The World Bank’s division International Finance Corporation (IFC) has launched a project to use blockchain to record carbon removal projects and to turn carbon credits into tokens for cryptocurrency investors to speculate with.
After several cases of cryptocurrency enthusiasts buying carbon credits that do not do much good for the climate, this project’s supporters want to keep these buyers, but direct them to carbon credits verified by organizations such as Verra and Gold Standard.
Steve Glickman, an Obama-era White House official whose company Aspiration is part-financing the project, told Climate Home that “we haven’t seen nearly as much capital and nearly as many institutional investors … as we need to see to have the kind of impact on nature-based carbon removal and reduction strategies required for us to reach net zero”.
“Our analysis of why it’s slow,” he said, “is that there are real questions in the market around how you would do these kinds of carbon credits, invest in a very credible and responsible way, and so we want to build the methodology mechanisms. to do that … and that’s where blockchain comes in.”
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The blockchain is a computerized system that uses digital keys to prove and show who owns what. A blockchain combined with a central registry of carbon credits helps to ensure that those implementing green projects do not sell the credit for one tonne of emission reductions to more than one buyer.
Gilles Dufrasne is policy officer for a watchdog NGO called Carbon Market Watch. He said this kind of transparency was “helpful”.
Rachel Kyte is the former CEO of Sustainable Energy for All and leads an initiative to promote integrity in carbon credits. She told Climate Home: “Blockchain offers opportunities to build high-integrity voluntary carbon markets, and it’s good to see the IFC looking at ways to bring high integrity to many developing countries that could benefit.”
But Dufrasne warned that the information provided must be understandable to be truly transparent. He said financial technology (fintech) companies often claim their projects are transparent because all the information is public. “It may be transparent, but it’s not accessible because no one understands how it works except the fintech people,” he said.
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Blockchains can use a lot of energy. But this project uses a blockchain run by a company called Chia that relies on a system called “proof of space and time” that uses far less energy than the “proof of work” system used to produce Bitcoin.
Catherine Flick, a computing academic at De Montfort University, told Climate Home that this method “is less problematic but relies on the miners proving they have space to store the data (so memory and hard drives) for a period of time. So instead for energy use there is demand for storage which is problematic in terms of electronic waste and demand for rare earth metals and chips required for storage.
Companies buy carbon credits and retire them to offset emissions, but investors also buy them and don’t retire them, hoping that the price of carbon credits will rise and they can sell them at a profit. Or companies can acquire cheap carbon credits and withdraw them when the price is high, polluting for less than they would otherwise have done.
Glickman said: “From our point of view, it doesn’t matter why you go into this to invest, that capital is going to support the climate finance that is needed to support these projects, and we think it’s good that there are multiple ways that these the carbon credits can be liquid beyond just being retired against a carbon footprint.”
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Turning credits into “tokens” is an attempt to attract investors who have been caught up in the “non-fungible token” (NFT) craze where people have paid up to $69 million to be recognized as the “owner” of digital art .
Dufrasne said buying a carbon credit, whether it’s an NFT or not, doesn’t help the climate unless it’s retired rather than resold. He said: “I’m not under the impression that so many players in the cryptocurrency space are there to just buy these tokens and then make them disappear, because then they have nothing else to sell.”
While blockchain can help avoid double counting, it doesn’t help solve other problems with carbon credits such as whether the emission reductions required would not have happened anyway and whether the emission cut projects will survive as long as the credit sellers claim.
