Crypto Crash Stalls WeWork Founder Adam Neumann’s Climate Venture

Former

WeWork

WE 6.45%

Chief Executive

Adam Neumann

resurfaced with a new company earlier this year, in a buzzy, young industry that aims to use cryptocurrencies to fight climate change.

Months later that company, Flowcarbon, and a host of similar startups, have either slowed operations or delayed product rollouts—the latest fallout of tanking markets.

Flowcarbon, one of a group of companies that are issuing cryptocurrencies backed by carbon credits, has decided to “wait for markets to stabilize” before launching its products, said Chief Executive and co-founder

Dana Gibber.

Other outfits such as Toucan Protocol Association and KlimaDAO have effectively frozen new business as a plunge in crypto coincided with a crackdown on issuance of new cryptocurrency tokens by a big carbon-market registry.

Flowcarbon and its peers are combining cryptocurrency, a type of digital asset that trades on decentralized computer networks, with another largely unregulated and volatile financial instrument: carbon credits.

Such credits are issued by projects that aim to remove carbon-dioxide from the atmosphere or prevent emissions from being produced, through forest planting or conservation, for instance. Each credit represents one metric ton of carbon dioxide removed or avoided. Corporations or individuals buy the credits and retire them to offset their greenhouse-gas emissions, as investors and others demand action to combat climate change.

Most carbon credits are sold through brokers or directly by project developers, a process critics say is clunky, opaque and time-consuming. Flowcarbon and its peers say they can change that by bringing credits onto their networks as crypto tokens—Flowcarbon’s is called the Goddess Nature Token—where they can be traded in large volumes like digital money and destroyed, or “burned,” when the owner wants to offset emissions.

“As someone who bought credits from brokers in the past, buying and burning tokens is far, far easier,”

Mark Cuban,

a tech billionaire and crypto investor, said in a written response to questions. Mr. Cuban has used Klima tokens to offset 1,100 metric tons of personal and business carbon emissions, according to KlimaDAO data.

Venture capitalists invested around $267 million into climate or carbon-related crypto deals in 2021 and another $156 million this year through early July—a surge in investment from previous years although a fraction of the billions invested in cryptocurrency deals overall, according to research firm PitchBook Data Inc.

A good chunk of that funding has gone to Flowcarbon, which was co-founded by Mr. Neumann—best known as the ousted head of office-rental firm WeWork. WeWork’s spectacular crash, shelved public offering and bailout in 2019 became the subject of an Apple TV+ drama starring Jared Leto and Anne Hathaway. Flowcarbon says Mr. Neumann isn’t involved in the daily operations of the company.

Mr. Neumann has invested in a number of startups as well as real estate, the Journal has reported. He didn’t respond to a request for comment.

The fledgling industry took off after Toucan and KlimaDAO started selling their tokens in October, driving an influx of money to the carbon markets. At its peak in late October, the value of all Klima tokens in circulation topped $1 billion.

For the six months through March, more than 23 million carbon credits were moved onto crypto networks. That accounted for about 28% of credits removed from the registries where they were listed during that period, according to an analysis by data provider Trove Research Ltd. So far, less than 2% of those credits have been used to offset carbon emissions and the bulk have been traded, according to KlimaDAO data.

During the last three months of 2021, hundreds of millions of metric tons of carbon have been traded through crypto tokens, with a value topping $3 billion, according to KlimaDAO data. That is a similar volume to the carbon-trading activity for all of last year outside of the crypto markets, according to carbon-markets data tracker Ecosystem Marketplace.

Many carbon-market watchers still aren’t sure how helpful carbon-backed tokens will be, or whether they are good for the overall carbon-offset market, given the speculation that has often accompanied cryptocurrencies.

The purpose of carbon credits is offsetting emissions, said

Guy Turner,

Trove Research’s CEO. “If people are now buying those tokens because they see it’s a moneymaking machine…I think that’s potentially unhealthy,” he said.

Some see snapping up the credits for investment as healthy. “In order for carbon credits to have a significant impact on the climate crisis, the market for them must scale up by orders of magnitude,” said a group that says it represents KlimaDAO’s core project team and that maintains anonymity of its members. “Speculation plays a critical role in scaling any market” by bringing in enough money to promote easy, liquid trading and accurate prices, they said.

“We think it is OK if people can make money either as an investment or a hedge against higher carbon costs,” Toucan Chairman

Julian Sommer

said. “But it should not be the only use case.”

In May, Flowcarbon announced it had raised $70 million from presales of its token, as well as money from funds run by big-name venture investors such as Andreessen Horowitz and General Catalyst, among others.

By that time, however, cryptocurrencies were in free fall, having lost $1 trillion in value since November.

Meanwhile, also in May, the biggest carbon-offset registry halted the use of its credits to back new cryptocurrency tokens, saying it was concerned that the current method of creating those tokens was causing confusion in the carbon markets. The registry, Verra, said it is studying new methods of creating the tokens.

Flowcarbon had expected to launch its token by the end of June, but put that plan on hold indefinitely, said Ms. Gibber. In recent weeks, the company has been announcing partnerships to help it offer services like calculation of carbon footprints for credit buyers and loans for credit-issuing projects.

“We invest with a long-term view and remain very confident about the market,” said

Arianna Simpson,

a general partner at Andreessen Horowitz handling the Flowcarbon investment. General Catalyst declined to comment.

Toucan, Klima and other crypto-carbon startups say they are waiting for Verra to propose a new method of bringing credits onto cryptocurrency networks and hunkering down until the crash in crypto markets eases.

“When everything is up and everyone is having a party, everyone says, ‘Oh, of course we’re going to put money behind carbon,’” said Toucan’s Mr. Sommer. “Now everyone needs to survive.”

Write to Phred Dvorak at phred.dvorak@wsj.com and Dieter Holger at dieter.holger@wsj.com