This proposal outlines a framework for KlimaDAO to evaluate and acquire carbon credits. It defines specific criteria and methodologies for assessment, measurement, target project identification, and the establishment of a smart contract architecture for transparent and efficient management.
To ensure KlimaDAO's investments in carbon credits are impactful, sustainable, and aligned with our strategic objectives, a clear and comprehensive framework is essential. This proposal aims to enhance decision-making processes, maximize environmental impact, and ensure financial prudence.
The framework is designed to support risk minimization and direct capital toward carbon projects that are robust, viable, and impactful. It introduces a scoring system that evaluates potential carbon credit projects across 16 dimensions, including project impact, financial stability, market demand, and alignment with KlimaDAO's mission. This system is designed to quantify the viability and sustainability of projects, thereby facilitating data-driven and risk-aware investment decisions.
The following variables will always be considered:
- Methodology: Evaluate the robustness of the project's carbon credit generation methodology.
- Certification Standard: Assess the credibility and recognition of the certification standards applied to the carbon credits.
- Bridge Support: Determine compatibility with tokenization platforms that support the credits.
- Market Demand: Analyze on-chain credit retirements from the previous year and off-chain market demand indicators. For example, the following off-chain data sources may be utilized such as Allied Offsets or CDR.FYI
- Country: Consider the country of origin for geopolitical risk, local regulations, and environmental impact.
- Environmental and Social Impact Metrics: Review the project's contribution to sustainability and its social and economic co-benefits.
- Risk Assessment: Examine the project's financial health and operational risks.
- Spot Price: Compare the spot price with the average market price to gauge profitability.
The following considerations must always be weighed:
- Quantitative: Leverage on-chain data to assess the methodology distribution, certification standard prevalence, and market demand metrics.
- Qualitative: Gather insights from ecosystem marketplace reports, carbon project developer interviews, and trader allies to gauge future demand
- Focus on projects with overlap in known demand sources, such as ITMO buyers and projects from domestic markets that are accepted international credits within compliance systems.
- Prioritize projects that lead to a more diversified on-chain carbon market.
With enough data, this framework can be codified:
- Smart Contract Architecture: Design contracts for asset management, proposal processing, and transaction tracking.
- Data Collection and Integration: Implement systems to gather and integrate data for decision-making.
- Automated Reporting: Enable smart contracts to generate and disseminate reports on asset and fund management.
- Proposal Management: Automate the proposal submission and approval process, ensuring alignment with KlimaDAO's strategic goals.
With a clear scoring mechanism, procurement decisions can be data-driven.
A scoring system has been developed to evaluate potential carbon credit projects. Projects must score at least 50 points to proceed past the Request for Comment (RFC) stage. Proposed weighting criteria are as follows:
1) Company Financial Standing:
- More than 12 months of financial runway: 10 points
- 6-12 months of financial runway: 5 points
- 3-6 months of financial runway: 3 points
- Less than 3 months of financial runway: 1 point
2) Security of End Market:
- Confirmed buyer ready with a contract: 10 points
- Demand known and buyer in negotiations: 5 points
- Demand uncertain but potential buyers identified: 3 points
- Demand and buyers not identified: 0 points
3) Methodology On-Chain Presence:
- Methodology already on-chain with high adoption OR Methodology not on-chain but with high adoption off-chain: 10 points
- Methodology not on-chain but can be brought on-chain with high potential for adoption: 5 points
- Methodology not on-chain and challenging to bring on-chain: 1 point
4) Trailing Six-Month Purchase Volumes:
- Purchase volumes significantly greater than the purchase amount: 10 points
- Purchase volumes about equal to the purchase amount: 5 points
- Purchase volumes less than the purchase amount but showing growth: 3 points
- Purchase volumes minimal or declining: 0 points
5) Registry Issuance:
- Registry already issuing tokenized carbon with high liquidity: 10 points
- Registry planning to issue tokenized carbon with confirmed demand: 5 points
- Registry not yet issuing tokenized carbon and demand uncertain: 1 point
6) Qualitative Assessments:
- Strong positive trend in demand for this credit type based on market publications, data, and expert consensus: 10 points
- Moderate positive trend based on market data and some expert support: 5 points
- Uncertain or mixed signals regarding demand trends: 2 points
- Negative trend or declining demand: 0 points
7) Project Longevity and Scalability:
- Proven scalability and a clear long-term operational plan: 5 points
- Limited scalability but a long-term operational plan: 3 points
- Unclear scalability and operational plan: 1 point
8) Co-Benefits and Sustainable Development Goals (SDGs):
- Addresses more than three SDGs with significant co-benefits: 5 points
- Addresses at least three SDG with clear co-benefits: 3 points
- Co-benefits or SDG alignment is minimal or unclear: 1 point
9) Verification and Monitoring (preference for distributed ledger MRV - dMRV):
- Verified with scalable dMRV: 5 points
- Third-party verified without dMRV: 2 points
- Self-reported or unverified: 0 points
10) Stakeholder Engagement and Social Impact:
- Strong community support and positive social impact: 5 points
- Some community engagement and social impact: 3 points
- Minimal or no community engagement: 1 point
11) Additionality and Baseline Scenario:
- Strong additionality with a credible baseline scenario: 5 points
- Some additionality, baseline scenario is reasonable: 3 points
- Additionality and baseline scenario are weak or not well-defined: 1 point
12) Project Type Diversification:
- Project represents a new type for KlimaDAO's portfolio, enhancing diversification: 5 points
- Project is similar to existing types but adds value or diversification: 3 points
- Project is the same type as many existing holdings, offering little diversification: 1 point
13) Strategic Value:
- Project adds strategic value to KlimaDAO (e.g., opens new markets, enhances reputation): 5 points
- Project has some strategic value but benefits are not clearly defined: 3 points
- Project has no clear strategic value to KlimaDAO: 1 point
Projects will be evaluated across these criteria, and the total score will determine their eligibility for further consideration. A project must score a minimum of 50 points to be considered low-risk and eligible for investment.
The scoring process will be conducted by the Protocol team prior to any procurement proposal being presented for escalation to KIP by the KRC.
In the rapidly evolving carbon market, it is imperative that KlimaDAO's investments are not only environmentally and socially responsible but also financially prudent. This framework is established to enhance our decision-making processes, allowing us to identify and invest in projects that offer the highest potential for positive impact and returns.
The primary beneficiaries of this framework are the KlimaDAO community and the broader ecosystem we support. By optimizing our procurement strategy, we ensure the maximization of environmental impact and the advancement of our mission to drive climate action. Furthermore, this structured approach provides transparency and accountability, bolstering confidence among our stakeholders and partners.
We invite the KlimaDAO community to review and engage with this proposal. Your insights and votes are crucial in shaping our approach to carbon credit investments. Together, we can set a new standard for strategic, impactful, and transparent support of environmental projects within the decentralized space, driving us closer to our collective goal of a carbon-neutral world.