ANZ says blockchain can build a better carbon market

The current carbon credit system has come under heavy criticism for potential conflicts of interest and lack of transparency and is the subject of an independent review.

He described the market as immature and defined by “often unclear carbon credits and rather clumsy ways of trading – and yet we want to move to a world enabled by digitized tokens and decentralized finance.”

He said ANZ believed an exchange using “tokenized” carbon credits (digitalized contracts exchanged via blockchain) would offer the best chance of creating an efficient, liquid global market for issuers and investors.

“Our ability to tokenize carbon credits and offer a digital means of settlement with our stablecoin is a great example of how we believe we can participate in the transition and help accelerate it,” he said.

ANZ is already experimenting with the new infrastructure. In June, private investor Victor Smorgon Group used A$DC to buy Australian Carbon Credit Units (ACCUs) that had been “tokenized” by BetaCarbon, a carbon trading platform, to create digital security tokens known as BCAUs.

Mr O’Sullivan said NFTs can be used to create a secure representation of a carbon offset; for example codification of where the credit comes from and results, which will also help the secondary market for trading the new securities.

“One of the main challenges in looking at carbon offsets is gaining confidence in provenance, whether they are real and whether they will be delivered,” he said. “We believe these challenges can be mitigated by verifying and codifying project-specific credentials using non-fungible tokens, which addresses many of the concerns surrounding greenwashing.”

Wendy Mackay, chief executive of Pollination, told the event that creating liquid markets using new technology will not only help value carbon, but also natural resources as banks are pushed to engage with biodiversity.

“We need to radically change economic systems and financial systems because the scale of change that needs to happen is huge,” she said. “There are trillions of dollars of investment required here… We need to change the rules and help investors who come to us and say there’s not enough product at the moment.”

The event at the ASX was attended by Reserve Bank Governor Philip Lowe, ASX CEO Helen Lofthouse and the head of payments policy at the RBA, Ellis Connolly.

Pivot point

Andreas Furche, executive director of the research center, said blockchain technology could help turn an ownership register, usually seen as part of the back office, into a transaction engine to allow trading of digitized representations of a wide range of instruments. It creates “exchange, clearing and settlement together to become a transaction,” he said. “Blockchain has started to make people think differently.”

Jones said the Albanian government strongly supported the development of digital financial applications to improve the efficiency of the financial system, within appropriate “safeguards” to protect users.

“It is no exaggeration to say that we are at an inflection point in the way commerce is done, and no greater inflection point than the invention of money as a medium of exchange, the digitization of everything including the currency itself. It is exciting, while creating enormous challenges for regulators and business, he said.

The government is “delighted” to see the Reserve Bank exploring potential use cases for a “central bank digital currency”, and he said he was excited about the “tokenization” of real-world assets because “this is an area where consumers will see a direct and real advantage”, and points to new ways of entering the property market.

Last week, the government said it would proceed with a “token mapping” exercise to define different crypto tokens to inform its future approach to regulation.

“We want to get the regulation right because we want to make sure that the railings are sufficiently wide apart for innovation to happen, but we want to make sure that innovation happens within a safe ecosystem,” Jones said.

The DFCRC will also study the use of blockchain and digital currency by the mining and minerals industry, along with the potential use of central banks’ digital currency and stablecoins in ‘decentralized finance’, where blockchain is used to mimic traditional banking without intermediaries.

The members of the DFCRC board were at the event on Monday evening: former ASIC chair Greg Medcraft, Trovio Jon Deane, CFO of Challenger Rachel Grimes and media manager Clare Gill, and professors Julie Cogin of RMIT and Dan Johnson of Macquarie University, along with former senior federal bureaucrat Neville Stevens, who is chairman.

Stevens praised the Hawke government for establishing the CRC program, while Jones credited the previous government with giving the DFCRC $60 million (which was matched by private funding to bring the total to $181 million). “It was a commitment from them, taken up with new energy, drive and motivation by the Albanian Labor government,” he said.

“Disintermediation in Real Time”

Mr O’Sullivan said DeFi, artificial intelligence and the rise of Web3 “will accelerate the pace of change, not stabilize or slow it down”.

“One of the things we are witnessing in real time is the disintermediation of the traditional value chain of big banks,” he said.

“Once where we had to do everything from end to end, these technologies increasingly make it easier for someone else to find a better or cheaper way of doing things and come in and disintermediate that part of the value chain. The reality is that it will happen whether the banks choose to participate or not.”

The former head of Optus pointed to M-Pesa in Kenya as an example of how mobile phones in Africa had brought finance to the unbanked. While Australia had different challenges, “we will continue to see technology, telcos and financial services continue to merge and the lines between them become harder and harder to distinguish,” he said.

Using the Ethereum blockchain to trade carbon credits could expand access to emerging carbon markets to retail investors, while the technology could be used to facilitate micropayments to allow trading of alternative energy through apps.

Under the terms of the carbon credit agreement with Victor Smorgon and Zerocap, ANZ granted redemption rights for A$DC, ensuring that the tokens could be transferred back to Australian dollar cash. A$DC is fully collateralized by Australian dollars and is redeemable in line with funds held in an ANZ managed reserve account.

One of the first projects of the DFCRC, in partnership with the RBA, will involve the development of a limited-scale CBDC pilot that industry participants will be invited to engage with, to demonstrate innovative and value-added use cases for a CBDC. The project is expected to take around a year, after which a report on the findings will be published, including an assessment of the various use cases that have been developed, the RBA said last week.