KIP-54: Carbon Credit Evaluation and Acquisition Framework

Summary This proposal outlines a framework for KlimaDAO to evaluate and acquire carbon credits. It defines specific criteria and methodologies for assessment, measurement, target project identification, and the establishment of a smart contract architecture for transparent and efficient management.

Motivation To ensure KlimaDAO's investments in carbon credits are impactful, sustainable, and aligned with our strategic objectives, a clear and comprehensive framework is essential. This proposal aims to enhance decision-making processes, maximize environmental impact, and ensure financial prudence.

Proposal The framework is designed to support risk minimization and direct capital toward carbon projects that are robust, viable, and impactful. It introduces a scoring system that evaluates potential carbon credit projects across 16 dimensions, including project impact, financial stability, market demand, and alignment with KlimaDAO's mission. This system is designed to quantify the viability and sustainability of projects, thereby facilitating data-driven and risk-aware investment decisions.

The following variables will always be considered:

Methodology: Evaluate the robustness of the project's carbon credit generation methodology. Certification Standard: Assess the credibility and recognition of the certification standards applied to the carbon credits. Bridge Support: Determine compatibility with tokenization platforms that support the credits. Market Demand: Analyze on-chain credit retirements from the previous year and off-chain market demand indicators. For example, the following off-chain data sources may be utilized such as Allied Offsets or CDR.FYI Country: Consider the country of origin for geopolitical risk, local regulations, and environmental impact. Environmental and Social Impact Metrics: Review the project's contribution to sustainability and its social and economic co-benefits. Risk Assessment: Examine the project's financial health and operational risks. Spot Price: Compare the spot price with the average market price to gauge profitability. The following considerations must always be weighed: Measurement:

Quantitative: Leverage on-chain data to assess the methodology distribution, certification standard prevalence, and market demand metrics. Qualitative: Gather insights from ecosystem marketplace reports, carbon project developer interviews, and trader allies to gauge future demand Target Projects:

Focus on projects with overlap in known demand sources, such as ITMO buyers and projects from domestic markets that are accepted international credits within compliance systems. Prioritize projects that lead to a more diversified on-chain carbon market. With enough data, this framework can be codified: End-Game:

Smart Contract Architecture: Design contracts for asset management, proposal processing, and transaction tracking. Data Collection and Integration: Implement systems to gather and integrate data for decision-making. Automated Reporting: Enable smart contracts to generate and disseminate reports on asset and fund management. Proposal Management: Automate the proposal submission and approval process, ensuring alignment with KlimaDAO's strategic goals. With a clear scoring mechanism, procurement decisions can be data-driven.

Weighting Criteria: A scoring system has been developed to evaluate potential carbon credit projects. Projects must score at least 50 points to proceed past the Request for Comment (RFC) stage. Proposed weighting criteria are as follows:

1. Company Financial Standing:

More than 12 months of financial runway: 10 points 6-12 months of financial runway: 5 points 3-6 months of financial runway: 3 points Less than 3 months of financial runway: 1 point 2) Security of End Market:

Confirmed buyer ready with a contract: 10 points Demand known and buyer in negotiations: 5 points Demand uncertain but potential buyers identified: 3 points Demand and buyers not identified: 0 points 3) Methodology On-Chain Presence:

Methodology already on-chain with high adoption OR Methodology not on-chain but with high adoption off-chain: 10 points Methodology not on-chain but can be brought on-chain with high potential for adoption: 5 points Methodology not on-chain and challenging to bring on-chain: 1 point 4) Trailing Six-Month Purchase Volumes:

Purchase volumes significantly greater than the purchase amount: 10 points Purchase volumes about equal to the purchase amount: 5 points Purchase volumes less than the purchase amount but showing growth: 3 points Purchase volumes minimal or declining: 0 points 5) Registry Issuance:

Registry already issuing tokenized carbon with high liquidity: 10 points Registry planning to issue tokenized carbon with confirmed demand: 5 points Registry not yet issuing tokenized carbon and demand uncertain: 1 point 6) Qualitative Assessments:

Strong positive trend in demand for this credit type based on market publications, data, and expert consensus: 10 points Moderate positive trend based on market data and some expert support: 5 points Uncertain or mixed signals regarding demand trends: 2 points Negative trend or declining demand: 0 points 7) Project Longevity and Scalability:

Proven scalability and a clear long-term operational plan: 5 points Limited scalability but a long-term operational plan: 3 points Unclear scalability and operational plan: 1 point 8) Co-Benefits and Sustainable Development Goals (SDGs):

Addresses more than three SDGs with significant co-benefits: 5 points Addresses at least three SDG with clear co-benefits: 3 points Co-benefits or SDG alignment is minimal or unclear: 1 point 9) Verification and Monitoring (preference for distributed ledger MRV - dMRV):

Verified with scalable dMRV: 5 points Third-party verified without dMRV: 2 points Self-reported or unverified: 0 points 10) Stakeholder Engagement and Social Impact:

Strong community support and positive social impact: 5 points Some community engagement and social impact: 3 points Minimal or no community engagement: 1 point 11) Additionality and Baseline Scenario:

Strong additionality with a credible baseline scenario: 5 points Some additionality, baseline scenario is reasonable: 3 points Additionality and baseline scenario are weak or not well-defined: 1 point 12) Project Type Diversification:

Project represents a new type for KlimaDAO's portfolio, enhancing diversification: 5 points Project is similar to existing types but adds value or diversification: 3 points Project is the same type as many existing holdings, offering little diversification: 1 point 13) Strategic Value:

Project adds strategic value to KlimaDAO (e.g., opens new markets, enhances reputation): 5 points Project has some strategic value but benefits are not clearly defined: 3 points Project has no clear strategic value to KlimaDAO: 1 point Projects will be evaluated across these criteria, and the total score will determine their eligibility for further consideration. A project must score a minimum of 50 points to be considered low-risk and eligible for investment.

The scoring process will be conducted by the Protocol team prior to any procurement proposal being presented for escalation to KIP by the KRC.

In the rapidly evolving carbon market, it is imperative that KlimaDAO's investments are not only environmentally and socially responsible but also financially prudent. This framework is established to enhance our decision-making processes, allowing us to identify and invest in projects that offer the highest potential for positive impact and returns.

The primary beneficiaries of this framework are the KlimaDAO community and the broader ecosystem we support. By optimizing our procurement strategy, we ensure the maximization of environmental impact and the advancement of our mission to drive climate action. Furthermore, this structured approach provides transparency and accountability, bolstering confidence among our stakeholders and partners.

We invite the KlimaDAO community to review and engage with this proposal. Your insights and votes are crucial in shaping our approach to carbon credit investments. Together, we can set a new standard for strategic, impactful, and transparent support of environmental projects within the decentralized space, driving us closer to our collective goal of a carbon-neutral world.

Adpot Credit Evaluation and Acquisition Framework