Fair Climate Network – Note on Crowdfunding

June2017

1. Introduction

1.1. Definition Crowdfundingisanoldandestablishedarrangementwhereagroupofpersonswhocannotindividuallyfinancethetotalcostofagoodcause,jointogethertopoolresourcestofinancevariousactivities.InIndiaalone,morethan`329corehasbeenraisedfor1,000+causesandorganisations.

ConventionalCrowdfundingraisesonce-offresourcesforasinglecauseorventure.Examples:

§ Aschooldoesn’thavereadycashforanewbuildingorfacilitythatbutwill,overtheyears,beabletorepaythroughtuitionfees;loanbasedCrowdfunding.

§ Acentralisedclimateproject(likethewastetreatmentplantexampleannexedtothispaper)needsinitialcapitaltoinvestonplantandmachineryandkick-startoperations;equitybasedCrowdfunding.

§ Anepidemicneedsurgentsupplyofmedicinesandotherequipment;rewardbasedCrowdfunding.

However,unlikenormalCrowdfundingPlatforms,inthecaseofpro-poorcommunityownedandmanagedprojects,thereisneedformuchlarger,long-term,multi-year,committedcontributionsthatwillnotberepaidincash,butinamonetizedenvironmentalservice.

HencetheneedforthispaperonCrowdfundingfortheFCNmodel.

1.2. Crowdfunding FCN Projects InthecontextoftheFairClimateNetwork,Crowdfundingisanarrangementwhereagroupofclimateconsciousindividualsand/orcompanies,whocannotindividuallyfinancethetotalcostofanenvironmentallyvaluableclimateactivity,jointogethertopoolresourcestoimplement,maintainandmonitortheproject.

§ MitigationValue:EmissionReductionsandCarbonCreditsgeneratedbytheprojectaresharedindirectproportiontotheirrespectiveinvestments.

§ AdaptationValue:However,everyoneinthecrowdfundinggroupjointlytaketotalcreditforalleviatinghardshipscausedbytheadverseeffectsofclimatechangeondisadvantagedpopulationssincetheprojectwouldn’thavebeenpossiblewithouttheircollectiveeffort.

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1.3. Why Crowdfunding? ClimateMitigation&AdaptationProjects,likeanyactivitythataimstomakeaseriousanddiscernibleImpactinthelivesofresourcepoorpopulations,needtobeimplementedatscale.Scalerequiresrelativelylargeresourcesintheformoflow/zero-interestloansthroughtheforwardpurchaseofenvironmentalservices,longbeforescheduleddeliverydates.Thesethird-partycertifieddeliveriesaremeasuredinUNFCCCand/orGoldStandardEmissionReductions–CERsandGSVERs.

Suchlargeresourcesmayormaynotbeavailablewithanysingleindividualorcompany.

1.4. Clean Energy Technologies (Renewables) Clean/alternateenergytechnologies,bydefinition,lendtodecentralisedcommunityownershipandparticipation.Householdandlocalcommunityownedsolar/windenergyaccountsformorethanhalftherenewableenergygenerationinentirecountriesofEurope1,andanincreasingnumberofcounties/citiesintheUSA.Individualcitizensandsmallneighbourhoodgroupshavesucceededinsubstantialreplacementoffossilfuelbasedenergywithzeroemissionrenewables.

1.5. Decentralised Management Systems Conventionalmanagementpracticesweredevelopedforcentralisedlarge-scaledeploymentatsinglesites.Thiswillnotworkwhentensandevenhundredsofthousandsoffamiliesparticipateinasmanylocationstomeettheirenergyrequirements.Theyhavetoberecognisedasnewagebusinessesneedingaradicalchangeinorganisationalculture,structureandmanagementsystems.

ThesenewpracticesneedtobeanchoredintheinvolvementofeverysinglepotentialEndUserwomaninplanning,implementing,maintainingandmonitoringrenewableenergytechnologies.Totalandexception-freetransparencyneedstoreplacebureaucracy,hierarchyandcorporateconfidentiality.Andallthishastobesupportedwithrobustreal-timedigitization.

1.6. Fair Climate Network GrassrootsNGOswhohaveanintimaterelationshipwithcommunitiesarebestsuitedforimplementinglarge-scaleClimateProjects.Forthepast11years,theFairClimateNetworkisengagedinbuildingthecapacityandcapabilitiesoftheseNGOs.Wehelpthemidentifyaptandimplementabletechnologies,registerClimateMitigation&AdaptationProjectswiththe

134%ofthetotalinstalledcapacityofrenewableenergyinGermany(50%ofphotovoltaic,25%ofwindand41.9%ofbioenergy)wereownedbyindividualsandcommunitiesinGermany.From2012to2013thissharejumpeduptocross50%86%ofwindturbinesinDenmarkareownedbyprivateindividuals.

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UNFCCCandGoldStandard,andassistinsettingupsystemsforimplementation,maintenanceandmonitoring.Pleasevisithttp://fairclimate.com/

Manypro-poortechnologieswerebornthroughtheconceptualizationofwildideas,usingcuttingedgescience.Theyweregreenfieldintworespects:

a) Technicalshortfallshadtobeidentifiedandcorrected,andb) Implementationbottlenecksneededtobeimprovedbeforebeingrolledout.

Checkingthefeasibilityofanovelideaentailsacertainamountofrisk.Wedecidedtotakethatriskandblazethetrailtodemonstratethat“thePoorareapartoftheSolution;NotapartoftheProblem”.

RobustmanagementsystemsandimplementationtechnologiesweredevelopedfordomesticBiogas,fuelefficientWoodstoves,Afforestation/ReforestationandLowCarbonFarming.Digitalmonitoringsolutionsweredevelopedtoeffectivelymonitoractivitiesspreadoverthousandsoflocations.

2. Crowdfunding

2.1. The Resource Challenge Whenprovencleanenergytechnologies,alongwiththeinterventionstrategy/implementationtechnologyhavetoberolledout,obtaininghumungousresourcesisthesinglebiggestchallenge.Theproblemiscompoundedby2additionalfactors:

i. ThevolatilecompliancemarkettradesatapitiablefractionoftheactualcostofgenerationsinceCarbonRevenuesareseenasjustanadditionalsubsidyofsortstoclosethegaptomakeconventionaltechnologiesviable;thevoluntarymarketoffersaslightlybetterprice,butisstillfarshortoftheactualcostofgenerationwherepro-poortechnologiesareconcerned.2

ii. Disadvantagedpopulationsdonothavethemoneytothemselvesinvestonthetechnology,maintain,monitorandgenerateCarbonCredits.

Theonlywaythatpro-poorClimateProjectscanbefinancedisthroughforwardpurchase/saleofyet-to-be-generatedCarbonCreditsattheactual-price-of-generation.

Crowdfundingisagoodstrategywheremanyclimateconsciousindividualsand/orcompaniesgettogether,reposetheirfaithinthepoorasbeingapartofthesolution,andfinanceClimateProjectsspreadoverlargeregions,involvingtensofthousandsofEndUsers,inasmanydiverselocations.

2Inspiteofmillionsofgrassrootsclimateactivistsbeingattheforefronttousherinthemarketmechanisms,ClimateProjectsundertheCleanDevelopmentMechanism(CDM)wereneverseriouslyconceivedasmassactionsundertakenbyhundredsofthousandsofpoorfamiliesdirectlyimpactedbyClimateChange.

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2.2. Business, not Charity Crowdfundingisbasedonsolidarity,withnoundertoneofcharityorpatronage.Notbecausecharityisbadornotneeded,butbecauseitisnotsustainableandcannotbescaledup.Itcannotoffertheurgentlyneededviablealternativetoafossilfuelbasedeconomy/lifestyle.WhentheEndUserofthealternate/cleantechnologyistoberegardedasabusinesswomaninherownrights,thefinancershouldalsotakeabusinessapproach.

Thisbusinessoutlookisalsopropelledbytherealisationthat,ifHomosapiensaretosurviveonplanetEarth,theso-calledalternativeoftodayhastobecomemainstreambytomorrow.

2.3. Return on Investments CrowdfundingthereforerequiresaReturnonInvestment.Divestmentfromfossilfuelindustryisnotenough;itneedstosimultaneouslybeaccompaniedwithinvestmentinrenewables.Returnsfrommicro-levelEmissionReductionactivitiescarriedoutbyhundredsofthousandsofruralwomenwillnotbeonparwithreturnsfromconventionalnon-renewableslikewindmills,hydro,etal.Buttheaddedvalueisthepossibilitytoinvolvehugenumbersintothebuildingofanalternateeconomy.Historyhasproventhatlargescalecooperationistheonlywayforwardforourspecies.

CorporateClimateInvestorsexhibitafar-sightednessinrecognisingthevalueofpowerfulstoriesbehindthegenerationofhighquality,non-fudged,third-partyverifiedEmissionReductions.Theyknowthattheircustomerswillseethebrinktowhichhumanbeingshavegonevis-à-visClimateChangelongbeforetheeconomyasawholeacknowledgesthefact.3

TheypayahigherpricefortheseCarbonOffsetsforpurelybusinesswin-winreasonsanddevelopa“benevolent”carbonmarkettilltheeconomyfullyrecognisesboth,thevalueofenvironmentalservicesaswellasthedestructivepotentialofextractiveindustries.

2.4. Forms of Crowdfunding Dependingofthesituation,Crowdfundingtakesonvariousformslikedonationbased,rewardsbased,equitybasedandloanbased.Thispaperwillnotgointothedetailsofeachtype.Instead,wereferyoutoJensRadschinskiatJRadschinski@unfccc.intwhoheadstheRegionalCollaborationCentreBangkok(UNFCCC/IGES)andhelpscrowd-investingplatforms.WehaveattachedaPPTpresentationofatypicalexampletheyhavecirculated.

2.5. Setting up the Crowdfunding Platform i. Identifyapro-poorcommunitybasedClimateProjectlikedomesticBiogas,registered

withtheUNFCCCand/orGoldStandard.

3Nocorporateleaderhasforgottentheperilsofusingchildlabourinstitchingfootballsandmakingcarpets.GenuineworriesaboutClimateChangeareasstrongasthepublic’saversiontostarkexploitation.

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ii. Ensurethattheselectedprojectcomplieswith2uncompromisingFCNstandards,whichsitasalayerontopofinternationallyrecognisedUNFCCCandGoldStandardCarboncertification:ü CommunityOwnership&ManagementofClimateMitigationProjectsbytheEnd

Usersofrespectivetechnologies.CommunitiesneedtobefullyawareastowhattheClimateactionisallaboutrightfromtheconceptionoftheproject.Transferofownershipshouldnotbenominalortoken.Itmustbedoneinaresponsiblemannerthroughawarenesscreationandcapacitybuilding.

ü Upfront,open,transparentandlegallybindingCarbonRevenuesharingagreementsbetweentheProjectProponent(grassrootsNGO)andEndUserfamilies.WerecognisethatgrassrootsNGOswillhaveoverheadcoststokeeptheirorganisationsafloat.TheyarefreetotakeapercentageofCarbonRevenuesthatflowintomeettheserunningcosts.ButthatshareshouldbethoroughlydiscussedandarrivedatwitheachandeveryEndUserofthetechnology.

iii. MeticulousfinancialprojectionsaremadebytheImplementingNGO,basedoncurrentcostsandprices,inatotallyopenandtransparentmanner.Thesearenot"budgets"inthetraditionalsenseoftheterm;theyareestimatesofhowmuchcapitalisrequired.

iv. DesignateanimpartialLeadAgenttomanagetheCrowdfundingPlatformandspelloutfunctionsandresponsibilities.ThesewillincludeputtingtheCrowdfundingPlatforminthepublicdomain,acceptingParticipants,receivingcontributionsintotheEscrowaccount,drawinguptheEmissionReductionPurchaseAgreement(ERPA),actingasMOAwiththeUNFCCCand/orGoldStandard,releasingERPApayments,overseeingimplementationandthird-partyverification,receivingandanalysingmonthlyprogressandfinancialreports,appropriatingissuedCarbonCreditstoCrowdfundingParticipantsandtransferringtotheirrespectiveRetirementRegistryAccounts,etc.

v. PrepareasynopsisoftheClimateProjectandpublicisethroughwordofmouthandalsothroughawell-designedandattractivewebsite.

vi. Explainthetermsandconditionsunderwhichindividualsand/orcompaniescanparticipateintheCrowdfundingPlatform.E.g.FCNsupportedClimateProjectswillnottransfer“live”CERs/GSVERstocarboninvestors.Instead,theywillbedestroyedintheRetirementRegistryoftheUNFCCC/GoldStandardandthentransferredtotheInvestors’RegistryAccounts.Thisisinordertoensurethatrealreductionsaremade,andClimateProjectsdonotbecomeasourceforcompaniesandcorporatestomakeadoublewhammybyclaimingOffsetsaswellastrading.

vii. OpenanEscrowBankAccountwiththeLeadAgentandImplementingNGOasthetwoandonlyjointsignatories;makemonthly/quarterlytransfersfromthisEscrowAccounttotheNGO’sBankAccount,followinga“payforperformance”principle.

viii. OpenAccountsintheUNFCCC/GoldStandardRetirementRegistrywherenecessary.Note:Individualscannotopentheseaccounts.Itisfeasibleforcompaniesandcorporatesopen

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themonlyifaviablevolumeofCERs/GSVERsaregoingtobereceivedbythem.Alternatively,companiesandcorporatescanalsobetreatedasIndividualParticipants,asexplainedinthefollowingparagraphs.

3. Recording Transactions CarbonOffsetsgeneratedbyClimateProjectsarefungiblecommodities–i.e.theyaretangibleassetsthatcanbemonetisedandtreatedascashinbooksofaccounts.However,intheFCNmodel,theyaretransferredtotheRetirementRegistryoftheUNFCCC/GoldStandardandthentransferredtotheRetirementAccountoftheCrowdfundingparticipant.

CorporateParticipants:

ThequestionthenarisesastohowtheinitialcontributiontotheCrowdfundingshouldbetreatedinbooksofaccounts.AsperguidancegiventheInstituteofCharteredAccountants,acompanycanrecordtheircontributionsas:

“Advancepaidagainstthepurchaseof(volume)CERs/GSVERstobegeneratedby(projecttitle)ClimateProjectasperCrowdfundingPlatform(referencenumber)dated(dd/mm/yyyy).”

SinceCarbonOffsetsarefungiblecommodities,whethertheyare“live”or“retired”,theseadvanceswillbeoffsetwhenretiredCERs/GSVERsaredeliveredbytheImplementingNGO,afterVerificationandIssuance,totheirrespectiveRetirementRegistryAccount.

IndividualParticipants:

IndividualsParticipantsintheCrowdfundingPlatform,however,cannotfollowthesameproceduresincetheywillnotbepermittedtoopenanykindofAccountintheUNFCCC/GoldStandardRegistry.

TheywillthereforehavetorecordtheircontributionasdonationsmadetotheProject:

“Donationmadetothe(ProjectTitle)ClimateProjectasperCrowdfundingPlatform(referencenumber)dated(dd/mm/yyyy).”

TheLeadAgentwillensurethatthevolumeofCarbonCreditsgeneratedthroughtherespectivecontributionsofIndividualParticipantsisprominentlybroadcasted.

Crowd-investingandtheCDM

Crowd-investing for the CDM – an real example from Columbia

Crowd-investing for CDM projectsThefirsteverregisteredCDMprojectwasrecentlycrowd-invested

Dormantlandfillgasprojects,registeredundertheCleanDevelopmentMechanism(CDM)project

Resumedoperationalafterreceivingfundingfrom195Germancitizens,within19hours

Thankstoaninnovativeandlowcostwaytoraisefinancefast-restoringtheprojectsoriginalpurpose– toreduceGHGemissions

Project description

PirguaLandfillgasrecoveryandflaring withthepotentialtoreduce11,170 tonnesCO2equivalentperyear (seehere)

CartagenaLandfillGasCaptureandUsageProjectwiththepotentialtoreduce142,384tonnesCO2equivalentperyear(seehere)

Companies involved:• SERVITUNJAS.A.E.S.P.(Colombia)• OPTIMConsult (Colombia)• CarbonBW ColombiaS.A.S

(Colombia)• EnBWKraftwerke AG(Germany)• FirstClimate(Switzerland)AG

Project historyProblem: • In2012,twolandfill-gasprojectswerecommissionedinCartegnaandPirgua-Tunja,Colombia• Themethanegasproducedfromthelandfillsisavaluableresourceandwastobecollectedand

flared,atalaterdateusedtogenerateelectricity• Astheseprojectswerehadheavilydependentonthecarbonfinancetooperate(apositiveNPVdue

tothesaleofCERs)• Duethecollapseofthecarbonmarketsoonafter2012,theprojectswereputonholdindefinitely

and• TheprojectneverrealizeditspotentialtosupplyandsellLFGtonearbyindustries,inparticulara

brickfactory(replacingcoal)inthevicinity• Itwasneverabletoreduceodors,improvehealthandqualityoflifeforthecommunity,mitigate

methanerelatedfiresnorcreatethepromisedjobsfromtheoperationoftheLFGandpowerproduct

Solution: • FortunatelytheprojectswereregisteredundertheCDMsoonaftercomissioningalongwithnational

authorityapprovals(hostpartyLOA)• Theyhadalsoundergonefullenvironmentalvettingandvalidationby3rdpartyauditors(DOEs)• ThreeyearslateranEUbuyerpurchasedtheoptionontheCERsfromtheprojects(ERPAs)• In2016CarbonBWSASsuccesfullysecuredthecontractstorestoreandoperatetheplants• Theremainingcapitalrequiredtokick-startandcompletetheoperationwassourcedwith18hoursvia

thebettervestcrowdinvestplatform– acompanythatformspartofwiderEUinitiativetostimulateinnovativecrowdfundingsolutions<ref>.

bettervest in a nutshell bettervest is the 1st crowdinvestingplatform that enables citizens to jointly participate in energy projects and benefit financially from the energy costs saved.

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Externalenergyaudit*bettervest fee(10%)*

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bettervest GmbHKettenhofweg 12560325 Frankfurt

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