What Are Carbon Pools?

In the carbon offset market, most of the time that offsets are purchased, they come from a carbon pool. Pools are designed with two primary goals in mind: increasing liquidity and ensuring offset quality. Below, we’ll explain how pools work and how they achieve their goals. ⬇️

What Makes a Carbon Pool?

Pools are simply groups of carbon offsets that share similar qualities.

Commonly, offsets of the same project type are pooled together, but pools could also be comprised of offsets with the same vintage, offsets from the same country, or any number of potential similarities depending on what the desired outcome is.

What Are Carbon Pools For?

The two most important goals that carbon pools achieve are increasing liquidity and ensuring quality.

Liquidity

Without pools, it would be extremely difficult and cumbersome for large purchases of offsets to occur.

In order to be able to verify the impact of every individual offset, they each need to have their own unique identifiers in the carbon offset registries. However, since there are millions of individual offsets, large purchases would be almost impossible because the buyer would need to go into the registry and pick out individual offsets that they want to purchase. 📉

Carbon pools solve this by creating a singular asset that contains many similar offsets. Well-known examples of these assets are Toucan’s $NCT and KlimaDAO’s $KLIMA.

Offset Quality

The other great thing that pools do is alleviate the risk of bad offset purchases. While concerns about carbon offset quality are heavily exaggerated, it’s true that not every single offset fully delivers on the impact that it promises.

If purchasing a single batch of offsets, there’s a risk that the offset either under-delivers or over-delivers on its proposed impact. Under-delivery is bad because the buyer is paying more for less climate impact, and over-delivery is bad because the projects are receiving less money than they should for the impact they created.

Big Picture

Because of carbon pools, offset-backed assets can now be purchased at scale.

With eliminated risk, deep liquidity, and the move towards an open, verifiable market system, carbon pools enable the carbon markets to finally reach the scale that they need to allow people and institutions to enact tangible positive climate impact.

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