The carbon credit market needs more transparency and accountability. Some suspect carbon credits and projects cast a shadow on the reputation of the entire carbon credit market. To solve this problem, companies are starting to use blockchain.
The global carbon market has existed since 1997, when the Kyoto Protocol introduced carbon credits as a way to offset greenhouse gas emissions. Selling credits means individual industries must pay to emit gasses that harm the climate, while projects designed to rid the air of greenhouse gasses can receive additional funding.
Carbon credits increase the value of forests and motivate people not to destroy green areas. If carbon credits bring in more money than a pasture or a seeded field, the reasoning goes, landowners won't burn or cut down the forest.
The European Parliament recently
tightened CO2 regulations after a lengthy debate. On June 22, 439 MEPs voted in favor of the new rules. There were 32 abstentions and 157 votes against. The draft will come into force when all EU member states agree to it. The tightening will stop the free issuance of emission allowances in 2027 and their validity will cease until 2032.The European Parliament’s decision also extends CO2 allowances to the construction and transportation sectors.
The most important change affects the EU's climate protection targets. The new plan is to reduce greenhouse gas emissions by 55% by 2030 compared to 1990 levels. Previously, the EU had a more modest target of 40%.
This instrument won't only reduce EU emissions but also encourage other countries to protect the climate. First and foremost, this involves the USA and China, which should follow the European example.
Carbon credits give companies a competitive advantage in the global marketplace by enabling them to offer environmentally friendly, carbon-neutral products or services. In fact, carbon certificates are a way to integrate environmental protection into human economic activity. When the carbon footprint of a product is offset with credits, the product gains a sales advantage.
However, not all carbon credits live up to their stated sustainability, and
research confirms this. Measuring CO2 uptake from the atmosphere and accounting for it are complex processes that can only be done superficially. As a result, some companies offset their emissions with low-quality or fraudulent credits and harm the environment.
The blockchain is a modern database where information cannot be deleted or manipulated because it's written simultaneously on all devices connected to the database network. Every carbon credit – its creation, certification and purchase – is linked to records in the blockchain. All documents are stored in an immutable and transparent database that can be accessed and verified at any time.
This solves one of the biggest difficulties for greenhouse gas absorption or reduction projects. Until now, buyers were suspicious about the potential for double-selling of credits. Blockchain eliminates that possibility. Each ton has a record of all owners, from creation to the last owner.
Blockchain’s greater reliability makes carbon credits more valuable. It can also increase the liquidity of the carbon credit market by bringing sellers and buyers together in one place.
Blockchain creates a transparent infrastructure for individuals and organizations that want to issue carbon credits after completing some of their projects. The necessary tools for online project registration, data verification, and certificate issuance can be connected to blockchain. The World Bank has demonstrated the potential of blockchain in
its climate data meta-registry model.
There are already
several projects offering blockchain solutions for emissions accounting and for moving the carbon market onto the blockchain. The issues now are consolidation, standardization, and tighter government control of the market. Transparency and accountability are becoming
key requirements for companies, and blockchain is the right tool to steer the market in that direction.
