The Voluntary Carbon Market (VCM) has grown 340% in three years. Blockchain will propel this rise even farther.
The Voluntary Carbon Market has experienced hyperbolic growth since 2019 as the world grapples with a continuous sequence of record-breaking temperatures. In Part 1 of this series, we shared forecasts for the VCM to expand from $1.3B in 2022 to as high as $100B in the next 30 years. Blockchain technology is a crucial ingredient to power this market growth.
We discussed 5 reasons blockchain will transform carbon credits:
- Reduce Transaction Costs By 5% or more
- Open Access to the Full Purchaser Market
- Target Specific Impact Areas
- Create Bespoke Carbon Portfolios
- Retire Credits Instantly and Verifiably
Let’s continue with the next 5 reasons:
Credits Management
6. Eradicate Double-Spending
Double-spending occurs when the same carbon credit is sold or traded multiple times, or when two parties make a claim on the same climate action. An example is when a host country originates a credit to meet its nationally determined contribution, or climate target, under the Paris Agreement, yet sells the credit to a foreign corporation who also claims the emission offset through retirement. Obviously such confusion creates a host of downstream headaches in climate accounting as well as in Euclidean Geometry. But mainly, it undermines the integrity of the carbon credit market and reduces the market’s ability to deliver real and verifiable carbon reduction.
This highly problematic area could find a resolution with blockchains. Fundamentally, two parties cannot claim credit for the same climate action, just as on blockchain two parties cannot claim the same token thanks to Satoshi. The frequency of double-spending will drop precipitously and proportionately commensurate with the utilization of distributed ledgers to tokenize carbon credits which will clarify carbon accounting for all parties.
7. Account for the Birth-to-Retirement of Every Credit
The double-spend problem described in #6 is a complication emanating from conflicts in national policy (i.e. Brazil vs the EU) coupled with insufficient technology, or lack-thereof, for true credit traceability. We previously discussed the power of blockchains to facilitate “ledger accounting” for carbon credits, as well as other eco-commodities and real world assets. The significance of ledger support for carbon credits cannot be understated, as many of these commodities are traded OTC and peer-to-peer without any authoritative truth for what happens to a credit post-origination. That blindspot will become illuminated and counteracted as blockchains are introduced and greater integrity and trust floods the carbon space.
Innovation in Carbon Credits
8. Fractionally Retire Credits for IoT, Supply Chain, Product Footprinting
The blockchain is widely recognized for use cases such as the Metaverse, Decentralized Finance (DeFi), NFTs, art, property rights, and securing personal information. There are also sector-specific and purpose-build blockchains, such as Bitgreen “blockchain for sustainability”.
Other applications will soon harness blockchain as their enabling technology and make major waves in green infrastructure. These include: Internet of Things (IoT), Green Supply Chain, and Carbon Product Footprinting.
In the coming years, Web3 will incite a tectonic shift in the understanding and transparency of global supply chains and their measurement. Blockchains will power billions and trillions of connected devices (IoT) that “talk” to each other over similar networks, sending trillions of messages among themselves to facilitate everything from sensor data for infrastructure, to energy demand response, to charging electric vehicles and having the identity, security, and payments among all parties seamlessly coordinated. Blockchains will clarify with precision, in real-time, the verifiable impact of a product or environmental action. Many of those actions will be tied to fractionalized carbon, biodiversity, and plastic offsets.
Currently, it’s impossible to fractionalize (retire or splinter) less than one metric tonne of CO2. Very soon we will be able to assign .00001 of a credit to a milk latte, which results in 10x the carbon footprint of a straight coffee. It will all take place instantaneously and transparently via Bitgreen and other blockchain protocols leading to the monumental entrance of consumerism as a demand driver for carbon credit expansion.
9. Audit and Eradicate Sources of Bad Data
Data quality has been a consistent theme in this article and there’s one last critically important improvement related to ledgering to be harnessed by blockchains: bad data and siloed data. Since blockchain technology is by nature decentralized, ideally it will herald a transition of research, data, reporting, and analysis from private, centralized servers to public, decentralized networks. This can help ensure that data can be used by many researchers and investors, mirroring the expansion of financial capital markets in the wake of the internet and Bloomberg terminal, which equalized access to financial market data and modeling tools.
The lowering of barriers will be concurrent with reducing instances of manipulation by any single entity and mitigating the risk of pervasive fraud or error. As well, it can help to address the challenge of reconciling good data and bad data when the source of reporting is not publicly available or one centralized authority has outsized influence on the interpretation. Look no further than the argument between Verra and The Guardian regarding the agency’s REDD+ projects. No matter which side of the fence you fall on, in the future these debates can and will be informed by open ledgers.
10. Send Higher Proportion of Revenue to Projects and Local Communities
We saved the best and most important reason for last why blockchain will transform the carbon credits markets. Web3 marketplaces for carbon credits, biodiversity credits and plastic removal credits will categorically send greater percentage of revenue to local communities and project sponsors delivering emissions abatement and carbon direct removal.
As discussed, the current system is encumbered by intermediaries such as brokers and traders who take a significant portion of the revenue generated by the sale of carbon credits, which reduces the amount of money that flows directly to project communities. After additional fees are extracted by banks, payment service providers, and other players, less revenue is left for the original communities who generated the credits
By using blockchain, the need for intermediaries can be reduced and transactions can be executed more efficiently and cost-effectively. Blockchains introduce a transparent and secure system for tracking the origination, transfer, accounting, and retirement of credits, increasing the proportion of revenue generated by the sale of carbon credits allocated appropriately to support sustainable development initiatives.
For good luck, an 11th reason…
When carbon prices rise, so does the value of land used for carbon sequestration and biodiversity conservation. Want to guess which ledger technology is perfectly suited to assert and make claims on physical property?
That’s right, blockchain! 😃 🔗
About Bitgreen
Bitgreen is a leading blockchain community focused on promoting sustainability and impact initiatives. Purpose-built as a parachain on Polkadot, Bitgreen enables decentralized and regenerative finance solutions for sectors including renewable energy, mobility, SME and microfinance, carbon credits, and human betterment.
Discover us at https://bitgreen.org
