Carbon credits have become a crucial instrument for mobilizing and directing capital into projects that support the transition to net-zero emissions. However, in order for these markets to reach their full potential, it is essential that the carbon credit data within them is trustworthy and accurately monitored. To tackle this challenge, blockchain technology offers a promising solution to improve transparency and efficiency in carbon markets.

Decentralising carbon credit data reduces double counting

By utilizing its decentralized ledger, systems for verification, immutability of records, smart contracts, and automated processes, among other features, this technology can greatly assist in tracking carbon footprint, transactions, and emissions data throughout the entire value chain. This ensures that the traceability of these factors is maintained from start to finish. Additionally, the decentralized nature of blockchain can facilitate connecting registry systems in a peer-to-peer network, addressing the issue of “double counting” of carbon credits.

The use of blockchain technology in carbon markets has generated differing opinions. These include concerns about the maturity of blockchain systems, the use of cryptocurrency wallets, and the high energy consumption associated with blockchain networks, which can reduce effectiveness. Other challenges include integrating decentralized systems with central regulatory bodies, scalability issues, and the environmental impact of blockchain technology.

However, there are also notable use cases that offer comprehensive solutions to current challenges in carbon markets. One such example is the Climate Action Data Trust (CAD Trust), which leverages open-source metadata systems and distributed ledger technology to create an immutable, auditable, and decentralized record of carbon market data.

CAD Trust provides carbon credit data that’s open, transparent, and public

CAD Trust makes use of the Chia Network’s Data Layer, built on a public and permissionless blockchain, to connect registry systems worldwide. This enhances interoperability among carbon market registries and improves efficiency, transparency, and trust in tracking, accounting, and reporting in relation to Article 6 requirements.

CAD Trust recently announced the first-ever transaction of tokenised carbon credits using their platform. The transaction was made possible through a partnership between the Carbon Opportunities Fund and Sumitomo Corporation of Americas (SCOA). SCOA purchased the initial batch of carbon credits, which were tokenised on the Chia blockchain, through CAD Trust. To accomplish this, the Fund worked with EcoRegistry, a carbon registry that recently became connected to CAD Trust. The Fund tokenised 10,000 tons of carbon credits on the Chia blockchain, essentially creating Chia Asset Tokens. Once the credits were tokenised, the Fund was able to easily send them to the buyers.

Using blockchain helps build a robust infrastructure

This initial set of transactions is a significant milestone for CAD Trust and demonstrates the strength of its infrastructure. CAD Trust serves as the anchor for the overall end-to-end digital ecosystem for carbon markets, providing a harmonised and aggregated source of data. By tokenising and tracking the carbon credit data on CAD Trust, transparency and integrity in carbon trading can be improved. Additionally, it will facilitate the integration of different carbon markets, making it easier for participants to trade credits across borders and platforms. Mark Lyra of SCOA expressed his excitement about this development 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 is excited to welcome innovators like SCOA. We are eager to see the market evolve with initiatives that make it easier for carbon market participants to access digital solutions for global climate action.