Carbon credit-backed crypto projects flounder amid a bear market

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WeWork founder Adam Neumann’s venture Flowcarbon, which announced over $70 million in funding just shy of two months ago, has indefinitely postponed its product rollout amid a crypto bear market.

According to Wall Street Journal (WSJ), several cryptocurrency startups trying to sell carbon credits have “either slowed operations or delayed product rollouts,” made worse by a recent crackdown on the issuance of carbon credits on the blockchain.

Flowcarbon calls itself a ‘tokenized’ carbon-credit exchange “creating deep liquidity in the carbon market and allowing for efficient price discovery.” It’s deployed on the Celo blockchain.

In reality, it trades non-binding, self-created carbon offsets for excess pollution — with the specific aim of enabling DAOs and DeFi projects to burn on-chain tokens so they can market themselves as carbon neutral.

Similar ventures include controversial KlimaDAO, infamously pump and dumped by Mark Cuban, which has also announced it would no longer accept new business. Cuban also heavily backed Toucan Protocol’s Base Carbon Tonne (BCT), which has been banned by the largest carbon-offset registry.

According to Toucan Protocol, KlimaDAO was its launch partner. The two tokens’ values are intrinsically linked and began trading around the same time.

Tokenized carbon credits aren’t even offsetting emissions

Carbon credits are issued by projects looking to remove carbon-dioxide from the atmosphere or stop pollution from being emitted. One credit is equal to one metric ton of carbon dioxide, which can be bought by companies or investors and then retired to offset emissions.

Enter crypto bros. Sensing opportunities for profit, projects like KlimaDAO and BCT have bastardized the process and turned it into a green-washed money maker.

Venture capitalists put about $267 million into climate-related crypto deals in 2021, according to WSJ. In 2022 so far, it’s about $156 million, with Flowcarbon receiving over $70 million of that figure alone.

In the six-month period since Toucan and KlimaDAO launched in October up to March this year, over 23 million carbon credits were removed from registries and put onto crypto networks, WSJ reports. That’s about 28% of all the credits listed at the time.

Yet data shows the vast majority of those tokenized credits aren’t being used to actually offset carbon emissions. Instead, over 98% of them have been traded.

This has caused concern for Verra, the largest carbon-offset registry. It put an end to credits being used to back crypto tokens in May, just two days before Flowcarbon announced $70 million in funding led by Andreessen Horowitz.

At the same time, Verra announced it would stop the Toucan Protocol from buying retired credits for speculation purposes.

Tokenized carbon credits have others concerned, too. Carbon consultant Nate Maynard told CoinDesk, “You can’t speculate on carbon offset assets. That’s not how the science works.”

Maynard also pointed out that many of the carbon credits snatched up by crypto bros were issued by projects that are eight to 10 years old — making them more or less useless for the purpose of actually offsetting emissions.

“If you’re buying credits from 2016 for emissions that you’re doing in 2021, people are going to look at that, and when you get it reviewed then you have to explain it to your stakeholders why didn’t we buy offsets from something that has a more tangible impact,” he said.

As CoinDesk pointed out earlier this month, putting carbon credits on the blockchain has actually decreased transparency and authentication in the industry.

It remains to be seen whether Flowcarbon, KlimaDAO, or similar projects will survive amid plunging crypto prices and relevant parties learning that slapping a ‘web3’ label onto a project doesn’t make it worthwhile.

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