Blockchain can help fix the carbon credit market, experts claim – but is it enough?

Experts have suggested that blockchain could provide a way to improve the fragmented carbon credit markets and help markets move towards a more sustainable future.

Jeff Renn, partner at the OKX crypto exchange, told By AM. that the “immutable nature of the dataset created and stored” by a blockchain can combat the fragmented and opaque carbon credit market.

Carbon credits, also known as carbon offsets, are permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases. However, the sector has been hit by claims that some credits are more accurate than others.

Renn said: “A fundamental problem [with carbon credits] are different standards and the different stakeholders in the space, and there are different certification agencies, for good and bad reasons”.

In addition, there is no centralized marketplace for the credits to be traded, which prevents a consistent carbon price from emerging.

Renn claims that this problem can be solved with blockchain. “Putting everything online is about keeping all the stakeholders honest, because otherwise it will be hard to tell one thing against the other,” Renn argued.

A blockchain is a type of distributed ledger technology, meaning that the data is spread around stakeholders. Once transactions are recorded on the blockchain, they cannot be changed later.

“All transactions that occur on the blockchain can be seen by anyone with a web browser, and this would bring a revolutionary amount of transparency to a previously opaque process,” he continued.

Manoj Mathew of technology firm Cognizant agreed that blockchain could revolutionize the carbon credit market.

He told By AM. that blockchain’s decentralized system can “reinforce trust and transparency [and] authenticate the tracking and reporting of reductions in greenhouse gas emissions.”

Both Mathew and Renn highlighted that blockchain technologies are already helping to make the carbon credit market more transparent.

However, Renn clarified that blockchain would not be able to fix the market on its own. “There have to be people who are there looking at the trees and coming up with a model of whether these trees are environmentally friendly,” he said.

Tedd Christie-Miller of carbon credit rating agency BeZero Carbon agreed that “disclosure and transparency are integral” to the carbon credit market. However, he emphasized the importance of adequate controls, and argued that this should be prioritized above all else.

“Fundamentally, the problem is about ensuring that the quality of carbon credits is understood. Blockchain, as a tool, is a marginal part of debates around carbon credits as long as there is poor transparency around the credits themselves,” he said. By AM