With climate change becoming a pressing issue in modern times, companies are being pressured to implement climate strategies. Many countries have pledged to become carbon-neutral within the next few decades, and politicians around the world are also involved.
Despite all the efforts and conferences made by politicians and billionaire companies over the years to address the issue, the risk of global warming is only increasing.
The United Nations Climate Change Conference 2022, also called Conference of the Parties of the UNFCCC was the 27th United Nations conference on climate change. The conference is more commonly known as COP and hosts top tech CEOs and policymakers.
COP27 did not achieve any progress in reducing loss and damage. However, high-emission nations agreed to compensate the countries who suffered the most from the climate disaster they were a part of. However, there was no agreement to reduce the emission that is causing this catastrophe.
COP27, a conference that was led by politicians, has been a shining example of all the problems with these initiatives. More than 600 representatives from fossil fuel companies, as well as many other people who wanted to hinder rather than promote progress, were present at COP27. Above all, the event was sponsored by the largest polluter of plastic in the world — Coca-Cola.
The annual climate carnival idea was not the best way of encouraging meaningful action to combat global warming. Because of their failure to serve their intended purpose and the presence of the fossil fuel sector, the problem of climate changes requires a modern solution. Decentralized tech, according to many, is the key to addressing climate change.
Decentralized solutions
Blockchain tech has revolutionized data management in many other industries than the financial sector. Already, climate change initiatives integrate blockchain tech to benefit them. This includes an increasing number projects at COP held annually conferences.
Arun Ghosh (KPMG U.S.) told Cointelegraph that he was the principal of KPMG U.S. technology and climate data.
“One of the major outcomes of COP27 was landing on the loss and damage set of agreements enabling wealthier nations to help provision and plan for the recovery of people and livelihoods in under-resourced nations. Blockchain not only provides the trust and transparency set of enablers but with the introduction of CBDC pilots as well as the adoption of BTC as a recognized medium of exchange in countries like El Salvador, there are accelerated investments and plans emerging to integrate and transact between organizations, countries and citizens.”
To make climate-related initiatives more efficient, blockchain tech can be used in many ways.
Blockchain can be used to encourage participation in recycling by offering a financial reward for deposits of recyclables such as plastic containers, cans or bottles. Similar arrangements are already in place around the globe.
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Plastiks is a marketplace for non-fungible tokens (NFTs) that supports initiatives to reduce plastic waste. Plastiks partners up with recycling firms to verify their plastic recycling. This certification can provide additional income for them. The project claims that once recycling data is recorded on the Blockchain, it also becomes a hard receipt detailing how much plastic has been taken.
Blockchain technology is capable of transparently tracking environmental data and proving compliance, which can deter companies and governments from breaking environmental commitments or falsely reporting progress.
Regen Network, for instance, provides blockchain-based fintech solutions that allow ecological claims to be made and data to be stored. Their offerings include the Regen Registry and a public ecological accounting system. This allows land stewards worldwide to directly sell their ecosystem services to buyers.
EarthFund DAO is another environmental initiative that organizes a decentralized community looking to tackle humanity’s environmental problems. The platform enables tokenholders to vote for and crowdfund “world-changing projects” such as the EarthFund Carbon capture project.
The Crypto Climate Accord, a private sector initiative, aims to decarbonize cryptocurrency and the blockchain industry. The movement has attracted more than 250 individuals and companies in finance, crypto, and other sectors.
Amid all the major use cases of blockchain tech, its progression in aiding the very complex carbon credit market has been most talked about — for both good and bad reasons.
How carbon markets work
One metric ton of carbon dioxide can be converted into a carbon credit. It can be used for purchase, sale, or retirement. If a business is subjected to cap-and trade regulation (such the California Cap and Trade Program), there will be a number of credits it can apply towards its cap. If the company emits less carbon dioxide than allowed, it may store, trade or sell extra carbon credits.
A credit can be sold to buy an emission allowance. A credit is tradeable even though it is an actual reduction in emissions.
Carbon markets are designed to reduce greenhouse gas emissions. They allow the trading of emission units (carbon credit), which are certificates that represent emission reductions. Emissions-reduction entities can trade to reduce their emissions for a lower cost, allowing them to be compensated by higher-cost emitters. Carbon market mechanisms increase awareness about the environmental and social consequences of carbon pollution by putting a price tag on them. This encourages investors and consumers alike to choose low-carbon options.
There are two main types of carbon markets. They are cap-and-trade or voluntary. Cap-and trade sets a cap (or mandatory limit) on greenhouse gas emissions. Organizations who exceed these limits can either purchase additional allowances or pay a penalty. The mandatory market is used by governments and companies that have been legally required to offset their carbon emissions. The voluntary carbon markets operate in parallel with the compliance markets and allow private companies to purchase carbon credits.
Problems with carbon credits
Although carbon credits are being promoted as a market-based solution to curb carbon emissions, they have a host of problems. Poor offset quality is a problem in carbon credit markets. Some credits may not be as good as advertised and others might not meet standards set by top carbon offset certification agencies.
Some organizations offering such carbon offsets don’t do what they say they will. Voluntary carbon markets are not regulated, and many companies get away with greenwashing. These businesses may invest in credit that isn’t certified or double-count the credit. All these actions fool buyers into believing that they are reducing their carbon emissions.
You can take, for instance: according Yale Environmental 360 estimates that one billion tons worth of carbon credits have been sold on the voluntary market. However, there are roughly 600–700 million tons more sellers than purchasers. Consequently, only roughly 300–400 million tons of CO2 offsets are actually achieved. This means that between 600 million and 700 millions tons of CO2 can be produced without any offset.
Blockchain can be a great tool for helping
These carbon markets can be made more efficient by the use of blockchain technology. There have been many advances in computational technology. Blockchain technology can help in credit creation and verification. R.A. Wilson is chief technology officer of 1GCX digital carbon offset trading platform.
“Blockchain can vastly improve existing bottlenecks within the current carbon credits market, including issues surrounding fraud and misrepresentation and duplication of credits. While these improvements will be crucial for scaling the carbon credit market and building more trust within the industry they are only one part. To scale the tokenized carbon credits market to its full potential, the industry will also require participation by trusted and established carbon credit providers, as well as collaboration with regulators and government agencies.”
KLIMA DAO has been instrumental in the development and accessibility of the voluntary carbon market. It is building a decentralized infrastructure which makes it more transparent. It distributes rewards and sells bonds to KLIMA tokenholders. Every bond sale increases the green treasury’s size or provides liquidity for environmental assets.
Nori is another market for carbon credits that uses blockchain technology. It was created with farmers in mind. This project helps farmers to adopt regenerative agriculture projects in order to reduce CO2 from the atmosphere.
Tegan Keele (KPMG U.S. Climate Data and Technology Leader) told Cointelegraph blockchain has the potential to help carbon credit markets with traceability.
“A credit can be traceable but not high quality — blockchain won’t inherently solve the quality problem, but it can help validate when a credited producer makes statements regarding origin or quality.”
But not everyone is convinced. Director of the Giving Green Earth climate initiative Dan Stein believes that the problem goes beyond double counting and traceability.
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Stein explained to Cointelegraph blockchain-based climate solutions can be a smokescreen. The real problem with carbon credits lies in their quality.
“If anything, chain-based carbon credits exacerbate this problem by creating a credit as a commodity when it is instead a differentiated product. In fact, I’ve heard stories of companies ‘laundering’ old offsets that they couldn’t sell any other way onto these chain-based solutions.”
He added that by making transactions easier, “it turns credits into more of a commodity, and everyone treats them as the same. What has happened in practice is that project developers have taken old low-additionality credits that they can’t sell in a normal market and loaded them ‘on-chain,’ where suddenly they have found new buyers.”
Both praise and criticism have been levelled at the use of blockchain technology to combat climate change. Decentralized tech is being used to integrate global solutions for certain aspects. On the other, climate activists believe that current blockchain solutions aren’t as helpful and only focus on tokenization.
It will be fascinating to see what projects are successful and scale up to address the climate change challenges in the future.