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Market Opportunity
The Problem with Carbon Credits
The history of the carbon credit market is covered later in this paper, but in this introduction it’s important for the reader to understand the challenges of the current market. Carbon markets and the credits issued are not (for the most part) the problem - indeed, over the last 20+ years the market has matured to create robust standards and measurement techniques for undertaking and measuring the climate benefit of projects. However, the carbon credit ecosystem presents numerous barriers to financing and delivering effective carbon sequestration at scale.
The biggest issue is that currently it’s hard for a buyer to purchase carbon credits and hard for a project developer to sell them. There is often ample supply and demand simultaneously, but matching the two is difficult when there is such an abundance of parameters to consider, relating to standards, co-benefits, geographies, methodologies, vintage and type (i.e. emissions reduction, and avoidance, removal, nature-based and technology-based activities and a plethora of standards for measuring social and environmental ‘co-benefits’ that are delivered alongside carbon credits). McKinsey highlights the problems:
Today’s voluntary carbon market lacks the liquidity necessary for efficient trading, in part because carbon credits are highly heterogeneous. Each credit has attributes associated with the underlying project, such as the type of project or the region where it was carried out. These attributes affect the price of the credit, because buyers value additional attributes differently. Overall, the inconsistency among credits means that matching an individual buyer with a corresponding supplier is a time-consuming, inefficient process transacted over the counter.[14]
This ‘over the counter’ (OTC) market is inefficient and opaque. Information is incomplete and inconsistent, contracts are complex, transactions are time consuming. And price discovery has proven impossible to implement, leading to a lack of trust by buyers that the climate impact of their purchase is maximised, in favour of brokers’ and retailers’ margins.
Ultimately what this means is that fewer people and organisations engage in the market than would otherwise participate, limiting the potential of this vital tool in the fight against climate change.
The design of the JustCarbon platform adopts an entirely novel approach that builds upon the best and most effective parts of the existing carbon credit industry, whilst solving the problems that limit the market on both the buy and sell sides. The biggest issues are:
Measurability and Traceability - focusing just on the carbon (but from only the highest quality certifications), knowing exactly how much has been sequestered; when, where and by whom
Liquidity - either buying or selling instantly, whenever a need arises
Accountability - from the producers proving their carbon impact to buyers accounting for their retirements in a transparent way
Governance - climate change is a global issue; no one government, entity or bloc should have complete power over the system
JustCarbon was created to solve these four main challenges. To address them fully, the platform uses two unique tokens, the JustCarbon Removal Unit (JCR) and the JustCarbon Governance Unit (JCG).
Carbon Removal Unit
The JCR’s role is to simplify accounting for carbon offsets and make retiring of a unit of carbon a permanent, irreversible event.
One JCR equates to exactly one (1) tonne of sequestered carbon that has been certified by a defined set of standards bodies that are determined by the platform’s governance rules. The focus on the highest quality, nature-based sequestration activities is key. One of the goals of JustCarbon’s founders is to drive investment into large scale, nature-based carbon removal activities such as tree-planting, mangroves and seagrasses. They also recognise that with high deforestation rates it is vital to protect the planet’s existing sequestration capabilities by protecting standing forests. Therefore, the platform will accept carbon avoidance credits from REDD+ (Reduced Emissions from Deforestation & Degradation) projects that are certified by Verra (VCS); have an additional certification from CCBA or an equivalent AND were issued within the last five years to ensure they are following the latest accounting methodologies.
In this way, the companies, Governments and members of the public that buy JCRs are buying certainty. When they buy a JCR, they know they are directly contributing to the removal of 1 tonne of carbon from the atmosphere that has been certified against the latest methodologies from the most robust and credible standards in the market. They will also be able to see a clear market price rather than negotiating project by project. This simplicity removes the need to shop around for credits meeting the highest quality and the associated transparency will bring confidence to buyers who want to simplify their carbon offset processes.
When minted, the JCR will also register detailed verification data on-chain via a separate database called JustCarbon Explorer, such as serial numbers, vintage, certification body, producer data and other relevant identifying information. However, whilst it is freely and easily accessible to the community, buyers cannot make purchasing decisions based on this data, and beyond initial minting it will be impossible to trade based on this information. This ability to identify project details retrospectively may not suit all buyers, however the focus on individual projects with prices negotiated on a bespoke basis based on these criteria has been the enemy to liquidity. The scale of the climate crisis, combined with projected demand side growth means that most buyers will prefer to focus on the tonne of carbon removed for climate mitigation, knowing that the measurement is robust and that the underlying activity meets wider sustainable development principles but without preference for specific criteria for each purchase. The potential exists to establish agreed mechanisms for monetising these wider benefits in the future when the market is such that this does not affect liquidity.
The other major innovation is using the distributed ledger technology combined with smart contracts to retire JCRs. Currently, this process is unnecessarily complex: most carbon credit buyers do not have a Registry account for practical reasons and the retirement process can be clunky and costly, requiring buyers either to set up and manage their own accounts, which is resource intensive, or rely on brokers to retire on their behalf, locking in the ‘over the counter’ model and high margins and reliant on an audit trail from a third party using basic registry technology to ensure that they are retired. Just Carbon provides a simple ‘burning’ mechanism with an immutable blockchain record that is owned by the buyer.
It is also challenging to understand the dynamics of the global market, due to multiple standards bodies operating their own separate and often proprietary registry systems that have varying functionality and levels of user-friendliness. Under the current system, these issues will become more, rather than less problematic as the market grows and new standards and systems are added, both for purely voluntary offsets and for those fungible with compliance schemes under development.
JCRs retirements can be instant and visible to the entire chain, making auditing far more transparent, robust and credible.
Governance Structure
Inconsistent and sometimes contradictory levels of governance are contributing towards the carbon offsetting industry’s challenges with credibility. The existing market lacks robust controls, and there are even opportunities for reselling of credits that utilise "outdated” methodologies, which represents a major barrier to entry into the market for buyers, who lack a means to trust a carbon credit as being truly representative or accurate. This is something that the JustCarbon Removal Unit (JCR) fundamentally changes, by leveraging the immutability of blockchain technology combined with clear and transparent rules that determine only the highest quality credits can be tokenised into JCRs.
Furthermore, solutions for the global climate crisis need to be global . Creating an organisation that is governed by the rules of one country or perspective will limit potential.
JustCarbon will solve many of these issues. By operating within a Decentralized Autonomous Organisation (DAO) structure, the traditional top-down structure is removed. Decisions are decided and voted on by the community and stakeholders rather than directors or shareholders, and by operating within no fixed geography it eliminates many of the political biases that traditional organisations encounter.
The DAO will be operated on an entirely different chain to the JCRs, creating a clear and necessary separation between the two. The JustCarbon Governance unit (JCG), will manage the treasury functions of the platform and commission service providers, developers, and partners to ensure the long-term viability and stability of both tokens. Additionally, once the JustCarbon platform proves to be a commercial success, it will redistribute treasury reserves back into other carbon sequestration projects, thus amplifying the potential impact it can have for the market.
Executive Summary
A Brief History of Carbon Credits
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Outline
The Problem with Carbon Credits
Carbon Removal Unit
Governance Structure