How the NORI Token Enables First-of-its-kind Insurance for Carbon Credits

[Andrew Lockley]

https://nori.com/blog/insurance-for-carbon-removal-offsets

A Warranty for Carbon Removal

How the NORI Token Enables First-of-its-kind Insurance for Carbon Credits.

A Warranty for Carbon Removal – How the NORI Token Enables First-of-its-kind Insurance for Carbon Credits

Unlike buffer pools, Nori’s model enables suppliers to monetize 100% of the carbon they remove, while making sure buyers get 100% of the carbon removal they’ve paid for.

Nori is a blockchain-based carbon removal marketplace on a mission to reverse climate change. Since launching in 2017, we have sold and retired 100,000+ tonnes of carbon removals and paid more than $1.8M to Nori suppliers, farmers who implement regenerative agriculture practices that remove atmospheric CO2. So far, our main differentiators have been that:

Our marketplace is exclusively for carbon removal offsets, which remove past emissions, as opposed to avoidances and reductions, which limit future emissions.

All NRTs sold on Nori’s marketplace are immediately retired, eliminating challenges surrounding double-counting.

Nori’s marketplace is built on a publicly auditable blockchain to enhance transparency and offer traceability of who owns which carbon credits.

When you purchase NRTs on Nori’s marketplace, you can review data from the project that supplied your carbon removal, all of which is also stored on-chain.

The upcoming NORI token launch will allow us to go beyond that, enabling carbon price discovery as well as a first-of-its-kind warranty on all carbon removal sold in Nori’s marketplace (“the Nori Warranty”).

Other carbon credit suppliers have provided forms of warranties. Typically, their mechanisms depend on buffer pools, which take a certain percentage of credits generated by projects and hold them in reserve in case of reversals to carbon removal and sequestration.

These buffer pools are inefficient for a few reasons:

For suppliers: Buffer pools require suppliers to forego revenue to hold credits in reserve. Being forced to contribute credits to buffer pools is effectively a tax on projects. This tax makes it less attractive to develop carbon removal and slows efforts to scale.

For buyers: Buffer pools aren’t always sufficient to cover losses from reversals; sometimes, projects release so much carbon that it goes beyond the value of their buffer pools. Even when buffer pools are diversified with credits from a variety of projects, say at the level of a registry, they can still end up undercapitalized.

How the Nori Warranty Works

The Nori Warranty and the insurance reserve that ensures it are different from carbon credit buffer pools. If there is a release of carbon from any NRTs sold on Nori’s marketplace, The Nori Warranty guarantees buyers always remain whole during the ten-year period for which their NRTs guarantee carbon sequestration.

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In the event of a release, Nori purchases as many new Nori Carbon Removal Tonnes (“NRTs”) as needed to honor its contractual agreements on buyers’ behalf. Since NRTs guarantee carbon sequestration for ten years, in practice, if there is carbon release in year 5, Nori will purchase new carbon equivalent to 50% of the original project on the buyer's behalf. If there is a release in year 9, Nori purchases new carbon equal to 10% of the project.

Only in the event of a reversal within its own project would a supplier in Nori’s marketplace have to forfeit revenue. Here’s how the Nori Warranty is funded:

When suppliers sell NRTs on Nori’s marketplace, Nori restricts 25% of their payment. This payment, paid in NORI token, vests to them linearly over their contract term.

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If there is carbon loss, Nori claws back restricted tokens from the supplier and uses them to purchase new NRTs to make the affected buyer whole.

Sometimes, the amount clawed back won’t be enough to cover carbon loss. That’s where Nori’s insurance reserve comes in.

The insurance reserve contains 100M NORI tokens (20% of total NORI token supply).

These tokens are redeemable one-for-one for NRTs, and can thus enter circulating NORI token supply to fund the purchase of new NRTs for buyers affected by carbon loss.

Why does this matter?

The launch of the NORI token will enable Nori to roll out its novel warranty and insurance reserve. Here’s how this benefits different stakeholders:

For suppliers: If there’s no carbon loss, suppliers get to monetize 100% of their carbon removal. Further, if there is carbon loss with other suppliers’ projects, Nori’s new NRT purchases benefit suppliers without carbon loss whose projects get funded with those purchases.

For buyers: Even if there is carbon loss, buyers always get 100% of the carbon removal they paid for. No matter what.

Keeping more money in suppliers’ pockets and ensuring buyers always get what they paid for will lower barriers to entry in carbon removal markets and scale the industry.