Hi all,
Spirals Protocol, Mercy Corps Ventures, and the Climate Collective would like to jointly raise a proposal to update Celo’s carbon-offsetting mechanism to include on-chain carbon offsets, further mitigating the environmental impact of the Celo Platform. Our rationale for this change is that tokenized carbon offsets will allow for increased transparency, accountability, and liquidity as the market matures. Bringing Celo’s commitment on-chain offers several key improvements for:
- the general public to verify the network’s carbon neutrality
- the community members to help govern which assets are used
- emerging climate projects to anticipate consistent demand
We believe that an end-to-end digital carbon market will be superior to today’s analog version. While probably not perfect in its first iteration, we think of this proposal as an important step towards increasing quality and confidence in blockchain enabled decarbonization.
Specifically we propose the following first steps as we initiate this transition:
- Reduce from 100% to initially 80% (first phase) and eventually 50% or less (second phase) of the epoch rewards from the on-chain Carbon Offsetting Fund to go towards Wren as quality of on-chain assets increase.
- As it stands currently, 65.7 tCO2 eq/month are offset off-chain via Wren; this accounts for 9.5x of the Celo platform’s monthly average emissions from transactions at the protocol layer (estimated that ~6.88 tonnes are emitted by the validator network each month), making the Celo platform carbon-negative.
- Even at 80%, Wren will still offset more than the full amount of estimated carbon emissions of the Celo blockchain.
- This new proposal will account for initially 52.6 tCO2 eq/month, eventually 32.9 tCO2 eq/month
- Direct the other 20% - eventually 50% or more as high quality credits become available - of epoch rewards from the on-chain Carbon Offsetting Fund towards retiring high quality TCO2 tokens (representing Verra carbon projects) each month—performed by the “Celo Carbon Neutrality Multisig” (CCNM) with representatives from the Spirals Protocol, the Climate Collective, Mercy Corps Ventures, and the Celo Foundation.
Context
The inaugural Celo Governance Proposal enabled “epoch rewards and carbon offsetting,” allocating 0.1% of block rewards to the on-chain Carbon Offsetting Fund. Though most Proof-of-Stake (PoS) chains have or aim to become carbon neutral, the Celo Platform has been carbon negative from inception and this commitment to the environment has set the Platform apart in the regenerative finance (ReFi) space.
CGP#1 was executed on April 27, 2020, at which time no on-chain offsets existed. Celo then partnered with Project Wren (cf. their current dashboard), which was implemented on a protocol level by redirecting block rewards to a wallet administered by Wren, which periodically purchases carbon offsets for tech-enabled rainforest protection in the Peruvian Amazon and community tree planting in Kenya, Uganda, and Tanzania.
To date, 3,844.8 tons of CO2 have been automatically offset by Project Wren on behalf of the Celo Platform, which greatly exceeds the estimated 247.7 tonnes of CO2 emitted by the network by a factor of 15.5x. The Celo ecosystem has also grown to include a thriving group of ReFi projects, such as Flowcarbon, Thallo, and Senken, preparing to launch on-chain offsetting on Celo, while Toucan Protocol and CarbonPath have recently deployed this functionality.
As quality has become a major issue for the VCM, and dMRV and digitally native assets have been identified as a potential antidote to the concerns around quality and integrity of the market, the Climate Collective has partnered with Rocky Mountain Institute to get more clarity around how to assess quality and what Web3 tooling that can aid in the assessment of quality. A dedicated framework for this is forthcoming and will be of much use to this new phase of Celo’s climate commitment.
Proposal
On-chain offsets
As a natural next step for the Celo community to continue to demonstrate carbon-neutral leadership and bring our commitment on-chain, we propose reallocating 20% of the Carbon Offsetting Fund, sourced from CELO block rewards, to on-chain offsets offered by the Toucan Protocol through its TCO2 tokens. We aim to prove out a system for utilizing on-chain offsets, and establish initial guidelines for future governance proposals to include new assets and adjust percentage allocations.
Funds will be administered by a “Celo Carbon Neutrality Multisig” (CCNM) including representatives from the Spirals Protocol, the Climate Collective, Mercy Corps Ventures, and the Celo Foundation. CCNM’s mandate is to use CELO allocated to the CCNM to purchase and retire high-quality tokenized carbon offsets on-chain, and continue credibly offsetting the emissions generated by the Celo Platform.
Based on current epoch rewards, the Celo Carbon Offset wallet receives roughly 68 CELO per day. We propose that the 80% of this is allocated to Wren offsets and the other 20% is allocated towards buying and retiring high quality [defined in “Quality” section below] TCO2 tokens.
CGP#1 was executed on April 27, 2020, shortly after mainnet launch, at which time the validator network was rapidly expanding. Consequently, initial estimates for the protocol’s carbon footprint were very conservative, accounting for the energy usage of 200 carbon-intensive validators. This proposal uses an updated methodology from cLabs informed by data from Google Cloud, extrapolated to the number of elected validators. Note that the calculations also include testnets (Alfajores and Baklava), which are not considered in most blockchain accounting frameworks.
cLabs’ most recent calculation, included below, found that a highly conservative annual carbon footprint for all Celo validators is approximately 82.57 tonnes of CO2. This assumes validators are not using any carbon neutral platforms to run their validators (e.g. Google Cloud). cLabs, with the support of the Celo community and institutional partners, strives to increase accuracy over time and consider all scopes of emissions.
| Google’s Report | Value |
|---|---|
| 2022 Total Emission (TCO2) | 2.3 |
| 2022 Dec | Total Emission (TCO2) |
| 2022 Dec | Mainnet emission (4 Validator) |
| 2022 Dec | Baklava emission (1 Validator) |
| Applying the % on the 2022 emission to get per validator annual emission | Value |
| — | — |
| 1 Mainnet Validator (TCO2) | 0.4504608295 |
| 1 Baklava Validator (TCO2) | 0.498156682 |
| Applying the per validator emission metric to all validators | Value |
| — | — |
| # of Validators in Mainnet | 128 |
| # of Validators in Alfajores | 10 |
| # of Validators in Baklava | 40 |
| Total Validator Emission in Mainnet | 57.65898618 |
| Total Validator Emission in Alfajores | 4.98156682 |
| Total Validator Emission in Baklava | 19.92626728 |
| Total Validator Emissions | 82.56682028 |
Celo currently offsets 65.7 tons of CO2 monthly via Wren, or approximately 10x more than the estimated 6.88 tons of CO2 emissions Celo platform’s monthly average emissions. Moving forward, if this proposal is passed the Celo protocol would offset ~53 tons of CO2 each month with Wren. Given that the current amount of offsets facilitated by Wren are much greater than Celo validators’ carbon footprint, reducing to 80% will still ensure that the validators’ carbon footprint is offset. Additionally, Celo has offset 3,844.8 tons of CO2 thus far, and as a result, has offset its carbon footprint for subsequent years.
Based on the price history of individual on-chain nature-based carbon offsets, such as Toucan’s TCO2’s listed on Senken, we estimate a price per tonne of TCO2 would be between $2.60 and $3.50. At current CELO prices, this would mean TCO2s would be used to offset approximately 121 tons of CO2 every month. The analysis can be seen below for anticipated offsets each month for 2023.
A number of higher priced higher quality credits between $10-$30 per tonne are also making their way to markets in the coming months, which we intend to incorporate into offsetting and consistently strive for higher quality. One of the benefits of this iterative approach with a CCNM advising on purchase strategy is the opportunity to mix in higher quality credits in the mix going forward. A lot of [experts are advocating for a blended portfolio and Web3 functionalities allow us to do this in a much easier way.
| End of Month | Celo tCO2 Emissions | Wallet Amount | Wren tCO2 | Toucan tCO2 | Total tCO2 Retired |
|---|---|---|---|---|---|
| May | 6.88056835667 | 2108 | 52.56 | 70.27 | 122.83 |
| June | 6.88056835667 | 2040 | 52.56 | 68.00 | 120.56 |
| July | 6.88056835667 | 2108 | 52.56 | 70.27 | 122.83 |
| August | 6.88056835667 | 2040 | 52.56 | 68.00 | 120.56 |
| September | 6.88056835667 | 2108 | 52.56 | 70.27 | 122.83 |
| October | 6.88056835667 | 2040 | 52.56 | 68.00 | 120.56 |
| November | 6.88056835667 | 2108 | 52.56 | 70.27 | 122.83 |
| December | 6.88056835667 | 2040 | 52.56 | 68.00 | 120.56 |
| Annual tCO2 emissions for all Celo validators | 82.56682028 | ||||
| Amount of CELO epoch rewards per day for offset | 68 | ||||
| Current Wren tCO2 per month | 65.7 | ||||
| Wren % | 80% | ||||
| TCO2 % | 20% | ||||
| CELO Price Assumption | $0.50 | ||||
| Toucan tCO2 price | $3.00 | ||||
| Wren price per tCO2 | $15.00 |
Note these projections vary with the price of Celo—CCNM will make best efforts to utilize the monthly 2,108 CELO budget for the highest quality of offsets that will exceed the 6.88 tCO2e emitted by the protocol.
In terms of the mechanics of CCNM, tokenized carbon offsets will be purchased using CELO deposited to CCNM by Celo epoch rewards. Specifically, CCNM members would swap CELO to NCT using Uniswap or Ubeswap, at competitive prices and minimal slippage. Using Toucan’s “Selective Redemption” feature, the fungible token would then be “unbundled” on the Toucan platform into a specific high-quality “TCO2” carbon offset, then retired to claim the carbon credit.
This ‘unbundling’ on the Toucan platform is the primary reason that the process requires manual steps from a multisig, rather than an automated purchase on Uniswap or Ubeswap. Note that in the future for carbon offsets that are already non-fungible, we could directly purchase from a marketplace on Celo, such as Senken, and retire the credit.
The CCNM multisig will be linked to a dashboard prepared by cLabs. This dashboard will show the ongoing carbon footprint of the Celo protocol updated per block and the amount that has been offset. Additionally, the CCNM multisig members will be responsible for reporting to the community on the specific offsets projects (real world sites) are associated with the carbon tokens retired.
Risk Management
Toucan’s TCO2 will require purchasing on Uniswap or Ubeswap. In the case of any security issues or vulnerabilities to the decentralized exchanges on Celo, the CCNM will instead utilize 100% of the Carbon Offset Fund towards purchasing offsets via Wren.
Quality
The definition of “Quality” and the integrity of the wider carbon markets has been the topic of much debate recently. While previous iterations of this market didn’t allow for dynamic data and more precise quantification and verification of climate impact, digital transformation is opening up new opportunities. ‘Quality’ is made up of a number of different metrics, and are somewhat subjective, depending on the desired climate impact (permanence versus co-benefits, additionality versus biodiversity restoration, to mention a few trade offs. As a result, the Climate Collective and its network of experts, including the Rocky Mountain Institute, are building a quality assessment framework to make quality assessment easier for a buyer of carbon credits. RMI is a highly respected institution in the carbon markets and broader sustainability sector, with a nuanced understanding of a variety of methodologies, registries, and credit types.
The key feature of this guide is that it will enable the comparison of carbon credits from numerous standards, including credits sourced from “Big 4” registries, regional jurisdictional registries, and web3-native “self-certified” credits. This is particularly important to compare the quality of disparate carbon assets “apples to apples”— though several registries are increasingly supportive of tokenization and more projects use digital MRV tools to self-certify their credits, there is currently no framework with which to analyze quality of credits agnostic to the accreditation body.
The framework is expected to be ready for public use in July ‘23. In the future, we envision assets for on-chain carbon offsets can be proposed by the Celo community and approved by governance by utilizing this framework. An analogous comparison is gauge proposals on Curve.
As a first step, we plan to utilize established ratings criteria from BeZero Carbon for Verra certified projects tokenized as Toucan TCO2s, and will only purchase projects with ratings of BBB or higher.
Once the CC-RMI framework is established in July ‘23, all on-chain offsets can be considered subject to quality review by the Celo ecosystem. In the future, other assets, such as those by Flowcarbon, Thallo, and CarbonPath, might be assessed and proposed by governance to also be used for on-chain offsets through the Carbon Offsetting Fund.
Future Governance Process Process for adding and changing on-chain assets
Several members of the Climate Collective mentioned above are launching new tokenized carbon assets through ‘23. As more high-quality assets are green-listed for inclusion, we expect the Celo ecosystem to seek to purchase more offsets of higher quality.
As stated above, this proposal serves as the first step towards the larger vision of engaging the Celo community to collaboratively govern how the network should offset its emissions. A roadmap for how to improve on this in the future is outlined below:
- April 2023: Establish CCNM system to receive epoch rewards from the Carbon Offset Fund to utilize Wren (off-chain) and Toucan (on-chain) for Celo validator offsets and prove the model for on-chain offsetting
- April 2023: Launch Celo carbon accounting dashboard with cLabs
- June 2023: Climate Collective & Rocky Mountain Institute publish quality assessment framework and a rubric for prospective carbon assets/projects
- July 2023 onwards: Celo ecosystem use rubric to prove quality of assets and utilize new assets for offsetting the Celo protocol’s carbon footprint, with the goal of moving to 100% on-chain assets
The details of the quality rubric required for asset proposals will be published once #3 is completed, as well as expectations around the timeline for proposal review. But the proposal format will resemble governance processes at MakerDAO and Aave to include assets or change parameters, requiring detailed analysis on the part of the proposer to prove their carbon asset meets the quality guidelines from the CC/RMI framework. The process will also include common technical, financial, legal questions with examples below:
- What percentage of Celo’s Carbon Offset Fund are you requesting to allocate to your assets?
- How is the asset retired on Celo? Can a fungible token be directly offset, or does it require ‘unbundling’ into a specific carbon project?
- What are the main liquidity pools to purchase the asset? Provide a link to the DEX analytics page(s).
- What legal entity holds/claims the credits?
- What geographical areas / municipal jurisdictions are involved in the underlying credits?
Multisig Members
CCNM would consist of the following members:
- Helena Merk (op), Spirals Protocol
- @ken, Mercy Corps Ventures
- @nirvaan Nirvaan Ranganathan, Climate Collective
- @nraghuveera, Celo Foundation
Configuration Change:
carbonOffsetting:
factor: 1
partner: 0xCe10d577295d34782815919843a3a4ef70Dc33ce
