Brand Watch: Can blockchain help carbon markets turn the tide on deforestation?

September 20 – Failed efforts to curb global deforestation continue to frustrate conservationists, brands and consumers. A recent study by Amazon Watch finds the Amazon rainforest at a tipping point, with a third of the Amazon rainforest (34%) turning into a savannah, the latest dark chapter in an increasingly desperate story.

One piece of good news is the rapid growth of voluntary carbon markets amid corporate net-zero commitments. Forestry projects account for almost two-fifths (38%) of all tradable carbon credits, which are issued for afforestation and other forest-related projects that generate emissions savings. Collectively, such credits could potentially save around 41.5 million tonnes of carbon dioxide equivalents, according to a recent study by researchers at Cambridge University.

The less good side of carbon markets is the lack of confidence in their real impact. Problems of double counting, transience (forestry projects lost due to wildfires) and leakage (when measures to reduce emissions in one area create emissions elsewhere) have long plagued the market.

A number of technology-based solutions are now emerging with what, if the marketing game is to be believed, could provide the ideal fix. All have one element in common: a cast-iron belief in the potential of blockchain technology.

Already a growing favorite among financial sector fintech firms, blockchain essentially acts as a digitized ledger. One of the main appeals to the forest protection sector, and the brands that support them, is that very specific data – such as the number and location of newly planted trees or project-related emissions savings – can be recorded, stored and shared quickly, transparently and with almost zero chance of falsification.

“With blockchain, we can create a system where the measurement data is collected by local people on the ground, reported on-chain and kept permanently on-chain, and then validated on-chain, with the decision also permanently recorded,” says Michael Kelly, co-founder of the Open Forest Protocol. an open source blockchain-based platform designed to measure, verify and finance forest projects worldwide.

So not only do buyers have greater confidence that credits they buy directly link to impacts on the ground, but the data embedded in those credits offers a compelling story to communicate to consumers and other interested parties.

The same logic underlies the business proposal for a suite of tech start-ups launching blockchain solutions for the voluntary carbon market.

A notable example is Veritree, which, like the Open Forest Protocol, offers a blockchain-based verification tool that makes available real-time data, collected on-site.

However, many of the new solution providers go beyond the monitoring stage and instead create fungible (replaceable) or non-fungible (unique) tokens that have project impact data embedded in them.

Tokens generated through these forest-linked blockchain pioneers (which include the likes of Universal Carbon, Carbon Credit Token, ForestCoin) can then be sold to raise revenue for the conservation efforts they are associated with.

Another early innovator looking to join the ranks of the above is Veridium Labs, a tech startup that has worked with IBM and others to develop a renewable token that can be integrated into corporate supply chains.

Co-founder Todd Lemons compares a yet-to-be-launched tradable token, dubbed Verde, to a rechargeable battery that can be continuously replenished with real-time performance information. The innovation is designed to circumvent the problem of credits expiring after the first issue.

In time, he envisions companies trading in Verde with their raw material suppliers and thus retaining geo-located impact data right up to the final production process.

“We realized that it gave us an opportunity (to) literally match very specific, highly auditable environmental impact credits with specific commodities and the underlying impacts they had,” he says.

Imagine a chocolate bar manufacturer, he adds. At best, it can assure consumers that it has purchased carbon credits to offset the carbon impact of its products. However, the specific project to which these credits are attached, plus the current state of that project, remains unknown.

With a procurement chain based on impact-informed tokens, the communication proposal is also completely different, he asserts.

“A company can say, ‘Yeah, this candy bar had impacts, which were offset, and you can audit those shifts and actually see where the money went — it went over here to orangutan conservation and down here to gorilla conservation — and then you start to include the consumer in the solution .”

The technology sounds revolutionary, but the road to mass adoption is full of challenges.

Most obvious is blockchain’s high energy requirements. As crypto providers increasingly transition to clean power sources, the energy needs of a mass adoption of blockchain solutions will likely increase the climate problems they were set up to solve.

Other concerns revolve around the centralization of blockchain credit schemes. With many initiatives created by developed companies for buyers in the developed world, the involvement of forest-based communities – most of which are based in emerging or underdeveloped markets – is being questioned.

In the Cambridge University study, researchers observe that communities without land rights are particularly vulnerable to being sidelined by blockchain solutions, even under solutions that adopt a more decentralized model.

“Such a model … could also reinforce existing power dynamics and risk locking those without power out of these systems, thus intensifying the challenges that created pressure on these forests in the first place,” the study concludes.

More positively, the widespread global use of mobile phones is reducing the initial concern that forest communities will not be able to engage with the digital technology that underpins the blockchain.

The researchers cite the example of villagers in the Democratic Republic of Congo who quickly adapted to GPS-enabled tablets to map their common lands.

Likewise, the development of new, user-friendly protocols such as NEAR makes it easier for non-specialist users to develop their own blockchain applications and gain direct economic benefits, says Kelly of Open Forest Protocol.

Later this year, the Open Forest Protocol plans to use the NEAR protocol to enable forest communities to begin generating their own non-fungible tokens. The tokens use project data compiled and verified through the protocol’s front-end tools.

“We’re putting people ahead of technology,” says Kelly, clarifying that the data verification is done manually and the financial benefits of token sales will go directly to project owners: “The blockchain just sits quietly in the background doing its old boring job as a record keeper.”

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed under the fiduciary principles to integrity, independence and freedom from bias. Sustainable Business Review, part of Reuters Professional, is owned by Thomson Reuters and operates independently of Reuters News.