Tokenizing sustainability- How Blockchain carbon credits are revolutionizing the market
Climate change has only a short time left. In 2023 the world carbon emissions reached a new high showing how quickly we need new solutions to solve the issue. Here comes blockchain carbon credits a new way to fight climate change that uses technology to make the future more sustainable.
Everything we do every day from transportation to energy use creates a carbon footprint. All of these contribute to greenhouse gas emissions, which are rapidly burning the Earth. As a way to fight this, carbon credits have been suggested. With this, blockchain is a safe digital ledger that makes dealing with carbon credits more open, efficient and reliable. This article discusses how blockchain's potential in carbon credits and environmental activities could make the future greener for everyone.
Carbon Credit: What is it exactly?
We use carbon credits to measure and track the amount of greenhouse gas emissions. Organizations or countries typically receive these credits to offset their carbon emissions. These credits are tied to projects that try to cut down & avoid or eliminate greenhouse gas emissions like carbon dioxide.
To offset their carbon emissions companies purchase carbon credits, therefore assisting in global climate change prevention. Every carbon credit releases one less tonne of carbon dioxide into the atmosphere thereby mitigating the environmental effects.
A Look at the Carbon Credits markets?
Carbon credit markets are the ways to trade and facilitate the reduction of greenhouse gas emissions. By letting people buy and sell carbon credits, these markets give companies an economic reason to cut or reduce their carbon credits.
As more countries and companies set goals to cut emissions the market for carbon credits is likely to grow. New technologies like blockchain which makes it simple to keep track of credits could make the market more efficient and trustworthy. Green bonds and sustainable investment funds increasingly incorporate carbon credit expanding their impact and scope.
Market Participants
Companies and Industries
Companies and industries play a big role in the carbon credit market since they need to follow emission rules, handle their carbon liabilities and show that they are environmentally friendly.
Carbon offset project developers
Organizations that plan and carry out carbon offset projects play a significant role in making carbon credits available to the market. To reduce emissions and make credits that can be traded these projects often need financing as well as help from experts. Let our Transgenie experts show you the way! Contact us to discuss your next carbon project.
Financial Institutions
To process transactions in carbon credit markets, financial institutions such as banks, investment funds and trading platforms are required. Market players can rely on them for funds & investment opportunities and risk management services.
Global Frameworks
The Kyoto protocol and the Paris agreement established two key agreements to create global frameworks for carbon credit markets. By establishing standards and targets for countries to reduce emissions, these agreements promote international collaboration in the fight against climate change.
Types of Carbon credits?
Compliance markets
In compliance markets governments set mandatory restrictions on emissions of greenhouse gases. When companies emit more emissions than their permitted levels they will need to buy more credits to compensate.
Some examples of such programs are the California cap and trade system, the EU Emissions trading system and the RGGI in the Northeastern United states.
Voluntary markets
Organizations and individuals can purchase carbon credits voluntarily to offset their emissions through voluntary carbon markets. Corporate social responsibility and sustainability objectives guide these markets, which operate independently of government rules.
Some examples of carbon standards are the Verified carbon standard (VCS) & the gold standard and the American carbon registry.
What does a Carbon credit in blockchain mean?
To avoid or reduce one ton of carbon dioxide emission, a digital unit called a carbon credit is added to the blockchain.
Blockchain based carbon credits use blockchain networks efficiency, immutability and openness to make the carbon credit market more reliable and efficient. Blockchain technology makes sure that carbon credits are transparent, traceable and authentic throughout their entire lifecycle by keeping records of all interactions on a decentralized ledger. This lets everyone involved keep track of where each carbon credit came from, who owns it and what impact it had. This builds trust in the carbon market.
In blockchain technology, carbon credits can be used for the following:
Tokenization On a blockchain platform carbon credits are turned into tokens, which are generally digital assets or tokens. Each token is valued at a specific amount of carbon offset which is usually given in metric tons of carbon dioxide or CO2.
Transparency & traceability The distributed ledger technology in blockchain makes sure that the issuing, trading and closing of carbon credits are all transparent and simple to track. This helps to ensure that each carbon credit token is real and has a positive impact on the earth.
Smart contracts Smart contracts are agreements that are automatically carried out since their rules are written into code. Blockchain makes it possible. Based on rules and conditions that have already been set, smart contracts may regulate the process of giving out & moving and retiring carbon credits.
Efficiency of the market Blockchain technology makes the carbon credit market work better. It lowers trade costs, increases liquidity and opens up new markets making it easier for more people to participate in activities that offset carbon emissions.
Integrating other systems You can use carbon credits based on blockchain technology with other eco friendly projects and financial instruments like green bonds or sustainable investment funds. This integration makes people more likely to invest in projects that cut down on emissions of greenhouse gases and support long-term growth.
Regulatory compliance Blockchain can help ensure adherence to rules and international standards for carbon credits. It keeps a safe record of transactions that can be checked, which is very important for keeping the markets for carbon credits real and trustworthy.
What is Voluntary Carbon Markets (VCM) ?
To offset the carbon footprint, businesses and organizations can purchase and sell carbon credits on their own through the voluntary carbon market. This industry supports individuals and companies working on creative solutions to reduce greenhouse gas emissions or offset them to clean up the atmosphere. Companies can gradually remove their carbon emissions by using these voluntary carbon credit markets.
Due to this, most businesses want to keep their carbon neutrality promises without losing operational efficiency, making carbon credits attractive prospects. This is because implementing them is easier and less expensive than a full systemic change.
At the moment, companies can buy two types of credits: avoidance credits, which pay for projects like wind farms that stop or reduce emissions and removal credits, which focus on getting rid of emissions that are already there through methods like direct air capture.
However, the present Voluntary Carbon Markets (VCM) has to deal with some significant issues. To begin, it has historically been challenging to properly measure how well an offset works. For example, a company might pay to have a ton of carbon taken out of the air via direct air capture.
However, even though the project that removed the carbon claims to have done so, the project that purchased the carbon credit is unable to directly verify the job's completion.
People claim that there are "phantom" coins that remain unchanged because of the lack of rules and the lengthy process required to verify the quality of new credits.
Second, there isn't a lot of information about prices. Companies that want to buy carbon credits have a difficult time deciding whether they're getting at a fair price. In the same way producers have a challenging time in how much their carbon credits are really worth.
Even if the current carbon offsetting markets are functional, adding blockchain carbon credits might significantly enhance the situation.
Tokenized carbon credit explained?
Tokenization is the process of converting carbon credits onto a blockchain into digital tokens. Each token represents a certain amount of carbon dioxide or other greenhouse gasses that have been prevented, reduced or removed from the environment.
NFTs in Carbon offsetting
NFTs have their own unique token ID, which makes them less useful than fungible tokens because they can't be traded in a similar fashion. This is a new type of product in the tradeable carbon market.
MintCarbon provides a marketplace to let eco-projects create and sell carbon credit nfts as a way to raise funds. People or businesses can use the service to purchase these NFTs and the project's funding goes towards supporting the project's environmental work.
On external marketplaces like OpenSea buyers can buy and sell these NFTs, offering them financial incentives. Smart contracts in the tokens let them give a small amount of each sale's profit to the project as long-term support.
Most of the time, these are ERC-1155 based dynamic NFTs which means that their information can be changed over time by blockchain oracles. Regular updates to this token can include details like the amount of CO2 the environmental project is removing from the atmosphere, ownership proof and more. It can also be used to create an unchangeable certificate of carbon offset ownership with a dynamic audit trail built into the dNFTs metadata.
To improve carbon accounting claims, companies can directly link any token whether exchangeable or not to the action or project they represent. This also shows companies that they're meeting their ESG goals.
Fractional ownership
Tokenization makes it possible for individuals to own small amounts of carbon credits, which lets more people take part in activities that reduce carbon emissions. Tokenized carbon credits can be purchased and traded by individuals, organizations, and corporations. This makes it easier to access and cheaper than standard carbon markets.
The Case studies of Blockchain in carbon credit markets
1. Veridium & IBM
IBM and Veridium worked together to make a blockchain-based approach to tokenize carbon credits.By turning carbon credits into digital tokens this strategy was meant to make the process of offsetting carbon emissions simpler and faster.
Result
As part of their goals to be more environmentally conscious the project made it easier for businesses to buy and sell carbon credits.
2. Microsoft and Eneco
Microsoft and the Dutch energy company Eneco worked together to create a blockchain based method for keeping track of how sustainable energy is made and the carbon credits runs on it. This platform ensures that renewable energy comes from the right place and that carbon savings are properly recorded.
Result
The blockchain system made carbon credit trades more open and reliable. Additionally it provided real-time data on renewable energy production assisting Microsoft in achieving its carbon neutrality objectives.
3. CarbonX
CarbonX uses blockchain to convert carbon credits into tokens facilitating their easy trading on a secure and transparent platform. The tokenization process transforms carbon credits into digital assets that are available for purchase, sale or trade.
Result
The CarbonX platform has made carbon credits easier to get and made the market more open and helped businesses reduce their carbon footprints by providing verified offsets.
Conclusion
Blockchain technology is transforming the carbon credit market by solving long standing issues with trust, speed and transparency. The process of verifying, selling and keeping track of carbon credits is now easier and more reliable due to blockchain based platforms. This makes it easier for more people to join carbon offset programs and also boosts the trustworthiness of carbon credits as a way to slow down climate change.
More companies using blockchain technology to manage carbon credits will create a more robust and transparent carbon market that supports global environmental goals. Blockchain's potential to improve carbon credit traceability and efficiency is a major advance in climate change mitigation making it a key part of modern sustainability initiatives.