Introducing Carbon Cell

Executive Summary

Carbon Cell is building next generation financial solutions for carbon markets. With global temperatures achieving new heights every year, there is an urgent need for decarbonization of all industries across the globe in order to achieve global temperature targets. In order to achieve net zero, governments and companies need to decarbonize their emission footprint through pivoting to a sustainable business model and operations. However, organizations cannot achieve their net zero emission targets just through a more sustainable mode of operations. There needs to be an efficient mode of investments where these companies can invest in carbon offset projects in order to reduce their carbon footprint through their business activities.

Therefore, Carbon Cell plans to solve that problem by giving organizations a fair access to the market of carbon projects where the assets can be bought, sold and traded and where investors can access these assets any time at a fair market price instantly. Carbon Cell is building its solution using its own sovereign rollup on Ethereum blockchain which will enable it to remain compliant and at the same time borrow the security of Ethereum network in order to maintain a transparent and secure flow of these assets across borders. Carbon Cell Blockchain will be a permissionless chain that will allow companies to build their own sustainable solutions over the network.

Background

Decarbonization

Industries need decarbonization for several critical reasons, primarily driven by the urgent need to address climate change and its associated challenges. Here are some of the key reasons why industries need to reduce their carbon emissions:

• Mitigating Climate Change: Carbon emissions from industries are a significant contributor to greenhouse gas (GHG) emissions, particularly carbon dioxide (CO2). These emissions trap heat in the Earth’s atmosphere, leading to global warming and climate change. Decarbonization is essential to limit the rise in global temperatures and mitigate the adverse effects of climate change, such as extreme weather events, rising sea levels, and disruptions to ecosystems.
• Regulatory Compliance: Governments around the world are implementing regulations and policies to reduce carbon emissions. Industries that fail to comply with these regulations may face fines, penalties, or legal consequences. Decarbonization efforts are necessary to meet these regulatory requirements and avoid potential liabilities.
• Reputation and Social Responsibility: Many consumers and investors are increasingly concerned about environmental issues and sustainability. Companies that actively work to reduce their carbon footprint enhance their reputation and demonstrate social responsibility. This can lead to increased customer loyalty, brand value, and access to sustainable investment opportunities.
• Energy Security: Industries often rely on fossil fuels for their energy needs. As fossil fuel reserves deplete and energy prices become more volatile, industries may face challenges in securing a stable and affordable energy supply. Decarbonization can reduce dependence on fossil fuels and enhance energy security by transitioning to renewable and cleaner energy sources.
• Economic Benefits: Decarbonization can lead to cost savings and economic benefits for industries. Improving energy efficiency, adopting renewable energy sources, and implementing sustainable practices can reduce operational costs, enhance competitiveness, and create new business opportunities in emerging green markets.
• Technological Innovation: Pursuing decarbonization can drive innovation within industries. Developing and implementing cleaner technologies and processes can lead to the creation of new products, services, and markets, fostering economic growth and job creation.

What exactly are climate assets

“Climate assets” is a broad term that encompasses a range of financial and tangible assets with a specific focus on addressing climate change and its associated risks and opportunities. These assets are typically associated with efforts to mitigate climate change, adapt to its impacts, or transition to a more sustainable and low-carbon economy. Here are some examples of climate assets:

• Carbon Credits: Carbon credits, also known as carbon offsets, are a type of climate asset. They represent a reduction in greenhouse gas emissions or the removal of an equivalent amount of greenhouse gases from the atmosphere. These credits can be bought and sold to help organizations offset their own emissions and achieve carbon neutrality.
• Renewable Energy Investments: Investments in renewable energy projects, such as wind farms, solar installations, and hydropower plants, are considered climate assets. These assets generate clean and sustainable energy while reducing reliance on fossil fuels and lowering carbon emissions. These assets can be categorized as RECs or Renewable Energy Certificates.
• Green Bonds: Green bonds are financial instruments issued by governments, municipalities, or companies to raise capital specifically for environmentally sustainable projects. The proceeds from green bonds are directed toward initiatives that have positive climate and environmental impacts, making them climate assets.

Green Markets

• Water Management Projects: Investments in water infrastructure, conservation, and management projects aimed at addressing climate-related water challenges, such as droughts and water scarcity, are climate assets.
• Sustainable Funds and ETFs: Mutual funds, exchange-traded funds (ETFs), and other investment products that focus on climate-friendly or ESG (Environmental, Social, and Governance) criteria can be seen as climate assets because they direct capital toward sustainable and responsible investments.
• Carbon Pricing Instruments: Instruments like carbon taxes or cap-and-trade systems, which put a price on carbon emissions, can be considered climate assets because they incentivize emissions reductions and generate revenue for climate initiatives.

Current Problems

Carbon Pricing

Proper carbon offset pricing is essential for companies to effectively purchase carbon offsets and invest in carbon projects. When carbon offset pricing is well-established and reflects the true cost of emissions reductions, it provides several benefits that encourage companies to engage in offsetting and support carbon reduction initiatives:

• Incentivizes Emissions Reduction: Proper pricing creates a financial incentive for companies to first reduce their emissions at the source, as it is typically more cost-effective to do so. By pricing carbon at a level that reflects the environmental and social costs of emissions, companies are motivated to invest in energy efficiency, renewable energy, and other emissions reduction measures within their own operations.
• Ensures Quality Carbon Offsets: Well-priced carbon offsets are more likely to be associated with high-quality projects that deliver real and verifiable emissions reductions. This is because projects must meet rigorous standards and undergo verification processes to generate valuable offsets. Proper pricing incentivizes the development of such projects and discourages low-quality or fraudulent offset schemes.
• Funds Investment in Carbon Projects: Adequate pricing generates revenue for carbon reduction projects, which can include reforestation, renewable energy, methane capture, and energy efficiency initiatives. The funds generated from offset purchases are often a crucial source of financing for these projects, making them economically viable and helping them scale up.
• Drives Innovation: Proper pricing encourages innovation in emissions reduction technologies and practices. As companies seek cost-effective ways to reduce their carbon footprint, they may invest in and support the development of new, more efficient, and cleaner technologies.
• Aligns with Climate Goals: Carbon pricing aligns with global climate goals, such as those outlined in the Paris Agreement. By pricing carbon in line with these goals, it helps companies contribute to international efforts to limit global warming and mitigate climate change.
• Supports Market Transparency: A transparent and well-regulated carbon offset market fosters trust among companies, investors, and consumers. Proper pricing mechanisms ensure that prices accurately reflect the supply and demand for offsets, contributing to market stability and predictability.

Illiquid Environmental Assets

Illiquid environmental assets can pose several challenges and problems for market participants and stakeholders involved in carbon trading and climate finance. The term “illiquid” refers to assets that are not easily tradable or convertible into cash without significant time and effort. Here are some of the problems associated with illiquid carbon assets:

• Reduced Market Efficiency: Illiquid carbon assets can hinder market efficiency by limiting the ability to buy and sell carbon credits easily. This can lead to price volatility and less predictable market behavior.
• Limited Access: Illiquidity can restrict access to carbon markets, making it difficult for smaller organizations, individuals, and developing countries to participate. This can exacerbate inequalities in climate finance and hinder global efforts to combat climate change.
• Higher Transaction Costs: Trading illiquid carbon assets often requires more effort and resources, leading to higher transaction costs. This can deter market participants and reduce the economic viability of carbon projects, especially for smaller projects.
• Risk of Market Manipulation: In illiquid markets, there is a higher risk of market manipulation and price manipulation by a small number of large market participants. This can undermine market integrity and trust.
• Inefficient Price Discovery: Illiquidity can result in inefficient price discovery, where the market price may not accurately reflect the true value of carbon credits. This can lead to suboptimal investment decisions.

Our Proposition

In order to implement carbon markets for the masses, Carbon Cell is building a suite of financial solutions in order to help mitigate climate change by giving fair access of carbon assets to organizations and governments of the globe. These solutions include:

1. CC Marketplace: CC Marketplace is a P2P marketplace which allows buyers such as companies, institutions, PSUs and governments to buy climate assets such as RECs and carbon assets from projects. The marketplace is integrated and supports all global standards such as Verra VCS, Gold Standard, CDM, iREC, etc.
2. CC Climate DEX: CC Climate DEX is an institutional decentralized exchange(DEX) for climate assets built on Carbon Cell Rollup on Ethereum Blockchain. This DEX will allow a free trade of wrapped tokens to institutions. CC Climate DEX will act as an alternative to ETFs and traditional markets involving high costs and allow these institutions to trade these wrapped assets through tokenized exchange.

CC Marketplace

Carbon Cell’s climate asset marketplace will allow a transparent P2P exchange of assets such as carbon credits, plastic credits, RECs, etc. Carbon Cell Marketplace would be a platform enabling carbon offset projects in VCM to sell their credits on-chain without any middlemen. It will enable buyers to directly connect with projects and purchase the credits on the platform. The projects would be having all project data such as vintage, number of credits, methodologies, etc. which would enable the buyers to track their impact throughout the lifetime of the project. The buyers can either re-sell or offset the credits on-chain to meet their net zero emissions targets.

CC Climate DEX

In traditional finance, any type of asset or commodity is traded through ETFs or other intermediaries which requires heavy compliance and huge costs associated with it. A traditional market requires many different operators for a smooth functioning of the market such as clearing house, market makers, exchange, traders, etc. However, through CC Climate DEX all types of carbon backed commodities can be listed and traded in the form of tokens. These tokenized assets will be backed by carbon credits and RECs 1:1 making them collateralized tokens.

Climate DEX will be built using a RWA trading engine which will not only act as an on-chain clearing house but will be using a concentrated automated market making algorithm specifically customized for Real world assets. The RWA AMM would be built utilizing concepts from Uniswap V3 AMM.

Tokenization of Assets

One carbon offset represents one tonne of carbon or other GHG related gases and substances removed from the atmosphere. One carbon offset token represents one carbon offset or one tonnage of carbon removal by a project.

1 𝐶𝑒𝐶𝑂2 = 1 𝑇𝑜𝑛𝑛𝑒 𝐶𝑂2 𝑅𝑒𝑚𝑜𝑣𝑎𝑙

Carbon Class Tokens

What is Carbon Class?

Each carbon offset project is unique and provides unique benefits to the environment, for example Project A plants trees in barren lands while Project B is a carbon tech project building and operating carbon removal machinery from the atmosphere. Methodologies with similar traits like Waste related Methodologies, or Technology related methodologies are categorized and placed under one carbon class.

Carbon Class Token

A Carbon Class token is a fungible token on Carbon Cell Chain which represents a category of carbon removal from the environment. Carbon tokens of CeCO2 minted by all projects under similar methodologies under a particular carbon class can be swapped with the Carbon Class tokens which are one on one backed by Carbon Token.

For example: Project A comes under methodology ‘P’ which is represented by Carbon Class X. In this case X are Carbon Class tokens on Carbon Cell chain and A are fungible tokens on sustainable blockchains where:

1𝑋 = 1𝐴 − 𝐶𝑒𝐶𝑂2

These carbon class tokens can be publicly traded on DEX which creates liquidity for carbon offsets allowing retail investors, traders and corporates to purchase these assets with better transparency and pricing mechanisms.

Token Bundling and Unbundling

Carbon Class Token Bundling: Carbon Class tokens are utility or fungible tokens which are backed one on one by Carbon tokens. Since, each project is unique and the type of offset it generates differs from project to project, projects are distributed under various methodologies. Multiple types of similar methodologies followed by an offset registry like Verra and Gold standard make up a Class. The class is represented by a fungible token.

These Carbon Class tokens contain underlying CeCO2 tokens held by the underlying projects in those classes. One Class token is equal to one Carbon token of the project. The CeCO2 tokens are bundled in the form of Class tokens on Carbon Cell Chain which can be swapped, traded, lent, staked, etc. on DEX, Defi protocols, etc.

For example, Class X contains Project A,B,C which each have 50000 Carbon Tokens.

Therefore,

1𝐶𝑒𝐶𝑂2 = 1𝑋

𝑋 = 𝐴 + 𝐵 + 𝐶

Unbundling Class Tokens: In case of Class tokens, a fungible token X can be burnt and unbundled which would release CeCO2 token in the user’s wallet which can be used for retiring or redeeming the carbon offset. In case of Class tokens, a fungible token X can be burnt and unbundled which would release CeCO2 token in the user’s wallet which can be used for retiring or redeeming the carbon offset.

Retiring through Carbon Class tokens

If any user purchases Carbon Class tokens from any DEX and wants to retire they can do so by following these steps:

• Transfer the Carbon Class tokens to their Carbon Cell wallet.
• Step 2:
  Option 1: Select the type or category of project whose carbon offsets are to be retired.
  Option 2: In case of default retirement, the project with the oldest vintage period would be retired.
• Select the number of carbon offsets to retire since 1 Carbon Class token= 1CeCO2
• Unbundle carbon class token in CeCO2 tokens.
• Burn CeCO2 tokens.
• Mint the carbon offset retiring ntNFT or credential into a wallet which would act as a proof of retirement for carbon assets.

CC Climate DEX will be providing all the underlying functionalities:

1. Orderbook DEX: Climate DEX would be an on-chain order book exchange utilizing its sovereign rollup for executing transactions and consensus of Ethereum. This will not only be cost effective but also allow independent technical infrastructure allowing it to remain compliant with the regulations.
2. Instant Settlement: Climate DEX will enable instant settlement of the assets which will be delivered in the wallets.
3. Spot Trading: Climate DEX will be a Spot trading exchange for the listed assets.
4. Derivatives Infra: Through utilizing Carbon Cell Sovereign Rollup, the DEX can be extended to provide derivative products of the underlying carbon assets such as Futures, Forward Contracts, etc.
5. On-Chain Compliance: It will embed automated compliance in the smart contracts allowing a trader friendly experience for the institutions. This will allow access to institutional trading capital.
6. Gasless Transactions: Utilizing its own sovereign rollup, Climate DEX will allow gasless transactions for the assets.
7. Concentrated Liquidity: Climate DEX will utilize a concentrated liquidity pool model for the AMM derived for Real world assets.
8. Access to Institutions: Making a complaint, gasless and orderbook DEX, Climate DEX will become the first decentralized exchange to offer climate assets to institutions.

CC Climate DEX for carbon credits can offer several benefits that contribute to the transparency, efficiency, and accessibility of carbon markets. Some of the advantages of the decentralized exchange for carbon credits are:

• Transparency: DEXs operate on blockchain technology, providing a transparent and immutable ledger of all transactions. This transparency helps ensure that carbon credits are accurately recorded and that there is a clear audit trail of transactions. It reduces the risk of fraud, double-counting, and other irregularities often associated with traditional centralized exchanges.
• Reduced Counterparty Risk: In the DEX, users retain control of their private keys, which are necessary to access and transact their carbon credits. This means that users have direct control over their assets, reducing the counterparty risk typically associated with centralized intermediaries.
• 24/7 Trading: It is not bound by traditional market hours or geographic locations. They operate 24/7, allowing for continuous trading and providing flexibility to participants in different time zones.
• Lower Fees: DEX often has lower fees compared to centralized exchanges. This can reduce the cost of participating in carbon credit trading, making it more accessible to a wider range of organizations and individuals.
• Ownership and Control: Users maintain full ownership and control of their carbon credits on the DEX. They do not need to rely on a third party to custody their assets, reducing the risk of asset loss or mismanagement.
• Global Accessibility: DEX is accessible globally, making it easier for buyers and sellers from different regions to transact with each other. This can help facilitate cross-border carbon credit trading and increase market efficiency.
• Automated Compliance: Smart contracts on the DEX can be programmed to automatically enforce compliance rules and regulations. This can reduce the administrative burden on market participants and ensure that transactions adhere to environmental and regulatory standards.

Forecasts

Carbon Cell will support the development of effective solutions for carbon markets that go hand in hand with blockchain technology and utilize the decentralized infrastructure of Carbon Cell Chain. With the next industrial revolution towards sustainability, organizations will move towards decarbonization in which blockchain will be playing a major role for assisting the market towards greener solutions through secure payments, transparent trades, secure emissions tracking, etc.

Conclusion

In conclusion, Carbon cell represents a pioneering solution at the intersection of blockchain technology and climate finance. By harnessing the power of blockchain, Carbon Cell addresses critical challenges within carbon markets, unlocking transparency, accessibility, and efficiency. This article has elucidated the transformative potential of Carbon Cell, from facilitating transparent carbon credit trading to democratizing climate finance for a wider spectrum of participants. As the world intensifies its focus on climate action, the emergence of Carbon Cell signifies a pivotal step toward accelerating the flow of capital to sustainable projects, ultimately steering us closer to a low-carbon, resilient future. The fusion of blockchain and climate assets is poised to revolutionize our approach to climate finance and emissions reduction.