Connecting Carbon Registries: The Missing Link in Climate Action
Carbon markets have strong potential to unlock finance to achieve climate goals, and they could save an estimated $250 billion per year in implementing climate actions by 2030. However, transactions in carbon markets will only reduce greenhouse gas (GHG) emissions globally if these reductions are real and credible, and accurately accounted for and tracked.
Transparency and accountability are therefore critical to a well-functioning carbon market. While the bottom-up nature of the Paris Agreement gives flexibility to countries in managing and tracking their climate action, there is no guidance on how to connect disparate registry systems — databases that register and/or transact emissions reductions units — which poses a serious challenge to ensuring transparency and trust in the market.
This is where blockchain technology steps in as National Carbon Registries require an ability to talk to one another, to identify carbon credits issued in one country that are ultimately retired in another country.
National Carbon Registries are developing quickly, with countries such as Chile, Ghana, Jordan, Singapore and Vanuatu already developing digital infrastructure to support their national registries. In addition to ensuring greater credibility for carbon credit marking, such registries also have the ability to support a different type of carbon credit — Sovereign Carbon Credits.
Sovereign Carbon Credits are not part of a compliance market such as the European Union’s Emissions Trading Scheme (ETS), but are REDD+ (Reducing emissions from deforestation and forest degradation in developing countries) mechanism, established by the United Nations Framework Convention on Climate Change (UNFCCC) with an aim to incentivize developing nations to conserve their forests and reverse deforestation. Gabon was one of the first countries to issue Sovereign Carbon Credits and may be soon followed by Papua New Guinea.
National Carbon Registries can also support an important process in the carbon market, Corresponding Adjustments. These are required for the carbon market mechanism under the Paris Agreement to exclude double counting and preserve environmental integrity.
In the simplest terms, it works something like this:
- Country A has a 2030 emission target of 10 and emits 9 in 2030;
- Country B has a 2030 emission target of 5 and emits 6;
- “A” transfers one emission reduction unit to “B”;
- “A” adjusts its account to 10;
- “B” correspondingly adjusts its account to 5.
Blockchain can provide some of the best technical solutions to allow two National Carbon Registries to talk to one another and facilitate a seamless Corresponding Adjustments process.
National Carbon Registries are only the beginning of a process that can help to truly value nature. The Organization for Economic Cooperation and Development (OECD) which represents the world’s highly developed nations estimates that the global economy receives US$125–140 trillion worth of services from nature each year. That is more than one-and-a-half times the total value of global GDP every year. That is a huge subsidy from nature every year, but it is a reducing subsidy as we destroy biodiverse ecosystems, pollute the oceans, and continue to deforest at an alarming rate.
Carbon Registries can be expanded to allow countries to record and track their nature assets and even support their natural capital accounting. It is only when we put a valuation on the benefits we receive from nature that we will start to value it.
Blockchain can enable natural asset valuations to be recorded, adjusted, swapped, and traded. It presents what is likely to be the fastest path to developing Biodiversity Credits.
The technical solutions from blockchain are undeniable, but is there more that crypto has to offer in the fight against climate change?
