World Economic Forum report on blockchain for climate focuses on crypto – Ledger Insights

Yesterday, the World Economic Forum (WEF) published a report on Blockchain for Scaling Climate Action. The focus is on the crypto side of blockchain, including incentive systems for regenerative finance. While many blockchain initiatives at the corporate end of the scale were overlooked in the report, the content is nevertheless valuable because the web3 world provides an opportunity to tap into retail finance for climate action.

As the report outlines, blockchain-based carbon registries offer a transparent digital record. So much so that the World Bank-backed Climate Action Data Trust is creating a registry to store data from multiple registries. In addition, blockchain can be used for measurement and reporting by pairing it with data collected from IoT sensors, smart meters and drone imagery.

To date, governments have recognized that the scale of money required for adequate climate action is beyond their finances. Therefore, there has been pressure to include companies with both mandatory and voluntary carbon credits and a number of other initiatives. The Web3 sector provides an opportunity to extend it to consumers, provided it can resolve the trust issues.

As the report states, “recent movement to ‘tokenize’ (i.e. digitize) credits has enabled fractional (i.e. sub-ton) ownership of credits, allowing individuals and smaller organizations to participate in the market.

One of the main authors of the WEF report is from the Toucan Protocol, which tokenizes Verra carbon credits. While the report does not focus on Toucan, our previous coverage found Toucan to be so successful that within months of launch it had tokenized 21 million tons of carbon, estimated to represent 2.25% of total credits. That kind of scale caught Verra’s attention, and it wasn’t happy with Toucan’s methodology. It wasn’t because Toucan did anything questionable, but because Toucan withdrew carbon credits at the time of tokenization. Previously “retired” meant that a carbon credit had been used up. Verra thought it was confusing and as a result Verra stopped tokenization and opened a consultation. It is in the final stages of creating an action plan.

The trust challenge

The WEF report highlights some of the industry’s challenges, including a multifaceted reputation. On the one hand, unrelated to blockchain, there is the potential for carbon offsets that can be used for corporate greenwashing. The report also acknowledges crypto’s reputation for fraud, which may be why the term “crypto” is barely used in the report. It glossed over the fact that the quality of crypto carbon credits in particular has been questioned.

Several recommendations have been made in the report to meet many of the challenges. But trust is a key factor. When Verra announces its proposals, there is a chance they will include Verra doing due diligence on the firms tokenizing their carbon credits, which would be a step in the right direction.