Overview of carbon classes

Learn how the Klima Protocol structures carbon credits into carbon classes within its portfolio.

Whitelisting decisions do not create ownership rights, pricing guarantees, or obligations to acquire credits. Carbon classes define eligibility and pricing parameters only. They do not create fungible financial instruments, redemption rights, or secondary trading markets.

A given carbon class may have just a few different carbon credit methodologies contained within it, or many different ones. However, the carbon credits contained within a carbon class must share similar characteristics to allow the creation of a semi-fungible group of credits.

Examples of existing groupings of carbon classes that demonstrate a degree of fungibility and established liquidity within the market include CORSIA carbon credits, trading on exchanges such as the CME, or Toucan’s CHAR pool trading on Aerodrome.

The characteristics considered when designing a carbon class include:

• Methodology

• Technology type

• Certification standard

• Geography

• Vintage

• Registry

Carbon classes are the primary way that carbon buyers and suppliers interact with the Protocol:

• Suppliers: supply eligible carbon credits to the protocol via a carbon class at the applicable execution rate.

• Buyers: access the carbon credits to source carbon for retirement demand at the applicable execution rate. This can be achieved either directly via the protocol, or via third-party frontends.

The Protocol standardises carbon credits within classes to enable comparability between various credit typologies.

However, users of carbon classes are able to select which specific carbon credits within a class that they interact with. For example, in the graphic below, a carbon supplier holding Biochar Project 1, could supply that credit to the Biochar carbon class if they are happy with the current execution terms, without needing to hold Biochar Project 2 or 3. Similarly, a user looking to retire carbon credits could choose to retire Biochar Project 3 at the live execution rate (i.e. they would not need to receive a randomised unit from within the class).

Well-curated carbon classes should contain credits that reflect long-term potential to increase overall market impact by supporting sustained retirement demand. Poorly defined carbon classes may instead result in inventory that sees limited retirement activity and reduced environmental impact.

Carbon classes are dynamic, in order to respond to the ever-changing nature of carbon markets. They can evolve, expand, or be deprecated over time. For example:

• A new biochar methodology may be added to a Biochar carbon class, allowing new credits to be transacted into and out of it.

• REDD+ credits may be removed from a mitigation-focussed carbon class, disallowing new supply of defined methodology into it (but still allowing retirements from it until the supply reaches zero).

• A new carbon class may be created by whitelisting methodologies already contained within an existing carbon class, allowing the fragmentation of one (or multiple) existing carbon classes.

Whitelisting

The whitelisting of carbon credits into a carbon class, or the creation of a new carbon class entirely, is an important aspect of the Klima ecosystem and it represents the primary non-economic governance input into the protocol.

Functions of whitelisting:

• Creating a new carbon class: defining the specific carbon credits that may be deposited into it, and allowing it to facilitate carbon supply and retirement interactions with the protocol.

• Whitelisting new credits into an existing carbon class: changing the types of carbon credits that may enter a carbon class that is already facilitating supply and interactions with the protocol.

• Blacklisting existing credits from an existing carbon class: disallowing any new credits within a carbon class that is already facilitating supply and interactions with the protocol.

Ultimately, whitelisting is an important filter for the protocol to ensure that high-quality, in-demand credits are eligible for protocol-facilitated retirement.

Whilst whitelisting acts as a barrier to stop certain credits entering the Protocol, credits that enter and are subsequently blacklisted can only be removed if they are then retired and removed from circulation. This is beacuse carbon credits contained within the protocol cannot be managed, traded, or otherwise extracted except for via a permanent retirement.

The initial governance approach for whitelisting will be done through consultation with Klima's partners. Initial members of its partnership programme include Anaxee, Regen, ICR, Super Biochar, UCR.

A quarterly RFP will be issued to partners for their feedback on proposals for new carbon classes or specific carbon credits to include within the ecosystem, as well as to capture feedback on existing carbon classes.

Key attributes will be considered when evaluating new carbon credits and classes, such as:

• Certification standard, CCP labels.

• Methodology relevance to compliance schemes (e.g., CORSIA).

• Vintage criteria.

• Geography and project type.

• Publicly available data on credit issuances, retirements, pricing.

In addition, there is a hard requirement that all carbon credits that the Klima Protocol whitelists have explicit permission from the host registry to be integrated with a blockchain ecosystem. This is to ensure that the appropriate technical implementation can be achieved to mitigate any risk of double counting, and that relevant carbon registry Terms of Service are adhered to.

Over time, the whitelisting process is expected to use token-voting.

Transparency

Open-source governance principles emphasise inclusivity, clarity, and auditability – whilst the initial process will take place offchain, it will be conducted with maximum transparency, ensuring all market stakeholders understand the process, and can react to decisions fairly.

All RFPs, feedback and decisions will be published publicly on the Klima Protocol forum before any action is taken (e.g. creating the carbon class).

Current carbon classes

Carbon class	Whitelisted projects	Est. liquidity	Date added	Info. page
Ocean alkalinity enhancement	Limenet – CMARK02	14 tonnes	Live at launch	Coming soon
Biochar	TBD	100 tonnes	Live at launch	Coming soon
Avoided deforestation	ECO-22; ECO-114	30,000 tonnes	Live at launch	Coming soon
Regen – City Forest Credits	TBD	TBD	TBD	Coming soon