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Why did the carbon credit market adopt tokenization?

The use of blockchain in the carbon credit sector has already begun. Financial companies, environmental projects, and blockchain organizations, including FCE Group, have begun implementing plans to tokenize carbon credits and have ambitious goals to transform the carbon marketplace.
Why did the carbon credit market adopt tokenization?
Why did the carbon credit market adopt tokenization?
Major company partnerships will advance the tokenization of the carbon market
Major company partnerships will advance the tokenization of the carbon market
The effectiveness of the overall effort to reduce the global carbon footprint depends on the transparency of carbon offsets
The effectiveness of the overall effort to reduce the global carbon footprint depends on the transparency of carbon offsets
FCE Group and TransparenTerra are also working to build a partnership network to technologize the carbon market
FCE Group and TransparenTerra are also working to build a partnership network to technologize the carbon market
Partnerships are forming in the largest organizations as well. Recently, the International Finance Corporation (IFC), a subsidiary of the World Bank, announced that it's working with a blockchain platform to tokenize carbon offsets.

Blockchain is a powerful control tool that can minimize the risk of mistrust and create a transparent data environment. This is exactly what companies in the carbon credit market need. To gain the trust and support of institutional investors, carbon projects must prove the origin of each carbon credit. That's why recent developments in carbon finance are linked to the blockchain.
Important partnerships, new standards
IFC, Aspiration, Chia Network, and Cultivo have established the Carbon Opportunities Fund to incorporate blockchain and high verification standards into the carbon offset process. Aspiration and Cultivo select environmental projects, from which the fund buys carbon credits and converts them into tokens. Chia is responsible for the tokenization process, making carbon certificates digital and traceable, and all the data for traceability is stored in the World Bank's Climate Warehouse database.

The fund has already begun due diligence on projects that are expected to release 250 to 300 gigatons of GHGs credits for purchase by the end of the year. The organization has already discovered that only about one-tenth of the projects with carbon credits currently meet their expectations.

Traditional verification methods have been found not to work well enough. They require too many resources and cannot be completed with sufficient regularity. Carbon projects need to become more transparent and technologically advanced so that the carbon credits they produce can be automatically tokenized for later sale.
Why the IFC needs tokenization
A partnership between these big companies could set the bar for carbon finance. Right now, because of sparse data, insufficient verification, and a lack of trust, carbon offsetting is more likely to contribute to air pollution than to help fight climate change.

According to recent studies, not all carbon credits on the market match the amounts of greenhouse gases they are reported to absorb. This means that companies buying these carbon credits can’t be sure their emissions offsets correspond to reality. This will result in even more pollution of the atmosphere, and the market aimed at nurturing a zero-carbon economy will work against its intended purpose.

The tokenization process will make every carbon loan in the market traceable from start to finish. It will be easy to know whether any credit purchased came from the Amazon forests or the forests of North America. This will also allow for cost adjustments, avoidance of resale, and better control of total greenhouse gas emissions.

Tokenization is not yet widespread and still needs testing and research, but it has already proven itself in areas such as housing, real estate, and the arts as a way to confirm property rights. For carbon offsets, tokenization will work similarly: a unique token will be issued for each carbon offset. Tokens are digital immutable certificates assigned to a tokenization object once and for all. They will be used for tracking and verification. So far, the exact mechanism for linking tokens to carbon offsets has not been made public.
Major company partnerships will advance the tokenization of the carbon market
Major company partnerships will advance the tokenization of the carbon market
The effectiveness of the overall effort to reduce the global carbon footprint depends on the transparency of carbon offsets
The effectiveness of the overall effort to reduce the global carbon footprint depends on the transparency of carbon offsets
FCE Group and TransparenTerra are also working to build a partnership network to technologize the carbon market
FCE Group and TransparenTerra are also working to build a partnership network to technologize the carbon market
The transformation has begun
Other actors are also changing the carbon market. TransparenTerra and FCE Group have already partnered with key players in the field. A collaboration is already underway with the carbon certification issuer Bio Carbon Registry, the carbon credit exchange CTX, and the carbon measurement platforms South Pole and S&P Scores. Their joint work aims to democratize the carbon market, build trust backed by blockchain technology, and improve transparency.

We need to test different ways to tokenize and automate the carbon credit market now. The more new partnerships there are in this area, the sooner the market will come to standardization and global transformation. And the faster the infrastructure transforms, the sooner the overall effort to reduce the carbon footprint will begin to work more effectively.
What's next?
Blockchain has already facilitated transparent data flows in real estate registration and sales, logistics and supply chains, business management, and other sectors. There’s still a lot of work to be done because the current economic structure is full of vulnerabilities and corruption that must be eliminated. When it comes to climate change, it’s vital.

Right now, technology is still overtaking infrastructure, so legislative and societal changes are necessary to bring about a complete transformation. Large associations such as the IFC Foundation could push government agencies to establish legislative works for blockchain and tokenization as soon as possible. When that happens, a powerful technological push will have the potential to change the entire digital economy, including the goals of zero-carbon and lean consumption.
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