170611 note on crowdfunding - fairclimate.com fcn projects.pdf · fair climate network – note on...

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.

Why crowdinvesting?Many people want to get actively involved in the energy transition and put their money to good use. With fossil fuel divestment gaining popularity and demand for alternative investments rising, we offer transparent investment opportunities with a positive environmental and social impact. Wallet size doesn’t matter: citizens can invest as little as 50€.

Project initiators, like schools and hospitals, save energy and money. Investors benefit from a green return and CO2 emission are reduced. Its a win win win.

Incrowdfundingmarketsbettervestisuniquelypositioned

lending-basedcrowdfunding

reward-basedcrowdfunding

equity-basedcrowdfunding

crowdinvesting

donation-basedcrowdfunding

crowdfunding

Financialreturns +product samples,coupons or discounts

INVESTMENTS

RETURNS

Funds transferred to escrow account

Funds distributed viaan escrow account

CROWD PROJECTS

Environmentally soundinvestments from 50-10,000 €

Yearly repayments instalments

> 5% return

< 10 year loan period

Additional benefits: coupons, discounts, samples, etc.

No equity capital needed

CSR marketing

Strengthen employee and customer bonds

Circa 20% energy savings during the loan repayment period, then 100%

The bettervest business model

Benefits for investors Project initiator benefits

What we finance How we finance it

Externalenergyaudit*bettervest fee(10%)*

Implementationofclimatemeasure*

* excludes tax

Principle, costs & fees Interest & redemption

Individualtermsandinterestratesaredeterminedforeachuniqueproject

redemption

interest

bettervest GmbHKettenhofweg 12560325 Frankfurt

+49 69 348 773 47mail@bettervest.com

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