Ostrom Lite-paper
BACKGROUND
Ostrom is a protocol for community based development and environmental regeneration.
Ostrom enables a network of Community Land Trust’s to be formed and a dynamic management of land. Land in the vault is dedicated toward nature-based carbon removal programs and all development is carbon neutral. Ostrom’s goal is to allow communities to control their development trajectory and make environmental regeneration financially viable in the global south. The centrepiece of Ostrom’s method is to measure the baseline and recurring value of natural capital locked in its vault.
WHAT ARE WE BUILDING ?
We are developing a new method for valuing ecosystems based on the services they provide and the value of their natural capital stock. Using GIS mapping and environmental sensor data, ostrom will establish a method to determine the baseline value of environmental assets and calculate recurring values as the ecosystem asset improves over time. It will build on existing market and non-market valuation techniques, adapt them for recurring valuation and DMRV, and test both the IoT and the methods. The project will cover the methods for calculation, the software and hardware required for it and the on-chain infrastructure for NCV DMRV.
PROBLEM STATEMENT
Natural capital asset valuation is a complex process, often highly dependent on manual surveys, field work and large scale data collection exercises. Attempts at developing digital methods for calculating the value of Natural Capital are now widely in discussion in the ReFi realm. Developing DMRV methods integrated with environmental sensors for valuing Natural capital will increase the efficiency of this process and help ReFi projects tokenize natural capital assets and develop coordination methods to regenerate and preserve the environment. It will also help communities in the global south by providing them with payments for ecosystem services and a true value for their assets.
We can break this problem down into three technical questions:
- How do we calculate the baseline value of Natural Capital using methods conducive to recurring digital valuation?
- How do we calculate the recurring value of Natural Capital digitally using IoT, geospatial data and oracle data?
- How do we design the software and hardware tools to collect data, analyze it and process it?
WHY THIS METHOD ?
To date, most valuation methods employed use a stock flow approach. I.e, they consider the Natural Capital Asset a part of the larger economy and value it based on the flows of capital to and from it. This method is reliable and commonly used, however it uses a static approach to an ecosystem. By considering an ecosystem a single unit, it fails to recognize the multifaceted nature of environmental assets. Our approach is built on disaggregating an ecosystem into Measurable units of stock and services. By doing this, we are able to not only value the environment more accurately, we are also able to assign each discrete unit a unique data collection method that can be remotely tracked, thereby removing the need for long and tedious manual exercises in data collection. We believe this approach will also help us understand the value of environmental assets at per unit level; a much needed step as we move towards environmental regeneration.
TERMINOLOGY
Before proceeding further, it would be appropriate to establish a foundation and define some terms that will be used in the methodology.
- Natural Capital : Can be defined as the worlds (or a regions) stock of natural assets which include geology, soil, water, air, biodiversity and minerals.
- Natural Capital Valuation (NCV) : Calculating the economic (or other) value of Natural Capital.
- Natural Capital Accounting : The process of calculating the total stocks and flows of natural capital resources and services in a given region.
- Measurement, Reporting and Verification (MRV) : MRV is a carbon accounting term referring to the multi-step process involved in measuring the amount of Greenhouse Gas emissions reduced by a specific activity. In the context of this project, MRV refers to the measurement of variables indicating natural capital services; their reporting on-chain and verification of the data.
- DMRV : Following from the above definition, Digital Measurement, Reporting and Verification (DMRV) can be defined as software and hardware solutions capable of automated data collection, processing and analysis. DMRV is an emerging field, and tools in this field are being developed by several organisations currently.
- Non-Market Valuation: The monetization of goods and services without a market price.
- Use Value: The features of a commodity which can satisfy a human requirement, want, need or have a useful purpose. Since this project is focussed on the value of natural capital; use-value will be categorised further as follows
- Direct-Use: Uses of the asset which involve a direct interaction between those using the asset and the asset itself.
- Indirect-Use: Uses of the asset which do not involve a direct interaction between those using the asset and the asset itself.
- Consumptive-Use: Uses of the asset that lead to a depletion of its constituent resources.
- Non-Consumptive Use: Uses of the asset that do not lead to a depletion of its constituent resources.
- Intangible Use: These types of uses arise from factors apart from the actual use of the asset, they often involve social and cultural factors and are harder to accurately place within any of the above-listed categories.
- Market-based Valuation: The monetization of goods and services with a market price.
PROPOSED METHODOLOGY
If we imagine ecosystem value as a function of two variables;
Total Land Value (TLV) = 𝒇 {(Market value of land), (Natural Capital Value)}
Since this project is application based, we can safely say that any valuation process will begin with an identified parcel of land and therefore the market value of the land in question would be known. We can therefore exclude this variable from our calculations. This leaves us with the Natural capital value variable to calculate. As earlier, we can disaggregate this into constituent parts;
Total Land Value (TLV) = Market Value of Land + 𝒇 {(Current Value of services provided by the ecosystem), (Current value of natural capital stock in the ecosystem)}
Additionally, there is a possibility depending on the context that the market value of the land already includes the value of natural capital or has an overlap with some parts of it. We’d therefore need to calculate and subtract the overlap;
Total Land Value (TLV) = Market Value of Land - Overlap + 𝒇 {(Current Value of services provided by the ecosystem), (Current value of natural capital stock in the ecosystem)}
This gives us three unknown variables to calculate, the overlap, the current value of services provided by the ecosystem (henceforth called the Ecosystem Service Value or ESV) and the current value of natural capital stock in the ecosystem (henceforth called the Natural Capital Stock Value or NCSV). Additionally, the disaggregated types of use value mentioned earlier, can be correlated as services provided by an ecosystem; i.e, A specific use of an ecosystem is possible only because it provides the conditions for that use or that ‘service’. Using this method, we can classify these ecosystem services into one of the five types of use value. Each type of use value can then be assigned an ideal calculation method, giving us an idea of the data we need to collect, the best method of collecting it and processing it. The table here provides an example of common uses of an ecosystem, categorizes the use type, defines the impact scope and presents the ideal valuation method.
METHODOLOGY MAP
This methodology however, is a broad outline. The project will begin by examining this outline and each of its steps, working through their details and reorienting them wherever necessary. Using this as a guide, this project will develop methods and tools specific to ReFi, with the intent of them being utilised in the future for Ostrom or by any other project that wishes to.
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