Debate Escalates Over Quality of Blockchain Carbon Credits – Ledger Insights
Despite the potential of blockchain as a tool in the fight against climate change, the quality of carbon credits is far from homogeneous. Over the past week, several public blockchain projects have been criticized for the quality of the carbon credits used. Thomson Reuters questioned the Moss crypto carbon credits, and CarbonPlan reiterated its criticism of the carbon funds used by KlimaDAO’s crypto tokens and the Toucan protocol. KlimaDAO used more than 1 million dollars in treasury funds to retire the lowest qualities.
What is particularly unfortunate is that these are perceived as higher quality carbon blockchain projects, while some others are borderline scams.
In May, the Verra carbon register and standardization body suspended the tokenization of the carbon credits in its register and subsequently launched a consultation.
CarbonPlan at KlimaDAO
It is perhaps no coincidence that last month CarbonPlan wrote an article – “Zombies on the blockchain” – that questioned the age of the credits used by Toucan and KlimaDAO, saying they are so old that they do not represent robust climate benefits. The same piece raised “fundamental questions about quality control at the largest conventional carbon offset registry, Verra.”
The Toucan protocol is used to tokenize conventional credits, bridging the gap between the offline and blockchain worlds. These tokens are then used in a composable way by KlimaDAO.
To refute CarbonPlan’s criticism, KlimaDAO commissioned an “independent” report from AlliedOffsets on the Base Carbon Tonne (BCT), one of Toucan’s main pools of offsets criticized by CarbonPlan. Instead of releasing the “independent” report, KlimaDAO published its own analysis of the report. (We requested a copy from AlliedOffsets but did not receive it in time for publication).
CarbonPlan again rejected that analysis and criticized a subset of the Toucan BCT pool, which tokenized low-quality HFC-23 credits banned in Europe. While Toucan later stopped adding those kinds of credits, they still exist in the pool.
Today, KlimaDAO announced that it had withdrawn all of the HFC-23 credits using its own funds, at a cost of just over $1 million. “Both market commentary and available data on the HFC-23 credits show us that this credit is considered low-quality at best and worthless at worst,” said Drew Bonneau of KlimaDAO.
Shortly after Verra suspended tokenization, a review of nearly 40 blockchain carbon projects found Toucan and KlimaDAO to be the most “mature.”
Thomson Reuters and Moss.earth
On Tuesday, Thomson Reuters published a report referring to tokenized carbon credits as “sub-prime,” an analogy to the mortgage market. The focus was another high-profile project Moss.earth, which has a token backed by tons of carbon and has issued NFTs.
The report makes two claims: that the quality of the carbon assets is low, and that the company is primarily a monetary effort that sells the tokenized credits at a minimum of 200-300%.
While the Moss tokens are less crypto-like than the KlimaDAO tokens, Thomson Reuters claims it has seen documents showing it bought millions of wholesale credits for $2.50-$3.54 and sold them as tokens for at least $10, sometimes as high like $19. It also says that the Moss boss refers to himself as the “Wolf of Amazon” in a nod to the Leonardo di Caprio character in “Wolf of Wall Street”.
The report cited legal documents for a sustainable cattle breeding project where Moss’s lawyers demanded damages due to the low quality of the project and the lack of Verra registration. Nevertheless, the displacements were allegedly tokenized after bundling them with others.
One key takeaway is that despite blockchain’s transparency, there seems to be a lack of it when it comes to carbon tokenization. This must be addressed in order for the sector to establish credibility.
