Blockchain and the Voluntary Carbon Market: A Promising Partnership or Pipe Dream?
The voluntary carbon market has been in the spotlight recently, with CO2 prices reaching new highs, huge companies being exposed for using “phantom” offsets, and lastly, Verra’s announcement of its approach to third-party crypto instruments and tokens.
While some of these events may seem negative at first glance, taking a deeper look, they bring awareness to the market and its issues and lead us to find more efficient and lasting solutions. For instance, Verra, one of the leading companies in the carbon market, has recognized the advantages of blockchain for carbon offsets and has deemed it a feasible way to improve the Voluntary Carbon Market (“VCM”) as a whole. Could blockchain really be the long-term solution we’ve all been looking for?
Yes and no. Blockchain technology holds great promise as a solution, but if not implemented correctly, it could perpetuate the same mistakes made in the past. Now, what are the key factors that should be taken into account when linking carbon compensation to blockchain technology?
Double Issuance and Double Counting
Double counting happens when the same carbon offset is used twice. This happens because the current carbon market lacks a transparent record for verifying when offsets are used. Using blockchain technology could solve this issue, however, the bridging system described in the Verra 170-page document poses a safety risk due to its technical complexity, increases the potential for double counting, and is more vulnerable to exploits. Why? The simple act of transferring credit from off-chain to on-chain results in duplication. Plus, the need for a middleman to operate this system increases its vulnerabilities.
The use of blockchain in the carbon market might provide a level of traceability and transparency for carbon offsets. However, this does not necessarily guarantee that actual carbon capture is taking place. Many carbon offset projects ceased to exist long ago but their carbon offsets remain in circulation. It is against the interest of the carbon sellers to constantly verify the status of these offsets, hence why they remain in circulation.
Using smart contracts to automate offset creation can resolve this issue. By having a smart contract specifying that tokens are generated only when certain conditions meet, a middleman becomes unnecessary and the process becomes transparent to everyone.
Additionality of Carbon Capture
Additionality refers to the concept of ensuring whether the carbon offset project is truly reducing emissions beyond what would have happened naturally or without the implementation of the project. This is an important consideration when verifying the validity of a carbon offset, as it ensures that the offset represents an actual reduction in carbon emissions. Blockchain itself does not guarantee additionality.
Measurement, Reporting, and Verification of greenhouse gas mitigation
Measurement, Reporting, and Verification (MRV) is a system that ensures that the quantities of greenhouse gases (GHG) being released into the atmosphere are accurately reported and verified. This is a vital component for the Carbon Market to operate effectively and for carbon offsets to be trustworthy and credible.
This concept originated in the late 1990s and early 2000s, as countries and international organizations began to take serious action to address climate change. Real-world data is necessary to validate CO2 compensation and due to limited resources, the MRV process was not rigorous enough to prevent the creation and utilization of fraudulent offsets. But now blockchain technology provides a solution.
Chainlink offers a secure and reliable connection between the blockchain and off-chain data sources via its decentralized network of nodes run by independent operators. These nodes verify the information they receive and then supply it to the requesting smart contract. This allows blockchain applications to securely access external data and interact with it in a trustworthy manner without a need for a middleman.
The need for a new standard
An alternative way of addressing all of the issues above is to incorporate blockchain into the carbon cycle in its entirety. But new technology requires a new standard with better quality criteria, this is why we created our own: the Coorest Carbon Standard (CCS).
Coorest, a Polygon-native project, is the first blockchain project to have a certified standard for carbon compensation entirely on-chain — allowing anyone with an internet connection to verify every step of the process at any given time and making carbon compensation completely transparent. Introducing a new level of accountability, the new standard includes satellite monitoring of carbon capture projects, validation of carbon capture with satellite data via the Floodlight Chainlink node, and requires all the activities related to carbon compensation to happen on the blockchain.
Let’s break down how the new standard works:
- The real tree or planting area is represented digitally as an NFT* that contains the GPS location of the real area in its metadata.
- The real tree or planting area absorbs CO2, and in response, the NFT generates CO2 tokens. The tokens are generated second by second, in proportion to the trees’ absorbed carbon.
- If a tree dies, or if there are any changes in the planting area, the amount of CO2 tokens generated by the NFT gets altered immediately. How? The tokens are minted through smart contracts** and two main conditions need to meet for such tokens to be minted: CO2 absorption calculations and satellite data. If the satellite identifies changes, it sends the information to the blockchain via Chainlink, and the smart contract will stop generating tokens.
- Accumulating CO2 tokens is like having carbon debits. Each CO2 token represents 1kg of absorbed CO2 and you can use it to offset your emissions by burning them. Burning CO2 tokens removes them from the circulating supply and ensures that they can never be used for compensation again. Once the tokens are burnt, a different NFT, called Proof of Carbon Compensation***, is generated and automatically sent to the wallet of the person or business that compensated for their footprint.
Through this method, we ensure that carbon capture is occurring and eliminate the possibility of double-counting or double-selling. But what about additionality? Only projects that fulfill specific requirements, including additionality, for instance by planting new trees, can be onboarded by us. Therefore, only these newly planted trees can produce CO2 tokens, guaranteeing that the carbon capture is additional and could not have happened otherwise.
Furthermore, to ensure the permanence of carbon projects, we have taken the lead in creating the first-ever on-chain insurance for carbon offsets in partnership with top industry players like Chainlink, Polygon, Etherisc, and Floodlight This provides added security to reforestation projects that generate CO2 tokens, mitigating the financial impact of natural disasters such as fires, floods, and storms, increasing their financial stability and strengthening the credibility of CO2 tokens even further.
Carbon credits belong to the past, tokenized CO2 is the future.
*Non-Fungible Token: a digital certificate of ownership that anyone can view and confirm its authenticity, but no one can change.
**Smart Contracts: blockchain programs that automatically run when certain conditions are met.
***Proof of Carbon Compensation Certificate includes the date and the amount of CO2 compensation, the identity of the compensator, the reason for compensation, and the transaction hash.