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  • KIP-61: Klima Project - HECTOR; KlimaDAO<>Aither

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Summary

This proposal recommends KlimaDAO's origination of the "Hygiene and Environmental Care for Tanks and Overhead Reservoirs (HECTOR)" carbon project, ensuring alignment with our strategic investment objectives and the newly introduced Green Ratio financial management framework.

Motivation

The undertaking of the HECTOR project aligns with KlimaDAO's strategic goals and the Green Ratio's guidance. This project will not only yield verifiable environmental benefits and carbon credits but also enhance our operational efficiency by optimizing the deployment of our USDC reserves, thus maximizing our potential for impact and contributing to our strategic reserves in compliance with the Green Ratio.
For more background, see here: https://forum.klimadao.finance/d/289-kip-52-iot-ai-ml-on-blockchain-water-filtration-high-quality-project-kip
By initiating this project, KlimaDAO affirms its commitment to sustainable development and climate action. The project is expected to generate significant environmental benefits while also creating carbon credits. It supports multiple United Nations Sustainable Development Goals, enhances KlimaDAO's presence in the carbon credit market, and positions the DAO as a leader in applying blockchain technology to environmental initiatives.
By integrating this project into our portfolio, we optimize capital allocation, maximize our green impact, and adhere to the Green Ratio.

Proposal

KlimaDAO will enter into a 5-year offtake agreement with the following detailed financial commitments:

Purchase Price over time:
Vintage 2023 – US $14.75
Vintage 2024 - US $15.25
Vintage 2025 - US $15.75
Vintage 2026 - US $16.25
Vintage 2027 - US $16.75

Full off-take Agreement
Vintage 2023: estimated at 27,000 VERs or at least 100% of issued volume of the Villages less GS associated issuance fees
Vintage 2024: estimated at 27,000 VERs or at least 100%of issued volume of the Villages less GS associated issuance fees
Vintage 2025: estimated at 27,000 VERs or at least 100% of issued volume of the Villages less GS associated issuance fees
Vintage 2026: estimated at 27,000 VERs or at least 100% of issued volume of the Villages less GS associated issuance fees
Vintage 2027: estimated at 27.000 VERs or at least 100% of issued volume of the Villages less GS associated issuance fees
Estimated Total : 135.000 VERs or at least 100% of issued volume less GS associated issuance fees for each year

$350,000 down payment
ARR Credits VCS3425 to be sold as proceeds
Half proceeds to KlimaDAO, half as payment towards water filtration credits
$1,235,250 = required payment for years 1, 2, & 3 at above rates
Years 4 & 5 KlimaDAO has the right of first refusal.
Funding - 10 Business Days after signing contract AND 5 Business days after every issuance thereafter by way of USDC
Security
Down payment after signing: US$350,000, reduces 25% and 75% in the 2 following years as more payments are made

Collateral: ARR Credits VCS3425 will be sold on KlimaDAO’s behalf for profit. Sale proceeds to be divided between (1) Aither for US$150,000 that will be utilized to pay the upcoming years 2 and 3 of issuance, alleviating Klima’s cash payment needs further and (2) Klima paid out the residual
“Klima" will be added as a stakeholder participant in the PDD.

In case credits cannot be delivered
Aither will be offering at its discretion alternative projects that are of similar vintage (same year or 2 year older, depending on liquidity) in the volume equivalent to the value of the annual delivery

How does this impact KlimaDAO?
Embarking on the origination of a high-impact project like HECTOR offers multifaceted benefits to KlimaDAO that extend well into the coming decade. The benefits permeate through various layers of the organization, from enhancing monetary value to amplifying public relations and marketing impact, as well as demonstrating our capacity to effectively manage and deploy larger pools of capital. Here are some key benefits:

Accelerating Impact Investments: The direct origination of a carbon credit project such as HECTOR allows KlimaDAO to be at the forefront of the carbon credit supply chain, potentially increasing the economic value captured. By originating the project from the ground up, KlimaDAO can optimize cost efficiencies and enjoy the full breadth of financial benefits from the sale of credits in the voluntary carbon market, which often command premium prices due to their verified impact.

Public Relations and Brand Image: By spearheading a project that provides tangible benefits in terms of clean water and sanitation, KlimaDAO positions itself as a leader in environmental impact, enhancing its reputation. The project's alignment with United Nations Sustainable Development Goals showcases KlimaDAO's commitment to global priorities, earning goodwill and respect from the broader public, stakeholders, and potential partners.

Marketing Leverage: Projects provide compelling narratives for marketing campaigns. Success stories from HECTOR can be utilized to illustrate KlimaDAO's direct involvement in creating a positive environmental impact. These stories resonate with both the crypto community and the general public, raising awareness of KlimaDAO's brand and attracting new participants to the platform.

Scaling Traction: Managing a project of HECTOR's scale demonstrates KlimaDAO's capability to effectively deploy larger capital allocations and handle complex projects. This proven track record can attract larger investors and partners, looking for capable platforms to manage significant environmental projects. It also sets a precedent for scaling up operations and can pave the way for KlimaDAO to undertake even more ambitious projects in the future.

Operational Excellence: Having a project under its wing compels KlimaDAO to hone its project management, monitoring, and reporting skills. This operational experience is invaluable and can be leveraged to streamline future projects, making KlimaDAO a more attractive proposition for project developers and contributors who are seeking efficiency and reliability.

Community Engagement and Governance: Engaging the KlimaDAO community in the governance of a project fosters a deeper sense of participation and investment in the DAO's success. It can lead to increased voter turnout, more lively discussions in governance forums, and a stronger, more cohesive community.

Conclusion:
The origination of the HECTOR project is not just a strategic impact investment for KlimaDAO; it's a catalyst for growth and a beacon for environmental and social governance. It enhances our monetary foundation in line with the Green Ratio. Year 1 cash outlay aligns with the 22% allocation for Forward Carbon Agreements, considering the current asset distribution, the $748,250 cash outlay will satisfy just over half of the capital KlimaDAO is to deploy into forward carbon this year. Brokering VCS3425 at a profit and using the proceeds to fund this project indicates KlimaDAO’s ability to manage forward assets and source favorable deal flow.
Originating this project elevates KlimaDAO's public profile, enriches our marketing narratives, demonstrates our scalability, refines our operational capabilities, unlocks a high quality stream of carbon credits, and invigorates our community. These comprehensive benefits are instrumental in propelling KlimaDAO to new heights and establishing it as a paragon of environmental action within and beyond the blockchain space.

Polling Period

The polling period begins now and ends on Wednesday March 6, 2024. Upon a favorable outcome it will advance to snapshot.

Authorize KlimaDAO to become an official stakeholder on the HECTOR PDD and engage in the contract?

This poll has ended.

    Cujo while this is an exciting opportunity to have KlimaDAO more deeply involved in the project development process, I have several concerns that have not yet been addressed in previous discussion of this proposal.

    1. How does the project mitigate the risk of carbon credit price volatility over the 5-year term? Why is KlimaDAO paying $15.75 per tonne over the life of the deal, when we purchased 16,667 tons for $14.75/ea? Does a larger check size not correlate to a lower price? This is tough to swallow...
    2. Is it possible to reduce the check size? $1.2m is a significantly larger capital deployment than past forward purchases, and would consume the majority of the treasury's remaining idle cash - I'm concerned we are putting too many eggs in one basket...
    3. Is the involvement exclusive? What exactly will the PDD look like with KlimaDAO as “stakeholder”? Are there other investors or financiers who will also be included as stakeholders in the PDD?
    4. Given the first vintage is 2023, I assume this project is already underway and the registration process has started? How much does it cost to get a new village online, and what is the carbon sequestration potential of each new village? How many villages/communities are these installed in so far, and how many are there left to be installed? Could someone from the project also provide some kind of budget or breakdown of overhead costs/fees vs. the price that KlimaDAO is paying?

    Again, I understand the general benefit of having KlimaDAO more involved in a project's early development, but I am concerned about the size of the ask, combined with the risks around a new methodology, and the low level of optionality this would leave for KlimaDAO's treasury... I need to be convinced the large deployment and project risks are justified

    Especially given the large size of this deal, I'm concerned that neither Aither nor the project developer has engaged in forum discussion regarding this proposal

    While I supported the original HECTOR forward financing proposal, as it stands, given the large size of this follow-up proposal relative to KlimaDAO's available capital and the remaining unresolved questions, I do not support this proposal in its current form and have voted "No"

    These are all great questions and apologies for the slower reply.

    This is Klima’s unique opportunity to invest into a patented next generation technology that will not be replicable by other developers. The level of uniqueness combined with Buying quality also allows higher opportunity for good exit should be more palpable investment argument.

    More volume means better reach, more renowned registry means more trust from buyers, longer supply retention means increase in appetite from buyers looking to secure long term, being a stakeholder in a project of high calibre players assures product quality, buying a project with a patented technology means mitigating replication (as opposed to Biochar) while alongside the reflected premium via its 10 SDGs and good regional government relations that should facilitate attaining article 6 compliance, this all clearly reflects a well thought and defensive purchase that remains future proof and experience price support / future growth.

    Please see below relevant answers:

    1. Price volatility mitigation. The price is fixed that allows better transparency for both parties involved on price and cost forecasts. Given the emergence of article 6 and the run for good quality credit that are with high SDGs, we could expect prices to experience further upwards trends. The current pricing method helps avoid the project become more expensive. The first year price remains as it was indicated previously, however we need to allow inflation alongside the opportunity cost for the developer to be baked in the price going forward, the ascending nature of the pricing are below what other developers generally charge on forward agreements, this is associated to the sizeable transaction we are reaching for.

    2. This is exactly the reason why we thought of splitting the transaction into 2 separate tranches. While the first three years are firm interest, the last two remain an optional investment for Klima where it will maintain a right of first refusal. This means that the transaction is $1.2 million large at present payable with an upfront component and future payments down the life of the project.

    3. This is Klima’s deal, which means almost 100% (27,000 annual credits cap) of the credits will be attributable to your community only! And the specific project PDD will name Klima as the commercial arm in this project. This is a unique opportunity to be partaking as THE commercial stakeholder alongside with high calibre players in the PDD and having a cookie cut project solely for Klima!

    4. Given the timing of our negotiations the vintage will actually be 2024. Once the contract is upfront capital is paid the developer will be in a position to roll out its operations and register the project. Everything is ready for you to be executed, we expect first issuance in 10-12 months from contract execution. The average carbon sequestration is at 800-1,500 credits per village and we will involve about 25 villages into this project. There has been a pilot project already deployed that has generated exceptional results to the point of having the regional politicians issue the licence to commence this project at scale across rural india. The operational costs have been shared with Klima already and approximate 8.50 USD per year per credit (assuming 27kt to be 100% of generated annual credits) plus upfront costs of 2.50 usd which totals 11.00 usd.

      Aither_Carbon thanks for addressing my questions - though given the delayed response the poll has now closed with more votes "against" than "for" - so per KlimaDAO's governance framework, this proposal won't move forward to Snapshot as-is

      Again, I want to emphasize that I would love to see KlimaDAO be a project proponent, it just seems to me that this proposal is sized too large and the methodology is too new/high-risk to be allocating this amount of capital to a single project.

      I hope a similar proposal will come forward in future that is a more modest size and doesn't overly expose the KlimaDAO treasury to one particular project/methodology. I'd also love to see the project developer themselves engaging in the KlimaDAO governance/diligence process.

      Hi Team
      I have noticed there has been a bit of delay in my reply that has led to the assumption of inactivity from my side. Nothing further could be from the truth and apologies if it came across this way. As you know, time difference makes quick action more difficult especially when the questions arrive at the cusp of the weekend. As I was travelling for a conference and wanted to take time to think about proper answers as well as I was waiting on the developer to provide feedback on your cost questions. I replied to you as soon as I got them, which was Tuesday and arguably my 24 hours from commencement of the week start.

      As you can see from my elaborate replies, I have taken good time to give you a balanced and transparent reply to help you understand best where you had doubts.

      As we understand the initial 5 year fixed term deal has been heavily negotiated over the past 2 months to reduce the term to 4 and then to 3 years and we have arrived at the exact check of 1.2 million USD that you mentioned would feel comfortable in. This means 3 years forward purchase at 1.2 million and Klima has the option to buy further 2 years afterwards. I have further negotiated with the developer to reduce the upfront cash by 50k usd and assigned this amount to the collateral cash withhold.

      The technology is not really high risk nor early stage, apologies, it’s been designed by professors who worked in AI for 25 years and have constructed this technology that already has successfully achieved the pilot project in three countries and thus received government approval to commence deployment. This technology has been extensively and thoroughly audited by multiple independent parties and the local government entities involved have recognised the positive impact it created to the relevant villages and communities.

      Klima has the opportunity here to have access to this highly community based water filtration project that is driven by a patented next generation technology all on the back of an exclusive commercial deal. This a proprietary deployment of a project that is custom fit for Klima’s demand - it is a truly unique opportunity and should be valued as such as a different value proposition then tech carbon investments that are offered by many parties globally.

      Why don’t we have an office hours session among us to walk you through all outstanding questions. Very happy to help you clear your doubts where they still exist.

      As Marcus Aurelius said in similar fashion - Let’s not contemplate on what a perfect project could be, let’s recognise when we see one here!

      Cujo locked the discussion.
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