The primary objective of the Acara Institute is to start up social business ventures. While the intent of social businesses is that they are self sustaining from a funding standpoint, the reality is that they usually need help with seed money and/or different kinds of funding models.

I’ve been thinking about a particular funding model, namely carbon offsets. You have all heard of carbon credits, cap and trade and similar terms. Basically the idea is to regulate a certain level of carbon emissions. Then if you run, say a power plant, you get a certain number of credits from the government for that level of emission (they may be given to you, like they were in the EU, or they may be auctioned). If you emit more than your limit, then you have to buy credits to account for that. If you emit less, than you have credits you can sell. And over time, the emission limits are reduced by regulation, hence that’s how emissions are reduced. And the buying and selling of credits bring a market-based approach to reduction. In addition to companies and power plants buying and selling amongst themselves, there is also a provision for funding a project in a developing economy that will reduce carbon emissions. So this could be reforestation for example, or an efficient power plant. The company in the developed world can then get carbon credits for this, assuming it would not have been done anyway. (This clause is called additionality and is a fairly difficult thing to verify.)

The carbon market is maturing rapidly, even though the US has not yet mandated anything. There is a decent sized voluntary market and the EU has a regulation in place. While there are a lot of issues with the EU market, and the price of carbon is falling, in the long run everyone believes the global market will be very large (it is currently about $125B USD, expected to go over $500B USD in 5 years).

What does this all have to do with social ventures? Well, if you are in an emerging market, you can do things that earn credits, which basically allows you to monetize your effort. It could be as simple as planting trees or using a renewable energy product. There are organization emerging to assist people with this and to aggregate these credits. Not surprisingly, there is a lot of paperwork involved in certifying these credits. If you are a small operator, it’s not worth it. But a big organization can aggregate a bunch of applications, sell the total on a carbon market and return the money. It’s sort of like a mutual fund in reverse.

This is not really a way for Acara to make money, but it is a way for some of our startups to add additional value to their value proposition, or perhaps even for their customers.

Here are some interesting links.

This is an example of an organization that aggregates, Carbon Credit Corp. They aggregate agricultural credits in North America and in Central America.

Carbon Manna is really bottom of the pyramid, creating a phone in scheme for individuals to call in credits. So also catching up on the trend of adding more service for cell phones.

Here is a story about how carbon offsets might work for the individual.

Micro Energy Credits is an organization with an impressive group of founders, looking to utilize microcredit schemes for credits. Here is a nice story about them in the Stanford Review.