Climate Finance | August 18, 2022

IFC partners with Aspiration in $10 million fund to lift quality of carbon credits

David Bank
ImpactAlpha Editor

David Bank

ImpactAlpha, August 18 – Forest projects that don’t remove carbon. Protection for forests that aren’t threatened.

The low quality of many of the credits from nature-based climate solutions has hampered growth in the “voluntary” market for nature-based carbon credits that are essential for many companies to meet their net-zero emission targets.

A $10 million Carbon Opportunities Fund – anchored by the neobank Aspiration and biodiversity investor Cultivo along with International Finance Corp. and the crypto tech provider Chia Network – aims to source, “tokenize” and sell higher quality credits and track their attributes on Chia’s blockchain-based distributed ledger.

The fund will initially seek to source up to 700,000 credits – each representing a metric ton of carbon – and recycle the proceeds into additional credits.

Voluntary markets

Prices for nature-based carbon credits have roughly tripled in the past year, from $5 to up to $20, but vary widely based on their quality, age and other factors. Credits for longer term and verified carbon removal are prized over harder-to-trace carbon “avoidance,” but remain in short supply.

“We expect it’s going to be $50 a ton sooner rather than later,” Aspiration’s Steve Glickman told ImpactAlpha (for background see, “That feeling when investors realize carbon is going to $100 a ton”). “The market is inflating in price because demand is already way outstripping supply, and carbon removal will continue to be on the top of that stack of credits.”

Separate from its consumer banking business, Aspiration has become one of the largest investors in and providers of nature-based carbon credits.

Climate warehouse

The credits will be tracked through the World Bank’s climate warehouse, a blockchain repository for verified credits developed by Chia. The ledger will provide public information about nature-based projects and their developers, including the buyers, sellers and compliance with the Paris climate accord. Such standardized data has been difficult to find on all but a small percentage of credits.

Chia’s Gene Hoffman said the project “demonstrates the value of blockchain infrastructure for real-world financial markets instruments.”

Mobilizing capital

“The endpoint is really to facilitate large scale investment,” Glickman said. The $10 million fund is considered a proof-of-concept for a follow-on carbon fund that could raise hundreds of millions of dollars. The low quality of some carbon-backed crypto tokens, along with the broader “crypto winter” has stalled the growth of the market.

Tokenization “provides another way to demonstrate credits can be bought and sold as an asset,” Glickman said. “Hopefully that taps interest from another category of institutional investors that want to come in and buy asset-backed crypto.”