NFTs: The Carbon Market Disrupter You Aren’t Aware Of

Outsyde Inc.
5 min readAug 11, 2022

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Image pulled from DepositPhotos.

Providing Context

Suffering from an extreme lack of transparency and validity, carbon markets need a way to verify the carbon credits and offsets to ensure that they accurately represent the tonnage of carbon emitted during industrial production. Non-Fungible Tokens (NFTs) and blockchain technology provide a way for carbon markets to authenticate every carbon credit and offset being exchanged.

Any environment where more carbon is released into the atmosphere than is absorbed is called a carbon source. Earth’s hard rock crust is the largest carbon source on the planet because it is composed of layers of sedimentary bedrock which contains carbon compounds that are extracted, burned, and consumed as fossil fuels.

Carbon sinks, on the other hand, are environments that absorb more carbon than they release. Sinks are essential for carbon sequestration which is the process of removing carbon dioxide (CO2) from the atmosphere. Carbon sinks can be artificial or natural; some examples of natural sinks are forests, peat bogs, grasslands, and wetlands. However, industry production has spurred the destruction of natural carbon sinks as increased manufacturing emits more carbon than can be absorbed.

Examples of carbon sinks. Image pulled from ACCIONA YouTube channel: What are carbon sinks? | Sustainability for all — ACCIONA — YouTube.

Emissions Trading and Carbon Markets

Emissions trading is done to incentivize enterprises to take accountability for their carbon footprints and inspire more eco-friendly production processes.

Emissions trading takes place within two types of carbon markets: Compliance Markets, and Voluntary Markets.

Compliance Markets

Compliance markets utilize a cap-and-trade system where governments will place a limit, or cap, on the amount of carbon that companies can emit. Carbon emissions are tracked per metric ton and measured by calculating the carbon equivalent that was emitted during a product’s manufacturing.

Companies that emit fewer metric tons of carbon than the government’s capped amount can sell the remainder off to other companies in the form of carbon credits. Carbon credits represent quantified emission rates that are commodified per metric ton; emissions trading is the exchanging of these credits.

If a company emits more metric tons of carbon than the capped amount allows for, the company could be subject to halting production. To prevent this, the company can do one of two things: it can purchase additional carbon credits to offset its excess emissions, or provide funding to a sustainability project. However, there is no process to vet the projects being funded and so subsidiaries of carbon-emitting enterprises posed as sustainability projects end up receiving the funding.

Compliance markets are government regulated but only facilitate the participation of massive companies and still suffer from problems of validity and corruption.

Voluntary Markets

Voluntary markets aren’t regulated and don’t function using a cap-and-trade system, but rather, through the concept of exchangeable carbon offsets. Carbon offsets in a voluntary market include regular carbon credits, but also contracts that represent a physical land stake in recognized carbon sinks.

There are no government-placed limits capping emission outputs in a voluntary market, so the supply of carbon credits is much larger. This has firstly, opened the market up to everyday consumers who now have the choice to offset their individual emissions, and secondly, this has massively increased carbon offset and credit trade volumes. Both factors have caused further problems with validity because carbon credits are double counted and the quality of carbon sinks (the condition of the land), is not tracked.

This all just results in more metric tons of carbon being emitted into the atmosphere than reported, because the double-counting of credits leads to falsely decreased emission rates, and untracked land conditions make it impossible for consumers to know if a carbon sink is damaged and is absorbing the amount of CO2 it should.

The Solutions of Blockchain and NFTs

As a public ledger infrastructure, blockchain technology can allow carbon markets to innovate through the transparency it ensures. Blockchains function using what’s called a smart contract, a program that runs on a blockchain when predetermined conditions are met to automate the execution of an agreement between two participating parties. Transactions on a blockchain are verified publicly and can be reached between two individuals without the need for an intermediary authority.

NFTs are digital securities and assets that represent real-world cultural phenomenon's and derive their value from scarcity and the uniqueness of their code. NFTs are minted as individual encrypted JPEG file images so that each NFT minted, becomes one of a kind. NFTs can be minted on a blockchain to represent both carbon credits and offsets which would provide much-needed validity to carbon markets.

Outsyde’s Contributions

Outsyde, an innovative Environmental Sustainability Governance (ESG) project, is working towards this by tokenizing carbon sinks onto the Algorand blockchain to be staked and traded as NFTs.

Founded in 2019, the Outsyde team brings decades of forest management and restoration experience to the NFT space and currently owns over 30,000 acres of unique carbon sink ecosystems across the United States.

Outsyde will be offering shares of a fractionalized NFT to enable a more diversified investment pool. Small to medium enterprises (SMEs) will be able to purchase shares to offset their annual emissions rates. Each Outsyde property will be tokenized as one singular NFT and fractionalized into 1 million shares, with each share representing a certain square footage of land and a specific tonnage of carbon emissions avoidance.

Example of how an NFT is fractionalized into separate percentage shares. Image source: Medium (no copyright infringement intended).

Shares will be offered as part of a perpetual contract where ownership is permanent, and buyers earn a stake in the governance of Outsyde carbon sinks. Outsyde hopes to revolutionize the way carbon markets function by maximizing conservation finance opportunities on lands, to support productive carbon-sequestering, forest ecosystems.

Looking Towards the Future

Carbon credits and offsets bought and sold as exchangeable NFTs will validate the exact number of emissions traded so that additional undocumented CO2 does not seep into the atmosphere. The transparency that blockchain and NFT authentication could provide to emissions trading would disrupt the entire carbon industry because of how market participants would finally be held accountable.

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Outsyde Inc.

Outsyde is an ESG project that will be tokenizing land plots as fractional NFTs to be sold as offsets to allow SMEs to reduce their carbon footprint.