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Navigating the Complicated Carbon Market with Blockchain Innovation

Updated: Oct 18, 2023

By Jaya Bijoor

The Complicated Carbon Market

In the 1990s, the voluntary carbon market was created so that companies could track and offset their CO2 emissions. But today, the market remains largely unregulated and highly

fragmented. Interested parties have been debating over which types of credits should be included and decision-making processes, but the adoption of blockchain could offer a promising solution.

Buying Cheap

Toucan hoped that other cryptocurrency projects would use its infrastructure, which would increase carbon credit prices due to the increased participation of crypto traders. KlimaDAO

collaborated with Toucan, another now-defunct organization aiming to tokenize carbon credits, to implement a strategy of rallying crypto enthusiasts to purchase the most affordable

carbon credits available. However, as most of these credits had not been actively traded for a considerable period, KlimaDAO's tokens artificially inflated the value of carbon credits that held no actual worth.

Initially, Toucan, functioning as an infrastructure provider, was thrilled about KlimaDAO's arrival. However, Toucan became increasingly concerned as scientists and carbon credit issuers distanced themselves from cryptocurrency-based carbon projects. This led Toucan to engage in lengthy discussions about eliminating ineffective credits from their system, ultimately prohibiting outdated and low-integrity credits.

Unfortunately, this matter shed light on fundamental shortcomings within the carbon market, such as the need for a uniform quality standard and the prevalence of subpar

projects that receive value despite their lack of environmental benefit.

As a result, a group of companies and sustainability specialists had to scale back its efforts due to the need for consensus on defining a reliable carbon offset project. Implementing various carbon reduction programs has raised concerns about their effectiveness, as trees within these initiatives can perish, burn, or be cut down, undermining any CO2 emissions offsetting they’d offered.

More Crypto Confusion

Planning and developing carbon-reduction projects face challenges due to the speculative nature of crypto markets. The entire crypto industry has recently experienced decreased

values, resulting in a slowdown of on-chain credits for carbon crypto projects. Since its launch two years ago, Toucan has witnessed the emergence of numerous new crypto carbon

projects, all competing for attention by presenting their unique twist. While certain projects collaborate and are compatible, others do not share this interoperability.

In March 2022, an executive order was signed by President Biden requesting research on the potential climate effects of digital assets. A blockchain committee focusing on climate has also promised to ensure that the entire cryptocurrency industry achieves net-zero greenhouse gas emissions by 2040.

Verra Halts Toucan’s Activity

Verra is leaning away from working with decentralized blockchain-based platforms and toward working with Carbonplace, an entity created by a group of banks, including CIBC and UBS. This would allow greater control over who buys credits and prevent them from being used for nefarious purposes like laundering money. Verra has not ruled out blockchain projects playing a role in this next stage of development but said banks are probably the direction things are going.

Despite Verra’s shift toward centralized platforms, blockchain companies will continue innovating due to the inherent benefits of decentralization, such as increased transparency,

security, and efficiency, which can provide valuable solutions for the carbon credit market. The potential for blockchain projects to complement or enhance centralized platforms in the future suggests that the technology will still play a meaningful role in the development of the industry.



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