The role of blockchain technology and robust digital infrastructure in shaping the future of carbon markets

Carbon markets have emerged as a critical instrument to mobilise and channel capital flows into projects that support the transition to net-zero. However, for carbon markets to maximise its potential, it is imperative that carbon markets data is credible and accurately tracked.

To address this, blockchain technology offers a value proposition to enhance the transparency and efficiency in carbon markets. By leveraging its decentralised ledger, open verification systems, immutability of records, smart contracts, and automated processes (among others), this technology can help with the tracking of carbon footprint, transactions, and carbon emissions data across the entire value chain assuring end-to-end traceability. The decentralised approach of blockchain can also help to connect registry systems in a peer-to-peer network and identify the issue of “double counting” of carbon credits.

Divergent views about the use of blockchain technology are ongoing, such as assessing the technological maturity of blockchain systems, use of crypto currency (wallet), and the high energy consumption of blockchain network that may result in reduced efficiency. Other challenges include integrating a decentralised system with centralised regulatory bodies, scalability issues, and the environmental footprint of the blockchain. Nevertheless, there are also relevant use cases offering a holistic solution to current challenges in carbon markets. Namely, the Climate Action Data Trust (CAD Trust), where its open-source metadata system uses distributed ledger technology to create an immutable, auditable, and decentralised record of carbon market data.

CAD Trust leverages on Chia Network’s Data Layer that is built on a public and permissionless blockchain technology to connect disparate registries across the world, enabling greater interoperability amongst registries in carbon markets and enhance the efficiency, transparency and trust in the realm of Article 6 requirements of tracking, accounting and reporting.

CAD Trust recently welcomed the first transaction of tokenised carbon credits leveraging its platform. The tokenised carbon credit transaction announced by the Carbon Opportunities Fund and Sumitomo Corporation of Americas (SCOA), saw SCOA purchasing the first batch of carbon credits tokenised on the Chia blockchain, through CAD Trust. Working with EcoRegistry, a carbon registry that has recently connected to CAD Trust, the Fund tokenised 10,000 tons of carbon credits on the Chia blockchain, minted as Chia Asset Tokens. Once the carbon credits are minted, the Fund is able to simply execute the transactions by sending the tokenised carbon credits to the purchasers.

The first set of transactions completed on the chain represents a major milestone for CAD Trust and is a testament to the robustness of this infrastructure and to its role as the anchor of the overall end-to-end digital ecosystem for carbon markets laying the foundational data layer in harmonised and aggregated form. Tokenisation and tracking on CAD Trust will further improve the transparency and integrity of carbon trading, facilitate the integration of different carbon markets, thus, making it easier for participants to trade credits across borders and platforms. Building on this, Mark Lyra of SCOA said in a press release:

“The decentralized nature of blockchain technology makes it highly resistant to tampering or fraud. This can provide additional assurance to participants in the carbon market that their transactions are secure. In addition, interoperability is potentially disruptive, and CAD Trust can facilitate the integration of different carbon markets, making it easier for participants to trade credits across borders and platforms. This can increase the liquidity and overall value of the carbon market, including the creation of new carbon asset classes.”

CAD Trust welcomes innovators like SCOA, and we look forward to seeing the market evolve with initiatives that provide greater access to carbon market participants who are committed to digital solutions to facilitate global climate action.