Carbon credits are a mechanism to reduce carbon dioxide emissions, which is one of the major causes of global warming. Carbon credits are used to reward businesses and individuals to reduce their carbon footprint by rewarding them for taking measures to lower their CO2 emissions.
Blockchain technology has become an increasingly popular tool for managing carbon credit transactions because of its transaction immutability, transparency, and improved trust between parties.
How carbon credit markets work over blockchain
The application of blockchain technology in the carbon credit markets will create an immutable ledger to record transactions, allowing for real-time auditing and reducing risks of fraud. It could reduce costs associated with the market by eliminating middlemen while also increasing confidence among buyers in their purchases. Using smart contracts would allow for automated payments for carbon credits, further increasing efficiency and reducing costs.
Voluntary carbon market (VCM), blockchain, and trust
The fragmentation of the voluntary carbon market (VCM) has raised serious doubts about the quality, effectiveness, and trustworthiness of existing carbon credits. Without a unified system for assessing quality standards or mutually agreed-upon accounting principles, buyers often cannot separate good credits from bad ones.
There’s currently little transparency that has led to credibility issues regarding the claims made concerning these carbon credits’ climate benefits. This factor leaves buyers with an uncertain situation that might impede progress toward environmental goals. It is critical that we implement some sort of regulatory oversight or higher levels of assurance to increase transparency and confidence in this intricate marketplace.
Blockchain developers have recently made inroads into the voluntary carbon market, the sector that deals with motivating businesses to help address climate change.
This unveiling of disruptive activity has caused an evaluation of whether blockchain-derived solutions can bring corrective measures to a sector fraught with an imbalance between low- and high-quality carbon credits and an opaque infrastructure around their measurement, reporting, and verification (MRV).
To tackle the challenge, developers aim to innovate through the adoption of blockchain technology in order to enhance transparency as well as create a more efficient system for tracking emission reductions. It remains to be seen if blockchain for carbon can rise to the occasion and resolve these issues faced by the carbon credit market.
Blockchain use cases in the Carbon credit market
Use Case 1: Carbon Credit Trading Platforms
One of the most promising applications of blockchain in carbon credits is the development of trading platforms that enable users to buy and sell these financial instruments securely and transparently. Such platforms could provide data on current prices for carbon credits, enabling companies to purchase the credits they need in order to reduce their CO2 emissions. Blockchain-based trading platforms could also enable users to trade carbon credits with each other directly, reducing the need for third-party brokers and facilitators.
Use Case 2: Real-Time Carbon Credit Monitoring
Another use case of blockchain technology for carbon credit transactions is real-time monitoring. This would allow entities that are purchasing or selling carbon credits to monitor their transactions in real-time, ensuring accuracy and preventing errors or fraud by providing an immutable record of all transactions. It could also help ensure compliance with various regulations related to carbon credit purchases and sales.
Use case 3: Asset tokenization of carbon credits
Blockchain technology could also tokenize carbon credits and turn them into tradable digital assets, making it easier to track ownership of these financial instruments, as well as ensure accurate valuation in a fast-moving market.
It could allow for smart contracts that can automatically execute transactions when they meet certain conditions, increasing automation and efficiency in the carbon credit market.
Use case 4: Carbon credit mega registries
The concept of a meta-registry, fueled by distributed ledger technology (DLT) such as blockchain, provides a single source of truth for the aggregation and storage of metadata.
This decentralized digital asset promises to revolutionize carbon credit trading with its ability to bring greater transparency and verified buyer identity. With blockchain-based platforms, carbon credit databases, which have traditionally been siloed, can now link up into one system that is publicly visible and trackable, reducing the risk of double counting or other errors associated with the reselling or claiming of credits twice. Ultimately, DLT for carbon credits may revolutionize the market by providing users with more reliable data and efficient transactions.
Examples of blockchain companies offsetting carbon emissions
Devvio
Devvio is a revolutionary cryptocurrency that not only enables convenient transactions but is also much greener than its alternatives.
Recent reports have proven that each transaction on the DevvX blockchain uses three and a half billion times less energy than Bitcoin! It doesn’t stop there – the organization has already partnered with Avnet and Panduit to finance carbon-neutral projects.
These companies offer stakeholders the opportunity to purchase carbon credits as they work together to combat climate change.
Building on this commitment, Devivio launched ground-breaking ESG software that allows cities and towns to benefit from more accurate visibility of their Scope 3 emissions produced by vendors and suppliers. This makes Devvio not only an attractive option for those looking to transfer funds online, but it also offers great potential for progress in the fight against climate change.
Algorand
Algorand has taken sustainability to the next level by committing itself to a carbon-negative status. They achieved the commitment in April 2021 through a partnership with ClimateTrade, which provides products that enable corporations to track their carbon emissions and offsets.
The Algorand system calculates specific blockchains’ carbon footprints so that it can determine the number of carbon credits locked away in a green treasury. Doing so allows the blockchain to remain true to its goal of being carbon negative and also helps support ClimateTrade’s mission of bringing greater transparency into corporate sustainability efforts.
Treedefi
Treedefi is an innovative project listed on the Binance exchange. It creates a development platform and uses transaction fees to plant trees, which they represent as non-fungible tokens (NFTs) or #nftrees. They also commit a third of their fees to plant trees worldwide.
Their unique dashboard allows users to explore the wide variety of #nftrees available for purchase, track data about each one’s carbon sequestration, and generate CO2 tokens from their own purchases. These tokens can offset personal carbon emissions or sell off to companies looking for a way to reduce their own footprint in a verifiable way.
Such transparency surrounding carbon emissions is rare in this space, giving Treedefi users peace of mind as they invest and make a difference in reducing our global emissions!
Save Planet Earth (SPE / SPEC)
SPE’s ambitious goal aims to deploy a carbon credit market on the Ethereum blockchain to let companies and individuals offset their carbon emissions.
To generate revenue, SPE will focus on multiple projects including afforestation, reforestation, renewable energy sources, soil regeneration, as well as recycling, and promoting marine climate management.
They will provide certified carbon credits through $SPE token investments. Their merchandise will include products from trees grown by the organization and even plastic collected in beach clean-up projects and groups it supports.
SPE plans to develop a tree-tracking application for its corporate customers. With these initiatives in play, Save Planet Earth is leading the charge in combatting global warming and preserving our environment for the future.
7 factors preventing mainstream adoption of blockchain in carbon credit markets
1. Lack of awareness: Most people are not aware of the potential of blockchain technology in carbon credit markets. This needs to change if we want to see wider adoption.
2. Difficult to use: Many blockchain platforms have complicated user interfaces for the average person to master.
3. Lack of trust: Blockchain technology is still relatively new and untested, which makes it difficult for people to trust its use in carbon credit markets.
4. Regulatory hurdles: Carbon credits are subject to various regulatory requirements. It can be difficult for blockchain companies to stay compliant with all these rules, making them less attractive than traditional solutions.
5. High costs: The cost of running a blockchain-based carbon credit market is usually quite high compared to more traditional solutions. This deters some potential adopters.
6. Security concerns: As with any technology, there is always the risk of hacking or data theft when dealing with blockchain-based systems. This causes some uncertainty among users who may be wary of putting their data at risk.
7. Lack of interoperability: Despite advances in blockchain technology, many platforms still lack the ability to communicate and share data with each other. This makes it difficult for businesses to use multiple systems in unison and limits the potential of carbon credit markets overall.
Conclusion
The potential of blockchain technology in carbon credit markets is still untapped. With proper education and continued development, this could change soon as more people realize its benefits. Ultimately, it will be up to companies and governments to take action if we want to see meaningful progress in sustainability efforts. Until then, projects like Treedefi, Save Planet Earth, and others are playing an important role in leading the charge toward a greener future.
Source: https://www.cryptopolitan.com/blockchain-technology-carbon-credit-markets/