Carbon markets play a pivotal role in achieving global climate objectives, especially in the immediate and intermediate future. Carbon credits, which are linked to a vast range of climate action projects (including clean energy or reforestation projects), can make a meaningful contribution to climate action, supporting countries and corporations in their race to net-zero. Certainly, according to IETA, carbon credits could slash the cost of achieving Nationally Determined Contributions (NDCs) by $250 billion by 2030. This would effectively allow for 50% more emissions reduction at no extra expense.
And yet, when it comes to boosting the transparency and efficiency of these markets, there is still work to be done. Digital technologies have an important role to play here. There is fast-evolving technological innovation in this space and the emergence of new platforms and technologies offer fresh opportunities to support transparency, interoperability, reduction of transaction costs and enhancement of carbon markets integrity.
The Climate Warehouse Program is a crucial initiative that fosters and cultivates cutting-edge technology for positive climate action. To this end, the Program prototypes, tests, and develops digital infrastructure to address key challenges within carbon markets. These challenges include a lack of transparency, trust and integrity, as well as the challenge of keeping data secure, accurate, robust and auditable, whilst ensuring interoperability and efficiency across the market. The Data Layer was successfully prototyped and tested by the Program, and focused on specific areas including compliance reporting, transacting, and benchmarking services.
The CAD Trust operational platform is the culmination of three years’ prototyping and testing with more than 30 carbon market stakeholders, including 11 national governments and 75 testers across 58 testing sessions. Participants included the UNFCCC, UNDP, Verra, Gold Standard, American Carbon Registry, Global Carbon Council, Climate Action Reserve, GenZero, as well as the national governments of Chile, Japan, Peru, Rwanda, Senegal, Singapore, Spain, Sweden, Switzerland, United Kingdom, and Uganda.
What emerged was an open-source data system that used distributed ledger technology – specifically blockchain technology – to create an immutable, auditable, and decentralised record of carbon market data.
CAD Trust and Article 6 implementation
CAD Trust has the potential to become an important enabler of Article 6 cooperative approaches. Article 6 acknowledges that countries can pursue voluntary cooperation in the implementation of their NDCs to allow for higher mitigation ambition and to foster sustainable development. Article 6.2 outlines the possibility of cooperative approaches and the transfer of Internationally Transferable Mitigation Outcomes (ITMOs) between different actors, including countries and private sector companies, through bilateral agreements.
CAD Trust supports and generates digital linkages between internationally compatible national registry systems, providing an aggregate view of projects and easing integration between disparate registry systems. Through a consolidated and user-friendly metadata layer, any information about specific units and projects can be instantly extracted to provide the basis for compliance reporting and auditing of information. By transparently providing information on the lifecycle of projects, issued units, and the movement of units, registries provide assurances through CAD Trust that units are not being double counted or spent.
Not only does this enhance the transparency and environmental integrity of carbon credit transactions and international markets, but it also offers a solution to fragmentation across standards and a lack of centralised registries between voluntary and compliance markets. This is incredibly important for countries intending to use carbon markets to deliver their contributions to the Paris Agreement. And since the number of these countries is growing – according to IETA’s review of the latest updates to Nationally Determined Contributions (NDC), almost 80% of countries are interested in using Article 6 trading provisions to meet their goals – digital infrastructure and tools that allow accurate tracking and reporting on the use of international credits need to be in place.
Now that the breakthroughs in Article 6 in Glasgow are beginning to settle into national plans and we know more about the rules, there is more certainty for both countries and companies wanting to explore the opportunities Article 6 offers. Previously, in the VCM, a buyer would have had to do about eight or nine checks in different registries to know what is going on with a project. With the emergence of the CAD trust platform, there will be a portal where they can see it all in one place. This will transform data management – real-time updates will be centralised, enhancing visibility for market participants and peers about country and private sector activities.
The Climate Warehouse Program, World Bank, IETA and CAD Trust continue to collaborate closely, driving towards a common goal of boosting transparency and enhancing the efficiency of carbon markets globally. CAD Trust serves as a noteworthy example of harnessing innovative technological advancements to achieve positive climate impact.
Dinesh Babu, Executive Director, CAD Trust