As more companies and individuals are looking for tools to mitigate their impact on climate change, the idea of utilizing blockchain technology has been on the forefront of many conversations. It is one of the building blocks behind cryptocurrency and companies are looking to utilize blockchain technology as a means to streamline the development and sale of carbon credits. Under current carbon offset markets, credits are typically sold in bulk to larger corporations. This leads to barriers for smaller groups or individuals to reduce their environmental impact via purchasing offsets. Even the UNFCCC has touted blockchain technologies possibility to fight climate change by improving carbon emission trading, enhancing finance flows and increasing transparency of reported GHG emission reductions. The idea of using blockchain technology to alleviate impediments to carbon market trading is relatively new and much confusion abounds surrounding their inner workings and appropriateness for carbon markets.
Blockchains work as an electronic ledger that can store transactions of currency or other valued material. These transactions and data are stored without a centralized company such as a bank or government. This allows users to make transactions without the need of a third party or “middle man”, also known as peer-to-peer trading. The ledger is constantly updated with new blocks that cannot be changed and are publicly accessible. Due to their simple and transparent nature, blockchains can be used for carbon credit trading including aggregating smaller buyers for carbon offset projects or to act as a marketplace where credits are traded.
IBM and Ben & Jerry’s recently partnered with blockchain companies as a method to increase carbon offset accessibility to everyday consumers. IBM is working with Veridium Labs to create digital tokens to make it easier to trade carbon credits. Around the same time, Ben & Jerry’s partnered with Stellar Blockchain and the Poseidon Foundation. For every ice cream cone purchased at a shop in London, Ben & Jerry’s donates a penny to Poseidon and presents consumers with the option to donate their own penny as a match. The pennies are then aggregated by Poseidon Foundations to purchase offsets and allows the consumer to see how their donation helped offset the carbon cost of the cone.
One of the main benefits being touted by blockchain promoters is the removal of an intermediaries during credit generation and transfer, which they claim increases transparency and reduces transaction costs. One of the third-party intermediaries in carbon offset transactions are the carbon offset standards and the registries they use to track the creation and trading of offsets. While the registries literally track individual offset credits, a function that blockchain may be able to fill, registries most important function is designing a process for third party performance audits to ensure that carbon offset credits and projects that generated them are real, verifiable and additional. Without the middle man, blockchain could possibly miss the importance of identifying how offsets are quantified. If blockchain is used to follow the chain of offset generation and transfer, there needs to be methods ensuring their protocols provide the same integrity as the existing voluntary carbon market standards do now.
While blockchain can increase accessibility of offsets to buyers, it may not solve some of the barriers to suppliers. Expertise and upfront capital can be a significant barrier to entering the voluntary carbon market. However, there are many organizations willing to provide knowledge and finance to help overcome these barriers for landowners. This could mean providing help to navigate protocols or provide guidance through validation and verification.
Blockchain technology could be an effective tool to expand voluntary markets and increase their accessibility primarily through the ease of transparent credit tracking. The possibility of using a transparent, distributed ledger to aggregate small buyers could help everyday consumer offset their environmental impact. However, any new crypto-marketplace will still need to ensure the integrity of offsets through the use of verifiable and quantifiable project protocols. This is where the role of third party’s such as ACR, CAR and VERRA is indispensable. If the integrity of offsets can be met with lower cost through blockchains then voluntary individual buyers could have access to the market that was previously difficult to access.