Using Digital Currency for Climate Markets

The need for reducing carbon emissions is increasing. How can blockchain help in the quest to eliminate carbon emissions?

Climate change has created a rapidly growing global market for a digital eco-commodity called carbon credits. Current estimates value these carbon markets at over $100 billion annually. A carbon credit represents one metric ton of CO2 and is connected to efforts to reduce carbon emissions that cause climate change. 

Carbon markets are one of the best tools that companies and policy-makers have for reducing carbon emissions, putting a value on a ton of CO2 so that markets can get to work creating price signals for reducing emissions. Various initiatives over the years have created a global patchwork of carbon markets that are now looking to interconnect as part of the UN Paris Agreement.

Related: Green Policy and Crypto Energy Consumption in the EU

The UN Paris Agreement to combat climate change was agreed in 2015 and became operational this year. One of the cornerstones of the Paris Agreement is the ongoing creation of carbon markets within and between countries. All of these interconnected systems will need to rely on the transparent and accurate accounting of carbon emissions and carbon removals at the national and regional level. At the subnational level, companies will also need to account for their carbon emissions. It’s no wonder that blockchain solutions are being heavily discussed to make the Paris Agreement and future carbon markets operational.

Early carbon markets started in 2005, but they have been mainly used by governments and large companies in Europe and the United States, and most of the deals are over the counter or on centralized regional exchanges.

There have been a few groups announcing projects in the past to tokenize carbon credits, but 1PLANET is currently the first to launch with a functioning DApp that allows users to immediately utilize ERC-20 tokens to mitigate or “offset” their carbon emissions.

“Combining a digital commodity with a digital crypto-token makes a lot of sense. We see blockchain and smart contracts as the future of carbon markets and have been preparing for this through the development of our 1PLANET token and marketplace,” stated Jesse Uzzell, CEO of Climate Futures.

But will a tokenized carbon credit find buyers and end users? One fact is that carbon credits were the best-performing commodity in Europe in the last couple of years, and saw a price increase of over 400% from 2018. Currently, a metric ton of CO2 in the EU market costs about $26. While prices vary, economists in the U.S. and elsewhere are calling for CO2 to cost between $40 to $100 per ton in the coming decade. Besides, in 2021, all international flights will be covered by a new program called the Carbon Offsetting and Reduction Scheme for International Aviation, which will boost demand for eligible carbon credits. With companies such as Amazon and Microsoft recently announcing big programs to reduce their net carbon emissions, it seems that blockchain has a robust new use case and huge markets to help reduce carbon emissions.

Consider the enormous value and supply chains of companies such as Amazon, Apple, BP, Delta and other whales that have recently committed to going carbon neutral. They cannot reach carbon neutrality without using carbon offsetting (the use case for carbon credits), and most explicitly include carbon offsetting plans in their climate commitments. They also cannot control all of the suppliers and contractors that are upstream and downstream of their operations, but it is not far-fetched to see these companies developing carbon emission reporting and offsetting tools using blockchain technology such as Hyperledger to track and lower their carbon emissions as part of supply chains.

This is not only for internal compliance with corporate goals but also because these companies and suppliers will operate in more and more countries with carbon markets in the coming decade or even deal with cross-border carbon tariffs. These emerging carbon market developers are all looking to blockchain technology to increase transparency and climate action.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Oluwatobi Joel is a U.S.-based freelance copywriter, community manager, blockchain expert and serial entrepreneur. He has worked with various blockchain startups as a marketing strategist.