We are living through a unique moment where the entire world is waking up to climate impact. From student protests to visionary CEOs, we are all calculating how to avert climate disaster. But while it may seem banal at this point to philosophize on the macros of climate change, the micros are still very much lagging.
A report published by the International Energy Agency (IEA), in collaboration with the World Bank and the World Economic Forum found that “the world’s energy and climate futures are increasingly hinged on whether emerging economies manage the [energy] transition successfully”.
Annual clean energy investment into emerging markets needs to increase seven-fold, from less than $150 billion in 2020 to more than $1 trillion a year by 2030, in order to reach net-zero emissions in 2050. But despite the science mapping a path to success, many markets haven’t agreed to ‘turn off the taps’ of fossil fuel reservoirs.
Why, you ask?
It’s a money problem. And a coordination problem. They need financing from capital markets and they can’t access it. Emerging economies account for two thirds of the world’s population but only one fifth of global clean energy, and just one tenth of global financial wealth.
There is no shortage of money worldwide, but it is not finding its way to the countries, sectors and projects where it is most needed,” said Fatih Birol, IEA executive director. Our energy future hinges on the decisions made primarily in emerging economies, which ultimately comes down to how we mobilize our money.
Many countries face historically prohibitive financing hurdles. The vested interests of powerful incumbents, political instability, currency volatility, credit risks, depleted public finances, land title challenges and social crises - well, it is understandably daunting. The policy risk that a government will discriminatorily change laws, regulations, or contracts governing an investment - or fail to enforce them - complicates the risk-adjusted return profile for most traditional institutions. Long story short: the system needs an upgrade.
In a world with sophisticated derivatives and creative debt instruments so complex that even the brainiest of quants struggle to comprehend, we can surely create an ecosystem that supports our neighbors as they transition to green. So we thought to ourselves, how can we mobilize climate finance in a way that is finally, low risk and high return?
Transcending Legacy Markets
Environmental markets were designed as a solution to market friction. Acting as a mechanism to direct climate finance, instruments like carbon credits and RECs have helped direct capital towards a market equilibrium.
But even these markets suffer from structural challenges. A chronic undersupply - revealed by the price jump of carbon from about USD 0.75/tonne to USD 7.50/tonne in 2020 - has left well-intending stakeholders incapable of allocating capital.
The promise to offset fossil fuel pollution, made by the world’s 20 largest oil and gas companies at COP26, will require more than six times the current global supply of credits.
The centralized and bureaucratic nature of legacy environmental markets is no longer fit-for-purpose. Built on anachronistic models, the analogue environmental markets behave more like Web1 than Web3, which is fundamentally insufficient in a digital economy.
Let me depict some of the constraints faced by traditional markets:
Many of the standards responsible for calculating credits suffer from a lack of transparency and inconsistent methodologies, leading to quality disparity and even fraud;
Trading is a highly manual process, requiring multiple intermediaries to approve transactions;
These intermediaries also take healthy cuts;
The restrictive and compliance-focused nature of both instruments naturally limits the benefit accrued to projects that can afford to dedicate resources to getting certified;
Many markets currently have no certification standards at all, precluding projects from this income stream entirely;
Complex and fragmented markets mean well-intending retail buyers and crypto miners have no seamless resource to rely on; and
Geographic restrictions result in illiquidity, hampering the market and harming the projects. Geographic restrictions are nonsensical; there’s only one planet and polluted air knows no borders.
We at Reneum see an opportunity to unleash the potential of blockchain on this market, to establish an entirely new operating system for climate finance. Based on the concepts of the traditional environmental markets, it uses decentralized networks to transcend the limitations of this market for an entirely Web3-native re-conception of value. And by focusing exclusively on emerging markets, Reneum activates an underserved economy for the first time.
Thinking from First Principles
Reneum is a marketplace based on the environmental instrument known as a Renewable Energy Certificate (REC) but deviates from market fashion in many ways. As any good technologist does, Reneum returned to first principles, identifying the most effective mechanism to drive climate finance. This led us to conceive of an entirely new, global, decentralized and democratized climate ecosystem, powered by blockchain-based crypto tokens.
Rather than operating as a skeuomorph - layering analogue products on top of digital infrastructure - Reneum will offer the first digital native token that enables unrestricted access to renewable energy, thereby actually powering the energy transition.
Leveraging blockchain to transcend the technological limitations of the REC market, Reneum allows for:
Smart contracts to direct capital to those who need it most, acting like a targeted stimulus package;
Disintermediation of brokers and traders to reduce costs and transaction times and increase price transparency;
Disintermediation of siloed and non-interoperable platforms, radically upgrading the user experience;
Aggregating credits on a single public marketplace, allowing anyone to purchase anywhere;
Utilizing open-source software to enable automated certification of these credits, even dis-intermediating the certifiers;
Allowing real price discovery based on their true market value rather than artificial OTC constraints;
Allowing us to reach all corners of the world, unrestricted by geographical boundaries
Is it not just Greenwashing?
As instruments for climate finance, RECs are purchased by energy sinners - like multinational companies operating on fossil fuels - to internalize environmental impacts of fossil fuels and fund clean energy projects.
There is a debate that the environmental market is mere greenwashing, allowing the rich to pay for the right to keep polluting, but we see it differently. We see the market as establishing an equilibrium; those who have benefitted from the negative externalities of the 21st century economy will now pay the price.
Acting as bridge finance to new renewable developments or direct subsidies to capitalize existing operations, RECs are tools to help in the transition to net neutral. Reneum goes a step further than most, by providing a secure revenue stream for project developers, even pre-development, meaning that Reneum directly influences bankability of projects. And on a broader scale, helping projects secure financing sends an attractive price signal to capital markets that fuels further investment into these regions. Net positive.
Reneum is an ecosystem to green Web3. By creating an instrument to drive capital into the renewable energy market, Reneum helps users to participate in the energy transition.
Reneum’s mission is ultimately to support the energy transition by offsetting environmental debt, but renewable energy is just one climate instrument, one lever we can pull to influence the climate crisis. Reneum sees an opportunity to parlay its technology platform and leverage the token mechanics for additional environmental instruments and climate verticals. We see Reneum’s long-term potential as a fundraising tool for environmental impact that can be scaled up much in the way Amazon transitioned from books to an everything marketplace. Once the renewable problem is solved, we move on to other climate causes.
Reneum is starting a movement fueled by progressive, like-minded individuals who care about the future of the planet and want to influence the energy transition. In this way, we create a decentralized economy to empower individuals to propel the energy transition.