The voluntary carbon market (VCM) is an increasingly popular tool for companies to reduce and offset their carbon dioxide emissions. According to the Voluntary Registry Offsets Database developed by the Berkeley Carbon Trading Project, forest carbon credits constituted the largest segment of the VCM in 2022.
Maximizing the real-world impact of forest carbon credits demands that credits be high-quality. Satellite data delivered on-chain via oracle networks allows carbon credits to be tokenized and verified on the blockchain, creating a new standard for transparency and accountability that can reduce corporate greenwashing.
Expanding the forest carbon credit sector hinges on mitigating risk. One of the biggest threats facing reforestation projects and carbon credit holders is wildfires that destroy forests and reverse their carbon offsets. Typically, forest carbon credit projects purchase extra nontradable carbon offsets to cover potential losses. However, as recent wildfires in California illustrated, these buffer pools can be prematurely drained.
Insurance is needed to protect forest carbon credit holders from wildfires and other natural disasters like drought and disease. Today, open-source, decentralized insurance protocol, Etherisc, announced it is integrating Chainlink’s industry-leading oracle service on Polygon to power the world’s first on-chain carbon offsets insurance product.
Etherisc, which previously integrated Chainlink Data Feeds to launch its blockchain-based flight insurance product, allows developers to build insurance smart contracts that automatically pay out when predefined conditions are met. Etherisc’s carbon offsets insurance will use Floodlight’s geospatial weather data, delivered on-chain via Chainlink, to determine when a policy’s conditions are met and claims are paid out.
“Etherisc’s carbon offsets insurance product has the potential to provide greater asset certainty and reduce the need to over-collateralize carbon projects,” said Charlie Moore, Head of Carbon and Sustainability Solutions at Chainlink Labs. “This will attract new and larger investor participation in the space, and propel growth in new climate finance programs.”
An initial use case for Etherisc’s carbon offsets insurance will provide coverage for the Coorest platform’s NFTrees initiative, which allows farmers and forest preservation organizations to tokenize ongoing CO2 capture from their trees. In the event of tree loss confirmed by Floodlight’s satellite data, an insurance smart contract will pay out the cost of replanting each tree and replacing its tokenized offset.
Etherisc co-founder Christoph Mussenbrock highlighted how essential technology providers are working together to create a more capital-efficient carbon credit ecosystem.
“We’re excited to help advance the tokenized carbon offset ecosystem by providing users with natural disaster insurance that helps mitigate the financial risks for reforestation projects,” he said. “Together, Floodlight and Chainlink play a key role by providing highly reliable climate data on Polygon. Without doubt, this insurance product wouldn’t be possible without them.”