One year ago, purchasing carbon offsets without relying on brokerage services took a lot of research, while these were hardly accessible anywhere, making it almost impossible to buy. Against this backdrop, the voluntary carbon market (VCM) saw two major product launches among others last year: CRM-giant Salesforce and senken, a Germany-based start-up, released their marketplace for carbon credits. These marketplaces aggregate various carbon removal and avoidance projects on one platform and promise their customers easy access to a wide variety of certificates — while facilitating a more liquid market.
Carbon credits on both platforms now hold multiple informational aspects associated with the carbon credit, including methodology type, vintage, or co-benefits. Salesforce, for example, partners with Calyx Global and Sylvera for carbon ratings and Pachama as a project provider with a digital approach to monitoring, reporting, and verification (MRV) of sold certificates. Their vision is to become a one-stop shop for finding carbon credits from third parties and evaluating them using third-party expert reviews. Senken, on the other hand, is partnering, among others, with BeZero and Open Forest Protocol. The latter is developing a blockchain-based validation system; their vision is a fully autonomous on-chain carbon trading system.
Here’s where Salesforce and senken fundamentally differ: senken builds a marketplace based on blockchain technology, thus focusing on a much more decentralized approach than Salesforce. This article will take a closer look at both marketplaces to understand the use of blockchain technology in purchasing carbon offsets.
Salesforce: Web 2.0 Giant
In late September of 2022, Salesforce (for many surprisingly) announced a Net Zero Marketplace (NZM). The platform aims to connect buyers of carbon credits with ecopreneurs (developers of projects that remove or avoid emissions) and enable a one-stop solution for purchasing transparent carbon credits in the voluntary carbon market (VCM). Net Zero Marketplace went live in October 2022 in the US and is set to launch in other countries in early 2023.
Particularly noteworthy are the partners that Salesforce chose for the platform. NZM launched as a partnership with nine different companies in the carbon market. Partners include companies building novel processes to measure carbon sequestration (Pachama) or rate carbon credits as independent third parties (Sylvera and Calyx Global) and heavily focus on technical integration possibilities, e.g. through APIs (Cloverly, Lune). NZM thus successfully aggregated carbon credits from multiple sources while also adding value by additional vetting of projects.
Senken: Web 3.0 Start-up
Since its soft launch this year, senken has been the largest carbon offset marketplace for tokenized carbon credits. Similar to Salesforce, senken maintains evolving partnerships. Senken builds on Toucan’s infrastructure and makes it easier to access its carbon credits through a user-friendly interface. As seen in Salesforce’s platform, BeZero, an independent third-party rating agency, rates offset projects on senken’s marketplace to ensure the integrity of purchased carbon credits.
Another notable, recently announced partner is the Open Forest Protocol (OFP) that builds a new validation model to approve the sequestered carbon of forestation projects to issue blockchain-native carbon credits. This partnership highlights an important aspect as senken’s carbon marketplace aggregates the on-chain supply of tokenized carbon credits, potentially provided by OFP in the future, in one place.
D-MRV and value creation of blockchain-technology
Looking at partnerships like Pachama or Open Forest Protocol (OFP), both marketplaces adopt digital technologies, which are essential to enable digital methods in project monitoring, reporting, and verification (D-MRV). Recent technological developments and innovations to reduce the cost of emerging technologies have opened the door to the use of AI, machine learning, satellite imagery, blockchain, smart sensors, the internet of things (IoT), cloud computing, and drones in MRV systems.
D-MRV companies thus can fully or partially automate data collection, recording, and processing for reporting and verification, which are conducted manually in a conventional MRV. For example, Salesforce partners with Pachama, which uses a set of technologies to verify carbon offset projects stemming from forestry. The company trains an AI model to estimate a forest’s carbon sequestration potential. The model works on digitally sourceable data sets, like satellite imagery, field plots, LiDAR imaging, and other remote sensing data. Pachama uses a combination of satellite observations to map carbon markets: Optical infrared (left image), which captures forest “greenness” and density, such as the amount of green leafy material and chlorophyll in the forest. Radar and lidar satellite observations (center and right images) capture a three-dimensional forest structure approximating the carbon content. Particularly the Lidar satellite observations can estimate the height of the forest and the vertical distribution of branches and leaves from the ground to the top of the canopy (Source: Pachama).
Figure 1: Optical infrared, radar and lidar
Source: Pachama
So how are these technologies and increasingly available data sets used in the context of blockchain technology? Here’s one example: Open Forest Protocol (OFP), which recently announced a partnership with senken, uses blockchain technology to design a validation system to maintain and monitor the state of forests over time. OFP captures changes in a forest over time, leveraging a crypto-economic system of validators to check and confirm data entered into the system by project managers capturing specific key parameters of the forest project on the ground entered through the OFP mobile app. A combination of on-ground data and satellite images makes it much more accurate than using only satellite imagery for analysis.
OFP then takes a network of validators incentivized on a protocol level to receive tokens for validating the data using data sets such as satellite observations, IoT, drone, and AI technologies as it arrives into the system. When they validate the data, it is written into the state of the forest project, which can change over time while maintaining the history of changes as the project continues to upload forest monitoring data on the ground using the OFP mobile app. From a systems perspective, OFP expedites the speed at which projects can be validated.
With this, OFP demonstrates a real-world example of how blockchain technology fully unlocks the use of D-MRV as it creates immutable, auditable data and transfer records, including the creation of carbon credits. The forestation projects achieve more transparency and trust.
Figure 2: How does OFP work?
Source: Open Forest Protocol
Why tokenization in VCMs matters
Another differentiating feature of both marketplaces is the usage of tokenized carbon credits. While senken builds on the concept of tokenized carbon credits, Salesforce does not seem to make use of the various features provided by blockchain technology in the near future. Let’s examine a few arguments why Salesforce could rethink this strategy.
One of the largest arguments for tokenizing carbon credits is the lack of transparency and associated inefficiencies in the legacy carbon market along the supply chain of carbon credits. Scaling the VCM relies on exactly this: Transparency. It is hard to know how a project is performing at a level where trading of carbon offset credits is taking place. This hinders transparent price signals and price discovery processes.
However, the ability to map data to digital representatives of carbon credits where each presents a verified ton of carbon reduction, potentially backed by D-MRV data, brings transparency in the VCM to a new level. Linking this to the OFP example, the protocol allows for data-backed carbon credits such as satellite images or other data. Aligning carbon sequestration data on a distributed ledger provides a unique opportunity to tokenize a credit of carbon in a fully decentralized manner. Distributed ledgers give way to ‘data-backed carbon credits’ insofar as each credit created can be tied to a specific event and account at a specific time (Source: Open Forest Protocol).
Furthermore, using carbon credits as offsets can be exercisable on the blockchain. As an example, the relevant credits can be burned (retired) on-chain and a timestamped certificate being generated to ensure that the credit can no longer be claimed as an offset against any future emissions. Once this burning/retiring is recorded on-chain, it can not be altered. This ensures transparency concerning double usage.
Centralization vs. decentralization
The previous analysis already sheds light on the concept of centralization vs. decentralization. Centralization can be conceptualized as when the power for decision-making and execution rests at a single point of authority — in an organization usually in the hands of a single individual. To the extent that the power is dispersed among many individuals, the structure of a system becomes more decentralized.
By definition, OFP keeps up the ethos of decentralization while senken aggregates these carbon credits on its marketplace. In this context, decentralization in carbon markets starts when the actual projects become registered, validated and verified. However, the quality of carbon credits is only as legitimate as the data that enters into the system. Hence, data integrity will be key to the success of the VCM.
The marketplace solution provided by senken is analogous to an exchange like Coinbase or OpenSea: The interface is centralized, the underlying product is decentralized. In this case, senken maintains decentralization of their underlying (carbon credits) through leveraging decentralized web3 protocols like OFP.
Conclusion
The two marketplaces of Salesforce and senken are more similar than they seem at first glance. Both rely on digital MRV solutions to make projects more transparent. In addition, both tackle one of the biggest problems in the carbon market: the enormous fragmentation of projects and companies. They aggregate supply from different sectors and countries into one marketplace. The supply is already good on both platforms, considering their age. In the long term, linking D-MRV to a single credit could be important to provide transparency when trading is taking place and could be the key to scaling carbon markets.
However, the selection of different categories and verification standards is currently larger on Salesforce. For example, Salesforce not only offers forestry projects but also projects in renewable energies, although their additionality is often controversial. In terms of ratings, senken has a higher coverage. Most of the listed projects in senken have a rating compared to Saleforce’s marketplace, which only offers a rating for about one-third of the credits provided. So there is some catching up to do so that projects are easily comparable. The main differentiator is that Salesforce’s marketplace is off-chain, and senken’s is on-chain. In the future, both marketplaces will certainly list many more certificates. It is hoped that the listings will provide even more details on the projects and that the transparency regarding the project progress will continue to improve in the future.
For higher efficiency and transparency, it is necessary to maintain a system that can transparently track the issuance of carbon credits and monitor the quality of carbon credits post-issuance. This article thus highlighted that using blockchain systems could provide one solution for this still-young market. Blockchain systems could become the infrastructure layer for carbon markets by enabling a decentralized meta registry even though there will be different registries pertaining to different project types or issuers. In this case, blockchain technology does a good job of enabling transparency along the supply chain of carbon credits from registration to validation and issuance while delivering a new infrastructure layer for the VCM on public ledgers.
About ECOTA
The European Carbon Offset Tokenization Association (ECOTA) is a think tank that aims to overcome challenges in the field of technological enabled decarbonization to find token-based solutions for a faster route to a net-zero Europe. Check out our page here.
About the authors
Cara Reuner is an Executive Director of the European Carbon Offset Tokenization Association (ECOTA). She graduated in Finance and spent most of her professional career in the area of impact investing. You can contact her via mail (cara.reuner@ecota.io) via LinkedIn or follow her on Twitter.
Alexander Krost is one of the co-founders of Sustaim. He is passionate about technology and using it to create positive change. You can contact him via mail (alexander.krost@sustaim.earth) or via LinkedIn. Sustaim offers pre-financing for carbon credits, allowing customers to invest in carbon removal projects with regular updates via their platform for transparency and proof of effectiveness.
