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Beginners Guide to JCR

Introduction

Most people understand the need to reduce carbon dioxide emissions, but few understand the carbon market in all its opacity. It’s helpful to understand how it works before recognising how it needs to evolve. This beginners’ guide will use simple and clear language to demystify the carbon offsetting industry, show how JustCarbon’s platform functions and reveal how it will address the factors that have been holding the market back.

How carbon offsets work

Firstly, it’s important to explain the existing business model behind the carbon offsetting industry. Carbon offsetting is the commercialisation of any activity that either avoids/reduces CO2 emissions or removes past emissions from the atmosphere. Typically, these activities are completed by verified ‘project developers’, then sold as carbon credits, with one carbon credit normally representing a tonne of CO2 being stopped from reaching the atmosphere, or removed via sequestering.
These credits are purchased by companies – and sometimes governments and members of the public – to help them achieve carbon neutrality (offsetting the same amount of carbon they emit) or carbon negativity (offsetting at least twice the amount of carbon they emit).

Step by Step

Not all offsets are the same and many non-verified credits are sold in the market. However, the following is a typical step-by-step journey of the current carbon offset industry:
  1. 1.
    A Project Developer develops a ‘methodology’ i.e. an activity that avoids, reduces or removes atmospheric CO2 through some kind of action, intervention or protection.
  2. 2.
    The Project Developer needs to show that the activity wouldn’t have happened anyway if the activity hadn’t taken place.
  3. 3.
    They also need to prove its ‘additionality’ i.e. demonstrate that their method avoids or removes more carbon from the atmosphere than it emits.
  4. 4.
    Once they’ve been through this process, they get their methodology approved by a ‘Verifier’, an independent organisation that approves the methodology – i.e. The Gold Standard, Verra etc.
  5. 5.
    The Project Developer is given an agreed number of credits they can sell in any given year (AKA its ‘vintage’), typically 60% of the expected annual output with a 40% buffer in case something goes wrong.
  6. 6.
    The Project Developer then sells these credits to the market, normally through a retailer or a broker that often charges upwards of 30%.
  7. 7.
    The intermediary promotes the credits based on both the weight of CO2 and any ‘co-benefits’ – i.e. whether the creation of the credit has also enhanced biodiversity, created jobs, distributed wealth etc.
  8. 8.
    Once sold, the credits are then listed on a ‘registry’, i.e. a platform that holds all the carbon credit origination and ownership data.
  9. 9.
    There they remain until such time as the current owner elects to ‘retire’ the credit from the registry, i.e. to permanently account for the offset in their own records, an activity that can’t be undone, and for which a small fee is charged for the relatively manual process.
  10. 10.
    The Project Developer undertakes an independent audit with another organisation to confirm they achieved what they set out to, and in the subsequent year the amount they can sell is adjusted accordingly.
  11. 11.
    The Project Developer reinvests their profits from the previous year/season and the process repeats.

How JustCarbon Works

The carbon offsetting process seems to be pretty established. So why does JustCarbon need to exist? And how does our process differ from these existing practices?
Firstly, whilst the market is only two decades old, it’s surprisingly low tech. Verification is completed manually, credits are bought and sold over the phone and registries are nothing fancier than basic databases.
Secondly, too much emphasis has been placed on the co-benefits, which are the enemy to liquidity. Of course the co-benefits are important, but if the market was more liquid they would benefit more people and at a greater scale anyway. Currently, the people who benefit the most from selling based on co-benefits are the brokers and retailers, not the Project Developers, since the process of matching buyers and sellers is much more manual. This means fewer funds are reinvested back into more climate action.
Thirdly, there’s no agreed price for carbon credits. Since the market is illiquid, manual and localised, the price varies wildly depending on where you buy from.
Lastly, buyers find it difficult to enter the market. They want to support climate action and to offset their emissions, but a Google search (where most start) will just take you to the website of a broker or a retailer.
We have identified that the market wants certainty, ease and speed, which a tokenised marketplace allows for. JustCarbon has been built to resolve all these issues in an easy-to-use platform backed with a highly robust blockchain.

This all manifests through the following process:

  1. 1.
    Anyone who has an offset they wish to turn into a JustCarbon Retirement Unit (JCR), be they a Project Developer, a broker/retailer or a previous buyer whose circumstances have changed, applies to list their inventory on our platform.
  2. 2.
    We undertake a selection process that ensures their offsets meet the definition of carbon removal and adhere to our quality criteria.
  3. 3.
    A JCR is minted for each verified metric tonne that the seller lists.
  4. 4.
    If the offset exists as a carbon credit in the existing market, the credit is migrated from the registry, so the only place it now physically exists is on JustCarbon’s secure blockchain as a JCR.
  5. 5.
    The owner then either sells their JCR via the JustCarbon platform or trades it on our own exchange or any other reputable exchange. The platform includes a simple ‘buy and burn’ feature for anyone who wants to easily retire their JCRs and reduce their or their organisation’s carbon footprint without delving into the features of the exchange.
  6. 6.
    Automatic market making will dictate the price at any given time, which will allow any exchange to list with a globally accepted, homogenous value.
  7. 7.
    New owners can either store their JCRs in their JustCarbon account/wallet, convert to a chain of choice and store in their own wallet, trade/exchange on their preferred exchange, or ‘burn’ them.
In many respects, JustCarbon is turning authenticated CO2 removal into an asset or a commodity. In fact, we’re calling it an ‘asset-backed token’ because you will physically own the underlying asset of the removed tonne of carbon by holding the only real-world manifestation of it, which is the JCR.
This approach also leads to fair pricing, with all sellers benefiting from price certainty, including the Project Developers, meaning more money being reinvested back into further climate action. Mark Carney’s Taskforce for Scaling Voluntary Carbon Markets has highlighted that the price needs to grow to $120 a tonne (up from as little as $8 today) to stimulate production to necessary levels. In that sense, traders and speculators betting on this price rise will help the market in the short term, which will in turn encourage more Project Developers to enter the market.

Why JustCarbon is focusing on CO2 Removal

Although the industry doesn’t define them as such, there is a clear distinction between avoidance/reduction and removal. A good analogy to understand the difference is a sinking boat. To stop a boat from sinking, you need to plug the holes as quickly as you bail the water. If too much water gets in, both the increased weight of the boat and the potential that it leaks through portals, davits then eventually over the side means the boat reaches crucial tipping points and sinks. And even when the holes are plugged, you still need to get rid of the water.
However, you can bail the water at the same speed as it’s coming in and theoretically keep it afloat, or indeed bail faster than the leak by using pumps.
Many people have spent the last two decades attempting to only plug the holes, whilst the issue has been getting significantly worse. So for us, removing the CO2 that persists in the atmosphere is our biggest priority because a) too few people are focussing on it and b) the potential for removal is much greater than the potential for reductions.
This is our first point of difference as a platform, the fact that we will define exactly what CO2 removal involves and make it easier for the market to buy removals specifically.

The Importance of Quality

The problem generally with carbon offsets is that it’s hard to measure carbon emissions, reductions, and removal. There are so many factors at play and many of them subjective. As science improves, so does our awareness of, for example, the dangers of monoculture, the importance of biodiversity and how the global carbon cycle interacts with local carbon cycles. As such, older vintages often don’t meet the standards of today.
Also, verifiers adhere to different quality standards. As public interest in the industry grows, so will scrutiny from the media and commentators. Hence why JustCarbon has been developed partly by one of the founders of one of the major verifiers, Adrian Rimmer, former CEO of The Gold Standard.
To maintain quality and integrity, JustCarbon’s initial liquidity pool of JCRs will only be sourced from VCS (Verra) and Gold Standard credits, from a vintage of 2016 onwards and only if they are nature-based CO2 removal. We will consistently review our criteria and over time will potentially introduce technological solutions like Direct Air Capture, or geological solutions such as ocean alkalinity enhancement, if our community votes to include them.

Summary

Whilst the existing carbon market has achieved a lot to create a solid foundation for addressing the climate emergency, it was built in a piecemeal way and not designed for scale.
JustCarbon will make the carbon market fit for the future, and ensure that it’s accessible for all.