IFC Seeds Blockchain Fund for Carbon Offsets
Source: South Pole
Key Points: The International Finance Corporation’s sponsorship of blockchain-based offsets in its new Carbon Opportunities Fund has potential to be an important catalyst for nature-based offset voluntary market growth. The Fund is stressing its project selection and MRV processes to provide reassurance to offset and blockchain skeptics.
Sponsoring new tokenized carbon offsets. Last week, the International Finance Corporation (IFC), a member of the World Bank Group, announced it would sponsor development of the Carbon Opportunities Fund (the Fund). The Fund will invest in carbon offset credits that are to be tokenized for sale through blockchain. It has teamed up with Cultivo, which builds portfolios of “natural capital” and will identify the projects; Aspiration, a fintech that will be one of the anchor investors along with the IFC; and Chia, which is providing the blockchain for the World Bank’s Climate Warehouse that will track the tokenized credits.
Continuation of endorsement of carbon markets and the potential of blockchain. The IFC’s funding of this initiative appears consistent with previous efforts to support carbon markets, including using blockchain. The World Bank introduced the Climate Warehouse in 2019, piloting the linking of registry systems using blockchain to store information (the pilot included Chile and Japan and used Verra-registered projects). This integration of the Warehouse into the Fund comes at a time in which the tokenization of carbon offsets has been criticized for facilitating the sale of lower quality projects; the Fund’s “closed system” with curated projects seeks to obviate that concern.
The Fund could prove one of the more successful Blended Finance efforts. The World Bank has embraced a number of Results-Based Finance efforts but, like its more general development initiatives, they frequently do not spur much Western private capital co-investment. Instead, the World Bank and other development institutions seek to create a heralded “multiplying effect” by de-risking projects, in which private capital vastly supplements the amount of money the government-backed institutions have invested. The Fund reflects an example of a different type of de-risking — in this case of carbon offset project quality — which is similarly intended to spur much more private capital to co-invest.
Resources to develop quality projects and Measurement, Reporting and Verification (MRV). Recognizing the reputational challenges to carbon offsets/emissions reduction credits, the World Bank’s efforts have included developing local capability to develop projects and implement MRV systems. For example, $0.4B of the $1.3 Billion raised in the World Bank’s Forest Carbon Partnership Facility is dedicated to “The PCPF Readiness Fund,” which works with countries to develop reference emissions levels, MRV systems and management arrangements. The World Bank further is looking to implement digital MRV in order to help “expand the use of smart sensors, satellites and drones, cloud computing, artificial intelligence, and blockchain encryption.”
8/25/2022