Natural Asset Managers – How Decentralized Ledger Technology Will Drive the Ecosystem Services Sector
POTSDAM, GERMANY – Life is the basis for our existence and holds immeasurable importance. However, in the name of ‘saving the planet’ various international, corporate, scientific, technological, industrial, and governmental forces seek total awareness of the movement of energy and communication at all scales of life. The process of integrating life into the digital panopticon involves many fronts. “Natural assets,” “Ecosystem Services,” and “Green Finance” are all phrases revolving around the financialization, surveillance, standardization, and management of ‘nature’ through various technologies.
The phrase ‘ecosystem services’ refers to all quantifiable benefits that life provides to humans, such as: water purification, natural pollination, air cleansed by forests, medicine etc. Quantification takes place at a scientific level, (measuring inputs and outputs using systems analysis, relevant chemical domains, and statistics) and is translated into monetary effects.
Two, superficially independent, sources of momentum create these systems. Establishment institutions, the academic, governmental, financial, industrial, and diplomatic organizations represent one source. This group broadly pursues mass digitization, citing typical arguments, and operates through major international organizations like the United Nations, the European Union, the World Bank, major corporations and their foundations, NGOs, private foundations, and so on.
The other track presents itself as a ‘disruptor’ and purports (to varying degrees) to oppose the dominating tendencies of the first group. This track is born out of the historical Silicon Valley cyberpunk networks, which often present a rebellious or social-justice-focused ideology. In reality, they originated from and consistently side with the same people as mentioned above. This track also attempts to co-opt revolutionary, communal, anarchistic, and anti-imperial groups and pull them into the digital fold.
Both leverage our deteriorating dance with the mountains, streams, oceans, fish, fungi, and fur, to sell us a new rhythm. However, this new beat, shaped by the doctrine of mathematics, is designed to channel our laughter, spontaneity, despair, and mundane routines into engineered circuits. These circuits project reflections of our movement, light, and thoughts, in a digital version of reality. Vast global computer networks – trillions of communicating circuits – serve as bones. By detailing the specifics of how this process is unfolding, we can begin to grapple with reality and face ourselves in the present.
‘Digital Twins’ refer to digital recreations of something physical, in this case ecosystems. The data for these digital twins need to use distributed ledger technology (DLT) to become globally verifiable (trusted), as well as synergistic with other protocols that enable financial, governmental, and various other exploitations of the data. ‘Smart contracts’ define these protocols and program interactions between them. DLT can be understood as the bones that support the operations of a globally synchronized digital panopticon.
The data itself, which is used to build digital twins, flows in from any source that is able to connect to a sensor-computer. Among the most important sources of data are satellites, field sensors, field scientists, citizen scientists, molecular tracers, AI simulations, and statistical analysis. The seed for many of these concepts was planted by an industrial/military elite who birthed a Cold War computational paradigm along with the Manhattan Project.
The current development of these systems takes place through a diverse set of intentions. Some are purely motivated by profit in a more traditional sense of commerce. Others are driven by a moral imperative, a sense of duty to serve. For others curiosity drives them forward. The thrill of intellectual creation can be a powerful motivator.
While rooted in violence, slavery, and other gross forms of power, domination comes in many forms. Some require nuance and work on the mind. Manipulation and control, rather than overt subjugation, centers on the art of persuasion. An interplanetary, interdimensional network bent on capturing people’s will and desire manifests through a consistent murmuring siren’s song
United Nations National Accounting Standards – What are Ecosystem Services
The late 2000s marked the establishment of several initiatives and institutions whose aim was to broadly calculate economic losses from ecosystem/biodiversity destruction. The phrase ecosystem services dates much earlier, but as a matter of explicit international policy the concept did not gain steam until then. The 2007 G8 meeting at Potsdam stated their first three goals for combating ecological destruction:
- In a global study we will initiate the process of analyzing the global economic benefit of biological diversity, the costs of the loss of biodiversity and the failure to take protective measures versus the costs of effective conservation.
- We will strengthen the scientific basis for biodiversity and are committed to improve the science policy interface. In this context we will support the ongoing consultative process on an international mechanism for providing scientific advice.
- “Building on existing endeavours we will explore the development of a “Global Species Information System”which aims at gathering and making available information on all known species on earth”.
(emphasis added)
At the summit they announced the creation of a global initiative called The Economics of Ecosystems and Biodiversity (TEEB). Stavros Dimas, the Commissioner for Environment European Commission, and Sigmar Gabriel Federal, the Environment Minister of Germany, appointed Pavan Sukhdev, as the project’s leader. Sukhdev was Managing Director in the Global Markets division at Deutsche Bank at the time.
Since then TEEB has played a major role in building the standards and methodologies needed to scale ecosystem services and is cited in various SEEA-EA documents. TEEB facilitated the NCAVES project, which implemented SEEA methodologies in five major countries: Brazil, China, India, Mexico, and South Africa. This group encompasses the BRICS countries with the exception of Russia. In the early 2000s, a Goldman Sachs economist predicting the countries driving future economic development, coined the acronym BRICS. It stuck, resulting in continuous BRICS summits between the respective nations since 2006.
In general, the ‘international community’ accepts and promotes the ecosystem service paradigm as a part of the ‘green transformation.’ Examples include: political Institutions like the World Bank, the United Nations, and the World Economic Forum; NGOs such as the World Wildlife fund and the Nature Conservancy; scientific institutions like Group on Earth Observations; and corporate interests like Microsoft and Swiss Re. National governments around the world fund these projects.
A 2020 World Bank report on ‘Mobilizing Private Finance for Nature:
This report details two channels through which private finance can be mobilized: by monetizing cashflows from the provision of ecosystem services (financing green) and by driving better management of biodiversity risks (greening finance).
In March 2021, the United Nations Statistical Commission adopted the System of Environmental Economic Accounting – Ecosystem Accounting (SEEA-EA) as a standard and urged member nations to begin to implement the system. The SEEA-EA integrates traditional national accounting practices with a new paradigm of quantifying all environmental data, and valuing it in monetary terms when feasible. Decades of research went into defining this standard. The standard is described as follows:
The System of Environmental-Economic Accounting—Ecosystem Accounting (SEEA EA) is a spatially-based, integrated statistical framework for organizing biophysical information about ecosystems, measuring ecosystem services, tracking changes in ecosystem extent and condition, valuing ecosystem services and assets and linking this information to measures of economic and human activity.
Let’s dig into precisely how they approach monetary valuation of ecosystem services. From the current standard:
The essence of ecosystem accounting lies in representing the biophysical environment in terms of distinct spatial areas each representing a specific ecosystem type.
Creating “distinct spatial areas” enables a base level separation, a foundation on which all other environmental quantifications occur, a base layer for the digital twin. Data sourced from satellites interfacing with data processing software create the base boundaries. All (terrestrial) ecosystem service data is embedded within those boundaries.
Ecosystem types include, for example, forests, grasslands, wetlands, cultivated areas, urban areas, rivers, coastal dunes, coral reefs and deep sea floors. Each spatial area of a specific ecosystem type is, for accounting purposes, treated as an ecosystem asset.
As we will see more clearly once we dive into the blockchain implementations of ecosystem services, these ecosystem assets (spatial units) are represented as collections of tokens. They can be used to account for distinct sets of data in a verifiable way over time, by virtue of being stored on a blockchain.
Each ecosystem asset is accounted for in a manner that is broadly analogous to the treatment of produced assets in the SNA, such as dwellings, in which there is an underlying stock of capital (e.g., a house with specific characteristics (such as a number of bedrooms) and of a given condition) and an associated flow of services (e.g., owner-occupied housing services and rental income).
From the base level spatial units, the physical stuff that dwells in those units is accounted for. The subsequent activity of that stuff comprises the “flow of service”. For example, a hectare of forest in a spatial unit would have an “associate flow” of carbon sequestration calculated from data about the forest.
First, ecosystem assets may be considered as complex, and interacting, producing units that supply outputs of ecosystem services to various users – this reflects the societal benefit perspective described in Chapter 2. Alternatively, flows of ecosystem services may be considered analogous to flows of capital services supplied by produced and non-produced assets as described in 2008 SNA, Chapter 20 – this reflects the asset value perspective from Chapter 2. These two perspectives are reconciled for the purposes of monetary valuation by treating the output of ecosystem assets as producing units as consisting solely of capital services.
Here they state the two sides of valuing ecosystems, one regards the complex interactive aspects of ecosystems, for instance health and social benefits from air filtration; while the other follows the traditional System of National Accounts which focuses on more tangible economic production, such as pollination of agricultural crops from wild bees. They elaborate below:
Using a reference to the current SNA production boundary, two valuation contexts can be distinguished. First, in some cases, flows of ecosystem services are inputs to the production of goods and services within the production boundary of the SNA, i.e., SNA benefits. In these cases, the values of ecosystem services are implicitly embodied within values of goods and services recorded in the national accounts. Examples include ecosystem services that contribute to agricultural output, such as biomass provisioning services and pollination by wild bees. Monetary valuation therefore involves partitioning the values of the goods and services recorded in the national accounts to reveal the ecosystem contribution. The ecosystem service is then recorded as an output of the ecosystem asset and an input of the economic unit that uses the ecosystem service.
SNA valuations revolve around tangible and easily identifiable contributions ecosystems make to the traditional commodity based economy. They go on to explain how to value less tangible, non-SNA, ecosystem services:
Second, in other cases, ecosystem services contribute to benefits received by economic units including households and governments that are not within the production boundary of the SNA, i.e., non-SNA benefits. For example, air filtration services of forests contribute to cleaner air whose value is not included in national accounts measures of output. In this case, estimating the accounting entries based on exchange values requires (i) determining the prices that would be charged on behalf of the ecosystem asset for the ecosystem services if a market existed; (ii) estimating the costs to obtain an ecosystem service that would need to be incurred by an economic unit to secure the benefits; or (iii) assessing the loss of benefits to an economic unit that would be incurred if ecosystem services were to be lost.
They identify three steps to value non SNA ecosystem services. To calculate such costs simulations are needed to 1) model how the ecosystem functions; 2) assess the ramifications to the economic society if certain functions were to cease; and 3) determine the cost of required replacements. More succinctly, they predict the cost of the service if it were lost and had to be purchased. This highlights a key aspect of the paradigm, the desire and need for intensive simulations that require massive amounts of data on both the environment and human society.
Collecting, processing and modeling data effectively and cheaply depends on automation (artificial intelligence and other types of statistical algorithms), communication between databases (Telecom, blockchain, cloud, and edge computing), and ubiquitous sensing technology (satellites and ground-based devices). Often capital for ‘green finance’ and ‘social justice’, serves to perpetuate systems of domination rather than empowering communities to heal and restore their relationships with the earth.
Why Blockchain?
The fundamental problem that “blockchain” attempts to solve is the tracking and verification of digital information. Before the word existed, the concept emerged through the work of Scott Stornetta and Stewart Haber of Bell Labs, when they realized the eventual problem of ubiquitous digital information: there was no way to verify that digital information (files: documents, photos, ect) remain untampered. How to Time stamp a Digital Document and two other of Stornetta and Habers’ papers were cited in the original Bitcoin whitepaper, and effectively introduced one of the main innovations: a network of users cryptographically (mathematically) proving the history of a set of information. Satoshi, the still uncertain creator of Bitcoin, created mechanisms combining economic and computational game theory, resulting in a global, security-oriented, ”trustless” manifestation.
The use of blockchain, or its more politically viable name Distributed Ledger Technology, underpins carbon credits, a subset of the ecosystem service paradigm.
At the moment the two most adopted standards organizations for carbon credits and other environmental verifications are Verra and Gold Standard, both of which actively integrate blockchain into their verification systems. While Verra approved direct tokenization of their carbon credits via the blockchain based Toucan Protocol, several difficulties emerged leading to a suspension. To solidify and finalize their approach to Web3, Verra opened a 60 day public consultation period to weigh proposals from the crypto industry to help solve outstanding problems such as how to approach KYC (Know Your Customer) laws and novel approaches to tokenization. Verra is considered the largest carbon credit registry in the world
Both Verra and Gold Standard are participants in the Climate Ledger Initiative (CLI) and Climate Action Data Trust (CADT), the latter being a blockchain implementation by the World Bank to integrate various carbon credit registries across the world. Gold Standard Foundation joined the CLI management team in 2017. CLI started around 2016, gaining early support/management from the Swiss consulting firm INFARS. It has been funded by the Swiss Agency for Development and Corporation through 2022.
When asked about their position on carbon tokenization, for the 2022 Climate Ledger report, Hugh Salway, Head of Markets for the Gold Standard Foundation, responded:
“Gold Standard has worked for a number of years to bring the benefits of distributed ledger technology to the carbon market. We have done this through both the Climate Ledger Initiative and our involvement in the development of the Climate Warehouse, a new platform established by the World Bank to bring together data from all major registries within a central repository that uses blockchain technology.”
The Climate Warehouse is the group that launched CADT. If the central repository depends on blockchain technology, then all other independent repositories, at the very least, need some technical interoperability with the CADT. The CLI report supports that assertion stating:
Blockchain/DLT allows a multitude of heterogenous carbon markets to be linked: The bottom-up nature of the Article 6 mechanisms under the Paris Agreement requires a multitude of heterogenous carbon markets to be connected with each other. Blockchain/DLT may provide useful solutions to link different registry systems and ensure accurate accounting. (emphasis in original)
Additionally, The CLI collaborates with a reporting and verification company launched by the Gold Standard Foundation, called SustainCERT. Gold Standard holds a majority stake in SustainCERT with additional investments from the World Wildlife Fund and Climate KIC, the latter an EU funded “innovation hub”. Together they produced a whitepaper on the direction of Digital Monitoring Reporting and Verification (D-MRV) platforms. Blockchain represents one part of the larger digitalization of carbon monitoring reporting and verification.
SustainCert is contracted by the US based Ecosystem Services Market Consortium (ESMC) to:
accelerate the deployment of SustainCERT’s Scope 3 software and digital verification capabilities for agriculture value chains in the United States. The end-to-end digital solution is designed to create trust that real progress is happening on the ground and to recognize those taking action in their supply chains, thereby incentivizing much needed co-investments in climate action.
The ESMC, as the name suggests, is a consortium focused on building markets in ecosystem services. It is funded in part by a three year 10.3 million dollar grant from the Foundation for Food and Agricultural Research (FFAR) which was created by the 2014 Farm Bill. The grant is matched by the ESMC founding members which include:
ADM; Bunge; Cargill; Corteva Agriscience; Danone North America; General Mills; Land O’Lakes Inc.; McDonald’s USA; National Fish and Wildlife Foundation; Nestle; Noble Research Institute, LLC; Nutrien; The Nature Conservancy; the Soil Health Institute; and Syngenta.
Other funders and members include:
The Walton Foundation, Bayer (acquired Monsanto), PepsiCo, McDonalds, Tyson Foods, Arizona State University, among others.
The ESMC and SustainCERT are also involved with several projects funded from the USDAs 3.1 billion dollar ‘Climate-Smart Commodities’ initiative. Here’s a sampling from the summaries of the projects they are involved in:
This project, which will reach across 28 states, aims to catalyze a self-sustaining, market-based network to broaden farmer access, scale adoption of climate-smart practices, and sustainably produce grain and dairy commodities with verified and quantified climate benefits. Project plans to train Black Climate-Smart agronomists through internships and fellowships with Historically Black Colleges and Universities throughout the Southeast, and provide incentives to underserved producers for hosting Farmer Peer Networks.
This project will expand climate-smart markets and help finance partnerships and incentivize farmers to advance the Organic Valley Carbon Insetting Program. Organic Valley will use two strategies to reduce supply chain emissions: mitigate greenhouse gas (GHG) emissions and maximize opportunities for carbon sequestration, focusing specifically on dairy and eggs as the climate-smart commodities.
In most of the projects, a special focus is set on black and tribal farmers in the name of ‘serving the underserved’ and social justice. Domination does not always look like putting someone in chains.
