Blockchain-Based Carbon Credits
How decentralized marketplaces can help save our planet
Fighting the battle of climate change may be the most important and longest challenge my generation (millennial) may ever have to face. Each year, average daily temperatures are rising and more of our natural land mass is deteriorating right in front of us. If we as a society want to have a sustainable and livable ecosystem for our future, we must radically change our habits as consumers and the strategies we put in place for our businesses.
We as a society cannot do this alone. It will take global partnerships of understanding where we are cleaning up our carbon footprint and how much more we need to progress. Our current technology architecture in Web2, centralized frameworks do not give governments, banks or major corporations the proper incentives to share the information of where our Carbon Credits for one are going towards and where they came from well together.
In order to get the full picture of our carbon emission progress, blockchain technology and its natural ability to track provenance and distribute data access to the right stakeholders make this technology valuable in sharing Carbon Credits in decentralized marketplaces.
However, blockchain has received some unfortunate criticisms towards our environment as of late. I hope to debunk some of those theories.
In this race to save the planet, a lot has been documented over the years that blockchain technology and bitcoin in particular is one of the key detrimental factors in being too expensive and expanding carbon-dioxide emissions harming our planet. Giving blockchain technology a stigma that it isn’t a suitable technology for our society that wants to meet our Environmental, Social and Governmental (ESG) goals of net zero emissions by 2050.
This stigma is simply false and is not well thought out. Blockchain technology can be an extraordinary tool in helping us understand and measure our global carbon footprint goals properly. First off, I want to highlight the stigma of bitcoin being too expensive.
“Bitcoin uses something like 100 terawatt hours (TWH) of electricity annually, but a TWH costs less than $100 million (10 cents per KWH times 1000000000). Thus, Bitcoin spends say $10 billion on electricity annually.
$10 billion in spending isn’t a lot. It’s less than the world spends on toothpaste ($30b), much less than the US spends on cigarettes ($80b), and considerably less than the US Federal government spends in one day ($18.65 billion).
If we think of the $10 billion spent by Bitcoin as a security budget (as the spending secures the blockchain) it also compares reasonably to US bank spending on cybersecurity. Bank of America alone spent more than $1 billion on its cybersecurity budget and the total financial security budget is much larger.” - Alex Tabbarok, Professor of Economics, George Mason University
You can easily see that compared to minority goods, bitcoin doesn’t match up to even our most minimal assets as a yearly cost. Now that the price issue is settled, lets focus on the more complex task. How can blockchains can help in our ESG goals.
Carbon Credit Marketplaces & ESG Financing Issues
Wikipedia: A Carbon Credit is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon dioxide or the equivalent amount of a different greenhouse gas.
Carbon Credit Marketplaces, where you sell, trade and broker these certificates, have been around for decades. They have been a way to estimate how much emissions major corporations and local governments emit into the environment for economics and financial advisors to monitor. A couple key issues in this field have arose over the years:
Lack of provenance and transparency in the issuance of Carbon Credits
Unclear carbon market data supply, demand and quality
Not enough representation or opportunities for retail consumers to help fund these initiatives directly
Administrative fraud and abuse
Unfair pricing standards from brokers with Carbon Credits to manage
We’re All In This Together
If we as a planet want to meet our net-zero goals, it is imperative that we work together, not in individual country silos, but in a unified manner to make sure we are all hitting our key results year over year.
However, it is very hard to convince foreign governments and potentially competing businesses to want to share data and information from each other since some of those data points can be used against one each other in financial or business negotiations. This is where a blockchain provides value.
Blockchains are most valuable when you have parties that don’t know how to share data, information or technology very well together but have a need to distribute only the information that is relevant for the group to share.
In regards to Carbon Credit Marketplaces, without a distributed ledger to help many governments and corporations see this progress together, we may never be able to hit net-zero emissions without this underpinning trust layer measuring the transactions.
The Blockchain Value Adds
Blockchain manages audited records of Carbon Credits available for sale, their provenance and transaction history. They open up global marketplace to efficiently connect wholesale Carbon Credit buyers and sellers in voluntary carbon markets. Along with adding the ability to connect to global infrastructure to facilitate trade execution, settlement and secondary trading. Below are more specific value adds to the industries issues
Digital asset tracking; monitoring proofs, attestations
Democratization of access to payment, allowing users or organizations to pay for a fraction of the total, rather than needing to spend a minimum payment for Carbon Credit monitoring
Transparent reporting of who made shares across multiparty consortia
Real-time settlement via settlement, stablecoins, decentralized exchanges
Who’s Building This
Project Carbon: National Westminster Bank (NatWest), Canadian Imperial Bank of Commerce (CIBC), ITAU (Brazil) and National Australia Bank (NAB): Joined forces to create a blockchain-based marketplace where firms can buy and sell carbon offsets
Klima DAO: Climate activist community group that expand types of voluntary carbon credits
Toucan Protocol: DeFi Carbon markets on the blockchain
University of Cambridge: Launch decentralized carbon credit marketplace on the Tezos blockchain
Opportunities For The Future
Tokenized Carbon Credit Marketplaces: Create a decentralized marketplace where certified individuals can earn rewards on products with lower emissions
Tokenized Carbon Credit Investment Funds: Exchange traded fund on a blockchain
Exchange Venues to Issue Sustainable Financial Products: Derivative markets for sustainable product development
Manufacturer and Retail Measuring CO2 Emits Across Global Supply Chains: Using sensor technology, smart contracts (automated agreements) and distributed ledgers to get parties across business lines to measure their supply chain CO2 outputs
Decentralized Identifiers (DID) and Verifiable Credentials (VC) for Asset Track & Trace: Create unique identifiers of people, places or things to help identify key players in CO2 exchanges and supply chains
It will take not one of us, but all of us to hit our CO2 emission goals for the future. Our best hope is to utilize technologies and systems that enhance distribution in the long run and to not dismiss advanced technologies just because we don’t know enough about them.
Blockchain doesn’t solve the problem, yet it may enable us to monitor real-time reporting and may create better incentives for those who are building these systems to give us a more sustainable future.