A Blockchain Platform To Trade Carbon Offsets?

A Blockchain Platform To Trade Carbon Offsets?

  • The International Finance Corp (IFC) is committed to greater efficiency and use of carbon projects.
  • The World Bank affiliate launched the Carbon Opportunities Fund to provide emissions offsets through the blockchain.
  • Only 10% of carbon credit projects currently meet the fund’s criteria.

A blockchain platform dedicated to the trading of carbon offsets will be able to attract a greater number of institutional investors to boost green projects in emerging markets, the International Finance Corp (IFC) told Reuters.

The organization, which is affiliated with the World Bank, was created in 1956. It is promoting blockchain because it believes that this technology will be able to better promote the use of carbon offsets to mitigate climate change than the traditional methods used.

The blockchain is a shared ledger or decentralized digital database, which facilitates the recording of transactions and serves to track and trade any asset on the network.

Companies use the credits to offset the emissions they generate or the carbon footprint accounted for. The level of greenhouse gases (GHG) is calculated through the direct or indirect emissions of organizations.

To offset these emissions and mitigate their impact on the environment, companies then develop projects such as planting trees or supporting clean energy generation projects (solar, wind, hydrogen).

Most of the carbon credit markets are not under the regulation of the countries, because the governments have not yet agreed on the commercial rules. Fintech companies specializing in tokenizing carbon offsets have been created in the last year. 

On the Flipside

  • However, this type of trade has had problems due to some scams and manipulations detected with the carbon credits traded.
  • Even blockchain technology itself has been questioned due to the excessive energy consumption used in cryptocurrency mining.

The world’s leading carbon credit registry, Verra, takes issue with tokenizing its retired carbon offsets. The organization said it will not allow it and is preparing to hold a consultation on the matter.

According to an IFC spokesperson quoted by Reuters, only carbon credits that have not been used will be tokenized and sold, and they must be previously registered and subjected to additional quality controls.

Green Credit Joint Venture

For the creation of the Carbon Opportunities Fund that will trade carbon offsets on the blockchain, the IFC partnered with two financial companies that support the reduction of emissions and the preservation of the environment.

In addition to Aspiration, which claims to be “100% committed to Clean Money,” participating in the green credit joint venture are Chia Network, a sustainable blockchain technology company, and Cultivo, a biodiversity investor.

The fund, which starts with initial capital of 10 million dollars, will buy carbon credits from projects previously chosen by Aspiration and Cultivo. Chia’s technology will then be used to tokenize the credits that will be tracked through the World Bank’s Climate Warehouse program.

Verra has been in talks with the IFC to determine what role it will play in the Climate Store, a spokesperson for the organization said.

"It's going to set a standard and a benchmarking for the market that makes it more likely other institutional capital will come in behind it," said Steve Glickman, international president of Aspiration.

According to Glickman, only 10% of carbon credit projects currently meet the criteria established by the fund.

Aspiration estimates that between 50 and 60 gigatonnes of carbon emissions need to be reduced each year, but only a third can be eliminated through the use of renewable energy sources and other efficient measures.

By the end of this year, the IFC fund could buy between 250,000 and 300,000 tons of credits that have already been identified. Meanwhile, it is evaluating other projects for around 1 million tons, which would be available in the coming months.

The platform’s transparency will make both companies and investors more appreciative of the environmental projects that support the offsets, said IFC Senior Investment Officer Bruce Keith.

"Why is a credit from Amazon worth more or less than a credit from the Congo basin? Or more or less than a credit from a forest in the southern U.S.? You (now) have the means to know that,” Keith stated.

Why You Should Care

  • The use of blockchain in this type of project, which is so important for the future of humanity, represents a recognition of this technology by the World Bank.

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