Rising temperatures around the world have had an equivalent effect on policies with fears of melting glaciers, reduction in drinking water and a phenomenon dubbed “Climate Immigration”. In recent years, greenhouse gas (GHG), mainly carbon dioxide emissions have taken centre stage of the discussions surrounding sustainability. This has prompted governments and corporations alike to take a bold stance when it comes to reducing their carbon emissions, even transitioning to net-zero, with some 140 countries considering this target.
Carbon credits – an indicator of 1 metric tonne of carbon dioxide removed from the atmosphere – has risen to become a leading mechanism to achieving carbon neutrality. These credits (often referred to as carbon offsets),are traded on voluntary or compliance carbon markets in applicable jurisdictions – the latter being a regulated market that gives stakeholders an emission allowance.. Governments, corporations and individuals buy these credits, with the aim of reducing greenhouse gas emissions and mitigating climate change. However, it’s imperative to ensure there is an effective market where these effects can be quantified. A recent report has shown that more than 90% of carbon credits generated from rain forest protection are fake, prompting the need for transparency in the carbon supply chains.
Blockchain in Carbon Markets
Like any markets, counter-parties seek higher efficiency in trading. With blockchain, it goes a step further to create a complete audit trail of transactions through the inherent immutability of the underlying technology. Carbon offset producers can leverage blockchain to show potential off-takers and buyers the provenance data of the asset, this providing their clients solace that their purchase is of a valid offset. Transparency is detrimental to investor engagement with carbon markets as the lack of transparency also makes way for double counting – where a carbon credit has been bought and retired multiple times.
Transaction costs, intermediaries, auditing and tracking are other areas that blockchain can address in the carbon markets. With a carbon credit platform built on blockchain, most of these processes can either be completely eliminated or streamlined. As data on a blockchain network is accessible to all parties, real-time tracking of transactions can provide powerful analytics. In August, the government of the United Arab Emirates (UAE) announced that they will be using blockchain for their carbon credit system.
Fractionalization and tokenization are two significant features of blockchain which can be used to make carbon markets more attractive. With fractional carbon credits, a larger number of investors can purchase offsets for investment purposes or just to subscribe to the global decarbonization efforts.
Carbon Sarhat, a FARI Solutions project aims to leverage tokenization to create a financial market infrastructure for private markets and sustainable investments. With Carbon Sarhat, institutions can raise capital through primary market token issuance and trade world-class alternative assets, including tokenized carbon credits on the proprietary exchange. – www.carbonsarhat.com
Conclusion
While blockchain does have inherent technical capabilities to boost trust and transparency, it still requires a trusted environment to ensure non-tampering. There is nothing stopping a bad actor within the system to input corrupt information about the carbon offsets. The integrity of the system is as strong as its weakest (or corrupt) link.
Recent Comments