How blockchain can bring greater transparency and participation to broken carbon markets
Carbon markets have grown at an incredible pace in recent years, with the value traded in global markets increasing by 164% from 2020-2021 alone, and show no signs of slowing down. At the same time, carbon offsets have become more mainstream and public facing. For example, the last time you booked a flight you were likely given the option to offset the carbon produced by the flight. Carbon offsets have also become a core element of the ESG strategies for many companies trying to reach net-zero carbon emissions.
Sounds great, right? Well, the problem is that the system behind carbon offsets is broken. In fact, because of the downfalls of the current system, you can’t be certain that if you were to purchase a carbon offset, that it would actually offset the amount of carbon it says it will.
That being said, carbon offsets aren’t going anywhere soon, and will continue to be a tool used by corporations in their ESG efforts and individuals to reduce their carbon footprint. The good news is that blockchain technology has the potential to revolutionize the way carbon markets operate, making them more effective and transparent, and transforming carbon offsets into a valuable tool in the fight against climate change.
What are carbon offsets?
Carbon offsetting is a way for companies and individuals to offset their carbon emissions by investing in projects that reduce or remove carbon dioxide from the atmosphere. These projects can include things like planting trees, investing in renewable energy, or capturing and storing carbon dioxide.
On the one hand, there is an action that contributes C02 to the atmosphere, such as taking a flight, which is then countered by an action that removes an equal amount of carbon from the atmosphere, such as planting trees.
This, in theory, sounds great. However, in practice, current carbon offset markets are plagued by a lack of transparency and trust. It can be difficult for companies and individuals to verify that the carbon offsets they are purchasing are actually resulting in real carbon reductions. Additionally, there is often a lack of clear information about where offset credits are coming from and what specific projects they are supporting. This is where blockchain technology comes in.
By using blockchain to create a secure, transparent, and tamper-proof digital ledger, companies and individuals can have confidence that their carbon offsets are supporting real, verifiable carbon reduction and removal projects.
Restoring trust in carbon markets
One of the main concerns with carbon offsetting is that it can be difficult to verify that offsets are actually resulting in real carbon reductions. Blockchain technology can help to solve this problem by providing a secure, transparent, and tamper-proof digital ledger that can be used to track the flow of carbon offset credits from the project developer to the purchaser. By using blockchain, companies and individuals can have confidence that their carbon offset credits are supporting real, verifiable carbon reduction projects.
Additionally, blockchain technology can be used to create smart contracts that automatically and transparently track the flow of carbon offsets. This can help ensure that offset credits are only issued to projects that have been independently verified as providing real carbon reductions.
One way that blockchain can greatly benefit carbon markets is by addressing the issue of double counting: when the same carbon credit is sold twice. This is problematic as it means two parties could purchase the same credit, but it would only contain enough credit to offset one parties’ emissions.
If new carbon credits were all verified on-chain, it would make it all but impossible for double counting to take place. All credits would have immutable, irrefutable provenance, meaning that purchasers could know, without a doubt, that they are the only one purchasing that specific credit.
By using blockchain technology, carbon offsetting can become a more transparent and trustworthy process, making it easier for companies and individuals to offset their carbon emissions and do their part in fighting climate change.
Increased participation in carbon markets
Another way that blockchain can benefit carbon markets is by making it easier for individuals to participate in the markets. Blockchain allows for greater decentralization and opens up opportunities for a more diverse set of actors to participate in carbon markets, encouraging innovative solutions and greater competition. Smart contracts can also be used to automate the process of purchasing and trading carbon offset credits, making it easier for companies and individuals to participate in carbon markets.
Furthermore, through asset tokenization (creating a token backed by an asset such as a carbon credit) blockchain can make it easier for smaller buyers to participate in the markets. Toucan Protocol makes it easy to tokenize carbon credits through their Carbon Bridge, which “allows owners of carbon credits from verified sources to link each one to a unique digital token called a TCO2.” These tokens are stored in a smart contract on the Open Climate Registry, a blockchain-based database.
One example of a project built on Toucan Protocol is KlimaDAO, the issuer of the KLIMA token, each of which is backed by 1 ton of carbon reduction of removal. To date, over 17M tons of carbon have been absorbed by KlimaDAO, which is the equivalent of 515M litres of gasoline. Whereas traditional carbon markets may be inaccessible to retail buyers, KilmaDAO demonstrates how Web3 can open up carbon markets to the masses.
Another unique example of how Web3 tools can drive participation in carbon markets is Ecosapiens, the world’s first carbon-backed NFT. Each Ecosapien NFT is backed by 16 tons of carbon, which is enough to offset an entire year’s worth of Carbon. This gives individuals the opportunity to easily participate in carbon markets, while also driving greater transparency by providing them with a unique digital asset which contains a record of the impact of the carbon offsets, including where the offset project is located, and the type and size of the project.
Conclusion
It is clear that blockchain technology has the potential to revolutionize how carbon markets operate, making carbon offsetting more effective and transparent. As the technology continues to evolve, we can expect to see more individuals using blockchain tools to offset their carbon emissions, and more builders finding novel ways to improve carbon markets with blockchain.
Blockchain technology has the potential to revolutionize the carbon offsetting market, making it more transparent, trustworthy and efficient. By creating a secure, tamper-proof digital ledger, companies and individuals can have confidence that their carbon credits are supporting real, verifiable carbon reduction projects. Additionally, smart contracts can be used to automate the process of purchasing and trading carbon offset credits, making it easier for companies and individuals to participate in the carbon offsetting market. However, it is important to note that the implementation of blockchain in carbon markets is still in its early stages and more research and development is needed to fully realize its potential. Nevertheless, the use of blockchain in carbon markets is a promising solution to tackle climate change and make carbon offsetting more effective.
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