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Why We Chose Nature-Based Carbon Credits to back GNT

Why We Chose Nature-Based Carbon Credits to back GNT

April 18, 2022
Voluntary carbon credits connect nature-based solutions with vital funds

Flowcarbon is creating tokens backed one to one by carbon credits from the voluntary carbon market (VCM). The voluntary carbon market’s goal is to mitigate climate change by creating space for private actors to finance activities that reduce and remove carbon emissions from the atmosphere.

Despite the pressing issue of climate change, systemic economic incentives continue to result in the rapid destruction of ecosystems —amongst which we find some of our most effective carbon sinks. According to the UN, some 10 million hectares of forest are lost each year through conversion to agriculture and other destructive land uses - equivalent to around 15% of global carbon emissions. Even with growing recognition of the importance of NbS in tackling climate change, private sector investment is lacking. While there are powerful economic incentives for destroying forestland, the only viable counteracting economic incentive to keep them in place comes from the voluntary carbon market.

But inefficiencies in the VCM have stymied private investment in the market. The investment bias is evident - as only 14% of the annual investment in NbS comes through private finance, with public funds still representing 86% of the total. Flow Carbon wants to change this dynamic by providing efficient private market mechanisms to finance projects in nature and thus tackling the obvious liquidity problem.  

We are currently focused on NbS for two reasons: First, as the most cost-effective and scalable solution available today, they offer the most critical low-hanging fruit in combating climate change, with the potential to provide 30% of the overall solution.  

Second, they are massively undervalued: Deforestation is one of the most pressing challenges of our time as tropical rainforests are the most important ecosystems for mitigating climate change. The rallying call of COP26 - to keep the Paris Agreement alive  - cannot be achieved if forests continue to be cleared to make way for agriculture. The Voluntary Carbon Market is critical to protecting nature and the planet as we hurl towards several tipping points for forests.

"Flowcarbon and Centrifuge share the vision that open, permission-less blockchain technology can provide a level playing field that is transparent and censorship-resistant. We're proud to support the global reduction of carbon emissions by unlocking a whole new level of growth and scalability for local financial communities." Martin Quensel, Co-founder at Centrifuge said.

What is a Nature-based Solution (NbS)?

As defined by the IUCN, NbS are “​​actions to protect, sustainably manage, and restore natural or modified ecosystems, that address societal challenges effectively and adaptively, simultaneously providing human well-being and biodiversity benefits.” Natural Climate Solutions (NCS) refer to specific actions that address GHG emissions such as avoiding deforestation, often referred to as the UN Reduced Emissions from Deforestation and Degradation (REDD+) Programme.  Another mainstream approach is sequestering carbon through the growth of carbon sinks through reforestation and ecosystem restoration.

Estimates suggest that NbS can provide around 30% of required mitigation activities to proceed on the “Below 2°C pathway” by 2050 with a minimal cost component of approximately $10-100/mt (Visual A). However, based on UN estimates to meet climate change targets we need to close a US$4.1 trillion financing gap, requiring 3x investments in NbS over the next 10 years.

Visual A:  NCS and the Paris Agreement (adapted from the NCS Alliance)

Carbon offsets sold through the voluntary carbon market serve as one tool to fund NCS and provide a tangible and quantifiable mechanism to advance corporate sustainability goals. As the UNFCCC does not yet have jurisdiction over VCM transactions governed by private standards, the VCM could provide the basis for international climate cooperation without being detrimental to host countries’ targets.

Carbon Offset Projects

Climate change is often called a market failure, due to failed accounting for the cost of greenhouse gas emissions to society, and pricing carbon provides a solution to correct this mismatch (“externality”). Given that carbon is possible to trade as a priced commodity,  the number of tons sequestered by a forest translates into a monetary value and guarantees that the carbon will be stored for a set time frame.  Additionally, projects can bring substantial economic and sustainability benefits to communities if designed appropriately (e.g. through including community consultations) such as providing food and water, helping clean the air and sustain other resources, provide job opportunities, and protecting communities against flooding or landslides. Through tangible benefits, Improved Forest Management Projects are more likely to be sustained and meaningfully contribute to emission reductions and carbon sequestration over the long term.

Visual B: Improved Forest Management project (adapted from Energy Transitions Commission)

State of NCS in the VCM

Forest-based mitigation activities have been a popular VCM project type based on transaction volume and price. By Q3 2021, forestry and land use projects represented around half of the total volume transacted, up from 2020’s level of 28%1. In the last two decades, close to 1.5 billion credits have been generated by the four main independent standards - Verra, Gold Standard, American Carbon Registry and Climate Action Reserve. Nearly 44% of all credits issued were issued from the  forestry and land use sector2 with REDD credits accounting for more than half of those issuances.

Visual C:  Different Type of Activities under Forestry and Land Use Sector (Issuances in million CO2e)

Limitations of NCS

To ensure natural climate solutions are truly beneficial, several issues and risks need to be addressed. In the past, poorly executed projects have resulted in land grabbing or restricting communities from accessing critical resources, causing social injustice. Projects ill-suited to their specific ecosystem such as monoculture forest projects have also caused negative impacts like decreasing local biodiversity or depleting water resources. Flowcarbon’s standard is to source carbon credits from accredited registries such as Verra. As part of these high-quality carbon standards (e.g. VCS), chosen social impacts of NCS projects are constantly reviewed through improved methodologies to avoid those risks.

From the conception of an idea to its final implementation, project developers/managers face uncertainty regarding the costs and risks involved. High upfront costs, policy changes, and social and technical expertise are barriers to entry, often leading to liquidity constraints.


The World Bank has identified blockchain technology as an essential tool to support expanding and improving carbon market mechanism. Especially by advancing market and environmental integrity, transparency and inclusiveness, cost efficiency and scalability. NbS are a cost-effective climate mitigation solution within the scope of VCM that maximizes synergies and achieves numerous co-benefits for nature and human well-being. Given that NbS are currently faced with liquidity constraints, solutions are required to help scaling projects at the pace needed to reach their full potential to combat climate change. Flowcarbon’s Goddess Nature Token is a safe and transparent blockchain solution that is backed one to one by carbon credits from the voluntary carbon market to scale those private investment into NbS.

1   Forest Trends' Ecosystem Marketplace 2021.          2  Berkeley Carbon Trading Project

Suggested Reading

High-Integrity Voluntary Carbon Markets (VCM): Emerging Issues in Forest Countries

Natural Climate Solutions for Corporates

Data and Insights - January 2022 - Verra

Forests Absorb Twice As Much Carbon As They Emit Each Year

Ceres Evaluating the Use of Carbon Credits

The Business Case for Natural Climate Solutions Insights and Opportunities for SEA

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