With the hype around web 3.0, it’s important to be mindful about which decentralised approaches to deploy in carbon markets, and – importantly – how to deploy them.
This is why it’s important that when a token is marketed as a carbon credit or as delivering the impact a carbon credit represents – one tonne of CO2 permanently prevented from entering the atmosphere – it is professionally and independently verified.
Of concern, there are a number of emerging initiatives that implicitly or explicitly market themselves as carbon credits, yet are not.
Klima DAO made a splash with their launch in late 2021, backed by celebrity investor Mark Cuban.
Yet when some very cynical actors bridged 670,000 VCUs from a HFC23 decomposition project in Yingpeng, China, a project type that had been effectively discredited in the early 2010s, the liquidity tradeoff became very clear.
Proponents of blockchain celebrate its capacity for transparency.
Fully capturing the detailed attributes of carbon credits can counter the negative impacts of commodification and incentivise carbon projects with deep sustainable development impact.
This means that any secondary market, blockchain-based or otherwise, must be in compliance with the issuing standard’s Terms and Conditions to ensure legal ownership of the credit and rights to claim the underlying impact, and must communicate any change in status of the credit back to the registry.
Simply issuing a token does not confer legal rights to the underlying credit or impact the token is said to represent.
Proper integration with the issuing standard and its legal terms allows for harmonisation with national and global registries needed report accurately on progress to the Paris Agreement, avoiding double counting and double claiming.