Backing Centigrade, Ripple Tries to Save Mother Earth

In the wake of Ripple’s historic David-versus-Goliath near-total victory over the SEC in July, those who follow the company are excused if they missed its announcement about its investment in Centigrade. But this move, seeking to establish an open data platform serving the market for global carbon offsets, sets a goal even more ambitious and improbable than prevailing against a government agency with infinite resource: Saving the planet.

According to Centigrade, the new platform “will provide developers of carbon and nature credits with a low-barrier, intuitive way to bring their projects to market, providing full data transparency and traceability for the entire lifecycle of credits.”

Carbon markets allow organizations to buy and sell carbon credits and carbon offsets. For example, someone whose private plane burns three tons of carbon can pay to preserve three tons of carbon by supporting different efforts to reduce consumption. The British private jet company Private Fly touts its “sustainability programme” and advertises its “300% offset contribution.” It invests in solar renewables in several states in India, aiming to “displace more than 1.5 million megawatt hours (MWh) of electricity” in a country where 80 percent of electricity currently comes from fossil fuels.

So the buyers are the consumers of fossil fuels and the sellers are those in position to reduce the consumption of fossil fuels. Where buyers and sellers meet, there’s a market. The world’s largest market is the European Union Emission Trading System, which accounts for about 6/7 of the total; in North America, there are smaller markets such as the Western Climate Initiative (WCI) and the Regional Greenhouse Gas Initiative (RGGI).

Centigrade is hopeful that carbon credits can indeed offset the use of fossil fuels and fund climate mitigation activities. But it describes a “crisis of confidence” in the marketplace. “This is in part due to doubts cast on the efficacy and durability of its inventory, but also because (in its current incarnation) it is glacially slow, inefficient and not scalable.”

One insider at the project told Modern Consensus, “The market is not working well. It’s a variety of things.” Modern Consensus mentioned the enormous price range for these offsets. A high-quality, totally verified ton can go for $600. But some sellers will offer a ton for as little as $2. That tremendous spread has birthed companies like Gold Standard and Verra. The World Wildlife Fund and HELIO International helped stand up Gold Standard, with the goal of meeting the UN’s Sustainable Development Goals, while the non-profit Verra focuses more greenhouse gas (GHG) reduction.

“Yes, there are some bullshit ones coming out,” the insider said, referring to the $2 tons. “But there’s also a big bottleneck in good projects coming to market because it takes so long for these two standards, Gold Standard and Verra are private companies. They take like six months. They charge you an arm and a leg and their standards are too narrow. Our view is that this should be a data platform where everybody has to provide the same extensive data, but they don’t have to go through a standards board before it potentially comes to market.”

The insider likened it to a mortgage market that only lends to duplex apartments. That’s a distorted market because it would cause builders to create only duplexes, even if home buyers wanted other types of structures. By opening up the standards and making them transparent on the blockchain, Centigrade will allow anyone interested in offering an offset to access those who need them. And it’ll be easier to understand their quality.

Suppose, for example, Microsoft claims that it’s carbon neutral because of the offsets it’s bought. Centigrade would enable someone to say, “Hey, Microsoft says it protected a thousand acres of forest to offset the energy use from its server farm last year, but that particular forest burned down five years ago.”

In other words, right now, the market verifiers like Gold Standard and Verra give a binary thumbs up or thumbs down to whether an offset is verified. If a one-ton carbon offset costs $2 and another costs $600, which do you suppose the buyer will choose?

This has led to not only a lack of transparency but of cynicism. A Guardian article at the beginning of this year accused Verra of greenwashing, stating that “more than 90% of their rainforest offset credits – among the most commonly used by companies – are likely to be ‘phantom credits’ and do not represent genuine carbon reductions.”

Centigrade envisions a ratings system that’s not a binary yes/no but more like a bond rating agency. Company X may still opt to buy a $2/ton offset, but that offset risks being given a low rating. Just as its bond investors might demand a higher interest rate based on Fitch’s view of the company as a risky borrower, so might consumers and investors who care about carbon reward X more for buying high quality offsets. Or they might view low-quality offsets as unsatisfactory in meeting environmental commitments.

“In a way,” said the insider, “Centigrade is maybe more like Bloomberg and less like Nasdaq. They’re not trying to be an exchange, they’re trying to be a data provider. They provide data integrity and foreverness. Once it’s tokenized, it’s forever on blockchain, even if the forest burned down, and it’s still sitting there worthless.”

According to Ripple, the San Francisco-based company is a “founding member, investor and technology partner” in Centigrade. (Other founding investors include the Rocky Mountain Institute). The platform “aims to open global credit markets to all carbon and nature developers—regardless of size and location—and boost the availability of capital needed to scale carbon removal and nature restoration projects to the required level.”

Markets for carbon credits have been dysfunctional to this point—more of a marketing bullet point than a genuine strategy for reducing the forces that are contributing to this summer’s parade of daily heat records and weird weather events. Simply attaching the word “blockchain” to the words “carbon credits” runs the risk of a perception of one fad being multiplied by another. But we gotta try something. Where I live, in Miami, the ocean is so hot the coral reef is bleaching. More transparency and a more efficient market can only help.