Tracking Carbon Credits via Blockchain

Carbon credits represent CO2 emissions that are avoided or removed. They allow companies or countries to offset emissions by funding equivalent carbon reductions elsewhere. Tracking these credits is essential because climate targets are compromised if credit is double-counted or not supported by an actual decrease. Ensuring transparency and authenticity in carbon credit markets has been a long-standing problem with regular record-keeping, and blockchain has the potential to change this.

How Blockchain Brings Transparency to Carbon Tracking

Blockchain is a decentralized digital ledger that securely and transparently records transactions across a network. By using this technology for carbon credits, every credit creation, transfer, or retirement can be logged as an immutable record that is visible to all stakeholders. For example, after a credit has been used (retired) to reduce emissions, a blockchain system may ensure it cannot be retrieved, preventing a double count. The subsequent public record allows auditors and regulators to verify the authenticity of each offset, ensuring that it is only recorded once.

In the Real World

IBM (China): IBM has explored using blockchain platforms in countless settings, with China’s carbon market being one of them.

World Bank’s Climate Warehouse: The World Bank is piloting a blockchain-based Climate Action Data Trust that links carbon credit registries worldwide. The trust’s objective is to increase transparency in carbon trading and prevent the same credit from being recorded twice.

Moss Carbon Token: Although just one of many examples, the startup Moss offers the MCO2 token, representing carbon credits from an Amazon rainforest conservation project.

Benefits

Transparency: All carbon credit transactions can be recorded on an open ledger, delivering a transparent audit trail that brings trust and making the ability to trace them a relatively simple process.

Fraud Reduction: Because blockchain entries are immutable, tampering with records or claiming the same credit twice is extremely difficult. Each credit can be uniquely identified and tracked, helping to reduce the chance of fraud or double-counting.

Efficiency: Blockchain can streamline and automate the carbon credit trading process. Smart contracts (self-executing code) can enforce rules automatically (for example, retiring a credit once it’s used), speeding up transactions. Cutting out intermediaries also has the potential to lower transaction costs.

Limitations and Open Questions

Standards and Data Integrity: Coordinating a common blockchain approach is challenging with many different carbon registries worldwide. Some major registries are cautious; for example, Verra previously barred turning some of its credits into tradable tokens. Additionally, blockchain can prove a record wasn’t altered but can’t confirm that a project truly removed CO2; independent third-party verification is still essential, although this could potentially be integrated using oracles.

Energy Usage: Some blockchain networks (especially early proof-of-work ones) use large amounts of energy. Newer networks are more efficient, but any platform’s carbon footprint needs to be considered to ensure the climate benefits of blockchain outweigh its costs.

Conclusion

It’s clear that as blockchain solutions develop, they will bring increasingly modern solutions to the problem of carbon emissions, making the process more intuitive, transparent, reliable, and reducing costs. The technology may not eliminate climate change but it can help in areas that have good intentions and aim to contribute positively to the overall problem.