Carbon credits for farmers can help uninsured farmers get good climate coverage Jan Stockhausen, Chief Legal Architect says atherisk
Climate change is accelerating global weather disasters, and while it is affecting everyone, these volatile conditions affect some people much more than others.
Between 2010 and 2020, floods, droughts and hurricanes killed 15 times more people in the world’s most vulnerable regions than in other parts of the world. These regions included parts of Africa, South Asia, and Central and South America.
One group that is particularly vulnerable to environmental woes are smallholder farmers. For these farmers, a single, prolonged drought is enough to kill an entire crop and push a small farm into cyclical debt and financial instability.
The twin forces of climate change and poverty create a trap for this community. Ironically, the agricultural industry is one of the largest global CO. is one of2 Contributors, and many agricultural practices, such as those used in rice cultivation, emit large amounts of methane.
One solution that could address this two-pronged problem is an incentive system that rewards small farmers with carbon credits for adopting climate-friendly practices. Carbon credits can be availed for payment of climate insurance premiums, creating a cycle of risk mitigation for vulnerable farmers, while encouraging sustainable agricultural practices.
As our climate worsens, adopting such solutions will become imperative to protect the livelihoods of billions of people globally.
insurance access issues
Insurance is a tool that mitigates risk, but as of now, it is a tool of the rich. Traditional insurance is not available to 3.8 billion people worldwide; When a person has to choose between paying for food and paying to prevent potential risks, the choice is clear.
This economic disparity has led to the rise of inclusive insurance – which covers groups that are disadvantaged by the traditional insurance market. Inclusive insurance can protect small farmers from the worst effects of climate change. However, its widespread adoption faces two main obstacles: an inherent mistrust of insurance; and power issues.
Firstly, many farmers are discouraged from taking a policy due to poor past experiences with insurance providers. The process is generally inefficient; Policies, burdened with complex and competitive payments, progress slowly.
Secondly, providing inclusive insurance is expensive. The labor-intensive administrative process of investigating insurance claims on remote farms is expensive, and farms with smaller holdings cannot afford the higher premiums. Because of this, inclusive insurance must operate on a tight budget, which has made it an undesirable market for mainstream providers.
Decentralization and Automation: Empowering Inclusive Insurance
Blockchain technology provides a streamlined solution to the bureaucratic and budgetary pitfalls of the traditional insurance model. Blockchain-backed insurance relies on smart contracts, coding that executes ‘if-this-then-that’ commands. It automates the insurance claims process to reduce costs and improve efficiency.
To illustrate this point, imagine the following case: A small-scale farmer takes out a decentralized inclusive insurance policy. During the season, they experience a severe climate-induced drought, with a lack of rainfall severely affecting the yield of their crops. Data from local satellites automatically triggers the insurance policy’s smart contract terms as soon as it recognizes a lack of rain according to pre-agreed standards. No claims adjuster is required to investigate this claim – saving the provider money – and the farmer receives a quick, fair and accurate claim payment.
The autonomous nature of blockchain insurance also improves the consumer experience, eliminating the need for the farmer to contact an insurance provider to make a claim, which can be an intimidating process. However, more unique than this is the transparency of the blockchain ledger.
This aspect of technology enables and empowers small farmers with confidence by giving them access to information such as weather data. Since farmers can actively check weather data themselves, they can take a more proactive approach to managing their risk. In addition, smart contracts can significantly reduce policy costs and timelines compared to traditional technology in the space: Climate Finance Lab estimates that blockchain technology can reduce policy issuance costs by 41% and associated premium costs by 30%. can reduce. The payment time has been reduced from three months to just one week.
Carbon Credits: Offering a Green Option for Financing Insurance Premiums
While inclusive insurance on the blockchain solves the efficiency problems, carbon credits provide a means for farmers to afford this form of insurance. Carbon credits are certificates based on emissions reduction or carbon sequestration. Organizations that are net emitters can purchase these credits to offset the carbon emissions they produce and become carbon neutral.
Helping smallholder farmers access carbon credits is an innovative way that can encourage green farming practices and farming practices. Such approaches range from adopting new irrigation strategies, which prevent organic matter from decomposing and releasing gas, to using seeds that are engineered to lock carbon into the soil. Farmers are unlikely to adopt innovative practices when faced with increasing climate risks and threats to their livelihoods, so providing carbon credits to farmers gives them the needed protection to try eco-friendly methods.
Carbon credits: revolutionizing climate resilience tools for smallholder farmers
Taking these measures together, we can use a farmer’s carbon credit to cover his inclusive insurance premium. It simultaneously solves the twin logistics and affordability issues. The model encourages farmers to reduce their emissions while providing protection from the devastating effects of climate change on their crops.
It also opens up smallholder access to green finance markets, where smallholders, and the agriculture sector in general, are currently very few. It is a virtuous, cyclical rewards system that can act as an important tool in easing pressure on the most vulnerable while adopting climate-smart agriculture.
As climate change progresses, those most vulnerable to its effects cannot wait for a silver-bullet solution or gradual economic and social change. Small farmers comprise 84% of the 570 million farmers around the world, who do everything they can to support a larger global cause with far-reaching impacts.
We need to use all the tools we have now, including decentralized inclusive insurance and tokenized carbon credit financing, to provide economic relief and stability to the millions most affected by the climate crisis.
About the Author
Jan Stockhausen is the Chief Legal Architect at Etherisc, an open source, decentralized insurance protocol and ecosystem that aims to make insurance fair and accessible.
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