Global concern for climate change and environmental sustainability has grown significantly over the last decade, and has become table stakes in the last couple of years. There are carbon accounting businesses, offsetting businesses, project developers out in the wild sourcing credits, fintechs, and more. Today I want to focus on the application of blockchain technology, which has already transformed the way we interact with financial systems, supply chains, and now, the carbon industry.
Blockchain technology, with its decentralized and distributed digital ledger system, enables secure and tamper-proof tracking of transactions and assets, making it the perfect tool for managing carbon credits and emissions data. The benefits of blockchain in the carbon industry include:
Transparency and Trust: Blockchain technology allows for the accurate and transparent tracking of carbon emissions and credits, ensuring that companies are held accountable for their environmental impact.
Efficiency: Blockchain streamlines the trading and management of carbon credits, removing intermediaries and reducing transaction costs. This facilitates a more efficient carbon market.
Security: The decentralized nature of blockchain ensures the immutability of data, reducing the risk of fraud and manipulation in the carbon market.
What Blockchain Platforms are Used
Ethereum: Ethereum is an open-source, decentralized platform that allows for the creation of smart contracts and decentralized applications (dApps). Many carbon industry companies, such as Nori, Energy Web Foundation, and Xpansiv, use Ethereum as the basis for their platforms. Ethereum's smart contracts enable the automation of processes, improving the efficiency and transparency of carbon credit trading.
Stellar: Stellar is a decentralized, open-source network designed to facilitate cross-border transactions and asset transfers. Poseidon Foundation and Veridium Labs use Stellar for their carbon credit trading platforms, taking advantage of the network's low transaction fees and quick processing times.
Hyperledger Fabric: Hyperledger Fabric, a permissioned blockchain platform developed by IBM, is designed for use in enterprise settings. It offers a high degree of customization and privacy, making it ideal for carbon asset management applications, as seen in IBM's partnership with Energy-Blockchain Labs.
Walking through a Use Case from Credit Generation to Retirement
Carbon Credit Generation: Projects that reduce or remove greenhouse gas emissions, such as reforestation or renewable energy initiatives, generate carbon credits. Each carbon credit represents one metric ton of CO2 equivalent emissions reduced or removed from the atmosphere.
Verification and Certification: Independent third-party organizations assess the projects to verify their emission reduction claims e.g. Verra, Gold Standards. Once verified, the projects are certified, and the corresponding carbon credits are approved for issuance.
Carbon Credit Tokenization: The approved carbon credits are tokenized on a blockchain platform, such as Ethereum, Stellar, or Hyperledger Fabric. Tokenization involves creating digital tokens that represent the physical carbon credits. Each token is assigned a unique identifier to ensure its traceability and prevent double counting.
Carbon Credit Registration: The tokenized carbon credits are registered on a blockchain-based registry, which serves as a decentralized and transparent database of all issued and traded carbon credits.
Carbon Credit Marketplace: Tokenized carbon credits are listed on a blockchain-based marketplace, allowing buyers and sellers to engage in transparent and secure transactions e.g. Patch, Watershed.
Purchasing Carbon Credits: Companies or individuals looking to offset their emissions can purchase the tokenized carbon credits through the marketplace. The process typically involves creating an account, selecting the desired number of carbon credits, and executing the transaction using a digital wallet and the marketplace's native cryptocurrency or a stablecoin.
Carbon Credit Retirement: Once purchased, the carbon credits are "retired" to prevent their reuse. Retirement involves updating the blockchain registry to indicate that the credits have been used to offset emissions, ensuring transparency and accountability.
Companies in the Space
IBM (Public)
IBM has partnered with Energy-Blockchain Labs to develop a blockchain-based platform for carbon asset management, using Hyperledger Fabric. This platform aims to improve the efficiency and transparency of the carbon market, facilitating the trading of carbon assets and credits.
KlimaDAO (Private)
KlimaDAO offers their coin KLIMA to accelerate the speed at which the price of emitting arbon is going up. The business does this buy purchasing credfits from Verra, retiring them, and then minting the tokens via Toucan Protocol. The tokens become Base Carbon Tonnes (representing 1 tonne of carbon removed). KLIMA's are backed by at least 1 BCT, and owners of the token are supposed to grow their share of the coin through bonding more BCT or staking holdings for yield.
Toucan Protocol (Private)
Toucan is the infrastructure that helps crypto carbon projects like KlimaDAO eexist. It turns carbon credits into tokens to be used on a blockchain. They are retired from their source registry to prevent double counting, but haven't been claimed against emissions yet and thus are still viable. Their tokenized CO2 (TCO2s) are semi-fungible, meaning they are not all identical but can be fractionalized and grouped for trading. Toucan was the first platform to allow for the tokenization of carbon credits.
Nori (Private)
Nori's blockchain-powered carbon removal marketplace utilizes Ethereum to allow small farm based suppliers to sell to buyers, particularly those in regenerative agriculture. Nori focuses on soil carbon storage, with each carbon credit making up a Nori Carbon Removal Tonne (NRT). Nori will expand internationally and also tokenize their NRTs into NORI tokens to be deployed on Polygon and create a secondary market. Polygon has already partnered with KlimaDAO. Nori has also partnered with Bayer AG, one of the largest pharma / agricultural companies in the world to scale up their NRT supply.
Poseidon Foundation (Private)
The Poseidon Foundation's blockchain-based platform, built on the Stellar blockchain, empowers consumers and businesses to offset their carbon footprint by purchasing carbon credits. The blockchain technology ensures the transparency and traceability of these transactions.
Energy Web Foundation (Private)
Energy Web Foundation (EWF) has developed the Energy Web Chain, an open-source, scalable blockchain platform specifically designed for the energy sector. The platform, built on a customized version of the Ethereum blockchain, allows for seamless integration of renewable energy sources, carbon credits trading, and emissions data management.
Moss (Private)
Based in Brazil, Moss is a blockchain-based platform focused on tokenizing carbon credits, making them accessible and easy to trade. Moss has purchased parcels of land in the Amazon rainforest and focuses on credits generated from forest preservation projects. It then sells to companies and individuals with the goal of preserving the forest. It leverages the Ethereum blockchain.
DevvStream (Private)
Devvio is an ESG blockchain platform and is the parent company of DevvStream. Devvio uses DevvStream to put the carbon credits it gets from its streaming agreements on-chain. On DevvStream, the credits gain distribution benefits. DevvStream also gets priority access to Devvio's commercial clientele who are already using the ESG platform, so that if they need credits, they will go to DevvStream. DevvStream is also partnered with Xpansiv, one of the largest voluntary carbon exchanges, to provide liquidity.
Xpansiv (Private)
Xpansiv is owned by CBL markets and uses blockchain technology to create Digital Feedstock, a data-driven digital representation of commodities, including carbon credits. The platform, built on the Ethereum blockchain, provides a transparent and secure marketplace for carbon credit trading and valuation.
Others: Filecoin Green, Flowcarbon
Honourable Mention: dClimate
How Does the Market Look
Carbon Market Growth
The global carbon market reached a record value of $272 billion in 2021, a 20% increase compared to 2020. The voluntary carbon market, where companies and individuals voluntarily purchase carbon credits to offset their emissions, has also experienced significant growth. In 2020, the market saw a transaction volume of 104 million metric tons of CO2 equivalent (MtCO2e), with a value of $320 million. The increased interest in voluntary carbon offsetting creates a demand for transparent and efficient blockchain-based solutions.
Carbon Pricing Initiatives
As of September 2021, 64 carbon pricing initiatives, including emissions trading systems (ETS) and carbon taxes, have been implemented or are scheduled for implementation. These initiatives cover approximately 21.5% of global greenhouse gas emissions, further emphasizing the need for efficient carbon credit management systems like blockchain.
Blockchain Investment in Energy and Climate
A report by PwC found that between 2017 and 2021, over $2.4 billion was invested in blockchain-based energy and climate projects. This investment demonstrates the growing recognition of blockchain's potential to address sustainability challenges, including carbon credit management.
Adoption Rate
According to a report by the World Economic Forum, 10% of global GDP is projected to be stored on blockchain technology by 2025. This widespread adoption of blockchain is expected to extend to the carbon industry, further enhancing the efficiency, transparency, and security of carbon credit transactions.
Conclusion
Blockchain technology has the potential to revolutionize the carbon industry by providing a transparent, efficient, and secure solution to managing carbon credits and emissions data. While blockchain technology solves many inefficiencies, ultimately it does not solve the "global climate crisis". However, I do believe that blockchain technology does have strong use cases here.
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