFi DAO held the 1st digital MRV Roundtable, a schelling point for Web3 projects working to solve the problems with MRV. One of the projects that I found promising is Open Forest Protocol (OFP).
OFP is revolutionizing the process of MRV for carbon projects. Starting with forest-based projects.
Unlike the traditional MRV process, OFP provides a simple and free tool for project developers to collect and store data digitally and transparently. This data is then reviewed by a decentralized network of validators, including experienced companies in forestry projects or individual experts.
Source: Open Forest Protocol
Decentralized validators
Similar to the validation process in other blockchains, validators are rewarded with a network token called the open forest token ($OPN). Validators are rewarded with $OPN token for reviewing and validating project data. Rejection of invalid data is incentivized more than acceptance, with the goal of improving data accuracy.
The $OPN token also serves as a governance tool, giving token owners the ability to vote in the OFP DAO (Decentralized Autonomous Organization).
“The network of validators is like an immune system for OFP. With more exposure to data and stress testing across time, it get stronger and more robust” - Michael Kelly, founder of OFP
Source: Open Forest Protocol
Once validated, data is stored in the NEAR protocol, a proof of stake carbon neutral blockchain, much faster and cheaper than Ethereum. Immutable and open for anyone to use the data and build on top of it, for example creating tokenized credits.
This is from the legacy MRV providers that benefitted by having more data, just like the Web2 platform model. With OFP the more data that’s stored and verified, the better it is for the entire carbon ecosystem and the planet.
Why does carbon data need to be in the blockchain?
In a recent podcast with Packy from Not Boring, Michael also explained that blockchain is needed to keep data of carbon projects permanent and immutable. Eliminating the need for a central authority to manage data.
This is crucial for climate projects such as forest preservation that are expected to last for over 100 years. Ensuring that the data will be available even if the people who created it are no longer around.
I can’t do justice trying to explain how OFP is changing the game of MRV in this short article. I would recommend checking out their well-written white paper to understand the unlimited potential of Web3 for MRV. Not only for forestry but also for other nature-based solutions.
💡 Conclusion
Negative coverage is not always bad. It is also a wake-up call that something is needed to be fixed. This is an opportunity to improve the carbon markets, such as digitalizing MRV and leveraging Web3 tools.
If Decentralized Finance (DeFi) is about building a better financial system, the Regenerative Finance (ReFi) movement is about solving environmental and social problems.
(Disclaimer: this is not a sponsored message, I am genuinely enthusiastic about bringing regenerative finance to the masses).