Hi Jose,
There is a lot in your note. I’ll respond to your specific questions, but, as your note demonstrates, this is a really complicated question that is hard to discuss in a chat forum since it has so many side threads. I would be happy to voice with people on Discord or something if there is an appetite.
I would also suggest a couple principles should guide Celo’s action and that any proposal should be judged in light of these:
- We aim to increase the flow of capital to the individuals and entities actually executing conservation and environmental protection through transactions rather solely to secondary market actors.
- Those transfers should be connected directly to actions and behaviors that drive conservation in order to scale the change that we seek .
I think that the theoretical answer to your question lies in the concept of ecosystem services and valuing natural capital as a “stock” for a region or country. The MEA back around 2001 offered a framework for thinking about the services that nature provides to the economy, which has held up pretty well. Most economic activity is dependent directly or indirectly on some form of stable natural service such as having access to clean water, predictable weather patterns, fiber to harvest, pollination of crops, etc. In a market economy, those should all be valued and some of the profit from selling clothing should actually be directed towards people who have maintained rangeland and forests that sustain the pollinators and water that cotton crops use, etc. In reality, we don’t price those things and the only economic realized value out of landscapes comes from some form of extraction (and typically depletion of capital stock). The exception lies most in the cap and trade systems that have been tried piecemeal over the years.
This problem has been recognized for a while and I think that many of the posts on this sub are speaking to this point. There is a LOT of literature out there (happy to share some references) and many pilot efforts in different domains. However, there have been few breakthroughs because it is quite complicated to figure out how to set the right pricing and no politicians want to be the ones that internalize the cost of ecosystem damage into the markets. Some people would gain, but most would see inflation of prices in the short term.
I’m not sure how blockchain specifically can change this since the problem lies in laws and governance rather than friction which can be removed through better technology. There is a small but active stream of capital that flows from people who would like to sponsor conservation whether it is through voluntary carbon credits (which is a market mechanism that still depends on charity) or direct donations. I think that blockchain could remove friction for these use cases, which would have benefits as long as we could solve the validation problem. I show you a picture of one square kilometer of the rainforest. How do we know that it still looks the same way tomorrow? Or the day after? Or the day after?
Taking physical world system of certification and using the blockchain to support the movement of certificates certainly is an option. If the certifiers are good at their jobs and there are standards to govern an assessment, then the problems of validation could be solved. Perhaps smart contracts could be used to make flows of payments conditional on additional approvals by validation (see Kilt Protocol). However, I don’t see how this necessarily improves on the current approach or the money flowing to projects. You can already buy credits online. The limiting factor in scaling the market is motivation of people to spend money on credits and conservation when they are not required to do so rather than a market mechanism.
To your question on the value of a standing forest, the MEA would probably be helpful to your question. It is usually in:
- Eco-tourism, non-timber forest products or other community-based economic activities. Proven case, but small revenues as compared to mining and forestry.
- Carbon credits. Mostly confined to voluntary markets with low price due to low demand. It’s voluntary.
- Payments-for-ecosystem services schemes. Pretty rare, but you can find functioning ones in Ecuador and Colombia. For example, a hydro operator pays upstream landholders to protect forest to prevent siltation of the dam and save on operating cost etc.
- Spiritual / cultural value. Literally priceless and usually only enforced through courts and laws protecting rights of indigenous peoples’ and/or national park legislation.
You could establish payment schemes for things like watershed filtration if there was the political will.
For Celo and blockchain, I would see the three most productive directions as being:
- Look for a vehicle to invest into green bonds as part of the reserve. Liquid, regulated, impact frameworks, and financial attributes suited to a reserve;
- Institute a carbon tax. Divert a small fee from every transaction into a reserve fund that will purchase carbon offsets and invest into other ecosystem service schemes. Economists have told us for decades to use carbon taxes and forget cap and trade. Why doesn’t blockchain show it in practice?
- Look for use cases where blockchain can reduce friction within function mechanisms and allow them to scale. Don’t set up valuation schemes that are dependent on legal frameworks and complex change management. Help projects issues NFTs that are time bound and can be sold to raise funds for the project. Embed into the smart contracts that any NFT onsales send a commission to the originator. Use Kilt or something to require a validation/verification. It is very doable to design, but gets too complicated to write out in a forum posting. Don’t try to create extensive secondary markets for those NFTs since the majority of the subsequent value capture goes to speculators rather to communities or the environment. I would be happy to voice with people if there is an interest in exploring this.
