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Harnessing Blockchain for Effective Carbon Trading

Updated: Oct 18, 2023

By Jaya Bijoor

Based on the 2022 State of the Global Climate Report by the World Meteorological Organization, the Earth has experienced record-breaking temperatures. Over the past thirty years, temperatures have surpassed those of any previous decade since the mid-1800s. Experts point to human-induced carbon emissions as the primary cause of temperature increases.

The International Emissions Trading Association claims that carbon trading is the most effective solution for reducing carbon emissions, as failure to do so will result in escalating

temperatures that would make it impossible for humans to survive. Carbon trading allows countries, organizations, or businesses to redistribute emissions. For example, a country with higher carbon emissions can buy emission allowances from countries with lower emissions. This system encourages nations to decrease their emissions, enabling them to sell their

excess emission allowances to other countries and generate revenue.

While carbon trading might be an effective way to reduce emissions, implementation has many challenges. First, there are many platforms for buying and selling carbon credits.

Different regions apply different policy standards to the sales process. Suppose companies or nations from other markets want to transact. In that case, they have to rely on intermediaries to navigate the process, which ultimately drives up costs and increases the transaction time. There is also a need for more transparency as entities self-report, and there is no way to verify information. The carbon trading markets also tend to focus on larger corporations, and there are barriers for smaller organizations and individuals to participate and buy carbon offset credits.

Applying blockchain technology remedies the challenges faced by carbon-trading markets. By migrating carbon markets to the blockchain, a unified system diminishes the necessity for intermediaries, thereby cutting down on transaction expenses. The blockchain ledger ensures the recording of all transactions, and the accessible sale data to network participants enhances transparency. Consolidating all transactions onto one global platform leads to a more comprehensive understanding of the consequences of emission reduction and reduces corruption prevalent in segmented markets. Additionally, transitioning to a decentralized system enables smaller players and individuals to engage in transactions.



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