Blockchain tech: the answer to what ails the carbon-credits market?

WHO doesn’t want to do their bit to help save the planet? This might sound like a no-brainer but, to the uninitiated, it can feel like you need an Einstein-sized intellect to figure out how best to curb your carbon footprint.

The myriad options and terminology out there can come across as being complicated, confusing and – let’s face it – a bit of a hassle. No matter how sincere our intentions, most people and businesses just want a simple, easy way to do their part – a straightforward route to compensate for their climate-changing activities and salve their consciences.

Carbon credits are a vital tool when it comes to financing the sequestration of the world’s unavoidable emissions – through safeguarding our existing forests and planting new ones – and other future cutting-edge projects. They are a clever way of scaling finance to tackle the climate crisis, by allowing emission-removal initiatives to commoditise sequestered carbon, while enabling businesses to offset their carbon emissions by purchasing credits to fund the projects.

But the market can be complicated and, with some inevitable middlemen out to make a fast buck, prices vary significantly and can be vastly inflated. When you also factor in poor traceability, lack of transparency and obscure pricing, you can be left with undermined credibility and confidence in the product.

The carbon-credit market is still essentially operating as a cottage industry. There is little consistency in pricing, and these prices often do not reflect the costs of delivery. Some brokers are buying cheap carbon credits and selling them at hugely marked-up prices, while there are others who are putting pressure on project developers to drive down prices – what they then sell them on to businesses for is anything but cheap.

These intermediaries have such control over the carbon market partly because of the old-fashioned, low-tech way it is administered – quite a dichotomy in such a forward-thinking sector. Current carbon-market intermediaries, therefore, have no incentive to change the system, because it makes them a lot of money, and it is highly centralised and very obscure, allowing for errors and manipulation.

But, blockchain technology – storing information as immutable blocks on a decentralised public ledger, secured by cryptography and negating the need for middlemen – is one way of solving the current problems in the carbon market.

Vitalik Buterin, co-founder of Ethereum, has an interesting analogy: “Most technologies automate workers on the periphery, blockchains automate away the centre. So instead of, for example, putting the taxi driver out of a job, blockchain puts Uber out of a job, letting the taxi driver work directly with the customer.”

This principle lets project developers mint their carbon offsets as tokens on the blockchain and sell them directly to individuals and businesses. So, 100 per cent of the sale price goes straight to the project developer, cutting out the middleman completely. It is a straightforward, accessible and efficient way for both buyers and sellers of credits to take meaningful action.

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Credibility is enhanced because the public nature of the blockchain ledger means it is verifiable – buyers can double-check the provenance of carbon credits and trace them back to the original project developers. Blockchain also makes the auditing of carbon offsetting much easier. 

However, while blockchain technology can bring significant benefits to the outdated and opaque carbon-credits market, it is important that it is applied with the most rigorous standards in mind.

Ultimately, it is important to get more funding into the hands of more project developers, to help rapidly scale climate action and avoid the worst aspects of global climate change. That is what this whole market is about, after all: funding carbon reduction and removal efforts, and not about making money for a select few middlemen.

While the carbon market is not a silver bullet in combatting runaway climate change, it is a key part of the solution and an important step in the right direction. But, to achieve that result, the market needs to prioritise evolution over excessive profit.

The use of blockchain technology is a major step forward in eliminating the middlemen and excessive profits within the carbon market, allowing the market to concentrate on the main aim – which is, funding carbon reduction and removal efforts for the good of everyone on the planet.

The writer is co-founder and council member of JustCarbon, a blockchain-powered marketplace that aims to simplify the offsetting of carbon emissions.