How blockchain technology addresses the double counting of carbon emissions
Recently, the global carbon market has been beset with major credibility problems that call into question the effectiveness of voluntary carbon markets. As the voluntary carbon markets continue to grow and be scrutinised, the issue of double counting has raised the question as to whether these projects are producing results that contribute meaningfully to the Paris Agreement goals and the United Nations Sustainable Development Goals.
Companies looking to invest their capital in carbon credit projects are now trying to find the best ways to offset emissions that can conceivably help them embark on their journey to net zero. To do this, they will need to understand what double counting of carbon credits is and how to avoid it.
Double counting refers to when the same carbon credit is counted more than once in the system. This means that an issued carbon credit is duplicated in a registry or is sold or claimed more than once.
Why is ensuring due diligence on carbon emissions so important?
Due diligence ensures that projects that reduce or remove carbon emissions deliver demonstrable environmental benefits. This maintains the integrity of carbon credit projects and prevents greenwashing, where projects overstate their environmental impact.
Currently, project developers evaluate carbon credit projects using their own processes and methodologies to track emission credits and report on country-level data and targets. This inconsistency of reporting can
result in scepticism, decreased trust in the carbon markets, and loss of confidence between both buyers and sellers.
For voluntary carbon markets to function as a cohesive system that allows the buying and selling of carbon credits on a voluntary basis, carbon credits must be generated by carbon projects that have a truly positive impact on the environment. These projects must be characterised by legitimate and robust reporting in order to maintain the trust and credibility of investors, buyers, sellers and the general public.
Benefits of blockchain technology in tackling double counting
Emerging digital technologies play an important role in creating a common data system that can collect and structure all openly available carbon credit data to improve transparency, trust, and integrity.
In particular, blockchain technology can help with the tracking of carbon footprint, transactions, and carbon emissions data across the entire value chain, assuring end-to-end traceability. It does this by leveraging its decentralised ledgers, open verification systems, immutability of records, smart contracts, and automated processes, among others.
This is one way to ensure that the market has a transparent system that can work in tandem with Article 6 of the Paris Agreement, allowing countries to voluntarily cooperate with each other to meet emissions reduction targets set in their Nationally Determined Contributions. For now, Article 6 takes a bottom-up approach, allowing countries to feed their plans into international frameworks. However, it lacks clear, concerted guidance on linking disparate registry systems – which presents a clear challenge to accurate reporting and verification of GHG emissions reductions.
The decentralisation of blockchain technology also increases data security as it is near impossible to make unauthorised changes on any data that is added to the blockchain.
Data ownership is increasingly becoming an important ethical consideration in technology adoption. The benefits of blockchain technology in ensuring data is protected and that the right controls are in place to access the data so that data quality is understood, measured, and managed is highly critical.
The Climate Action Data Trust (CAD Trust) is one of the use cases that adopts a public and permissionless blockchain technology to address the double counting problem. CAD Trust acts as a line of defence when registry data appearing at metadata layer of CAD Trust is double counted.
The open-source data system is designed to bring together real-time, comparable, and verifiable emissions reduction data from disparate registry systems around the world so that these registries can own and control their data on a central platform. By creating an immutable, auditable, and decentralised record of carbon market data, it facilitates data sharing in line with the Paris Agreement that can detect double counting.
The growing interest in open-source, decentralised systems is evident among carbon market players. Digital platforms such as CAD Trust exemplify this trend, providing a robust infrastructure that prevents double counting and ensures interoperability of systems. Such tools will transition to a one-size-fits-all model that will benefit the entire economy.
Evan Kong, Technical Director, Climate Action Data Trust