Carbon market gets much-needed boost from blockchain technology: Web3 exec

Automated systems and blockchain technology are increasingly being used to improve the efficiency and accuracy of the carbon market, a critical component in the fight against climate change.

Cointelegraph spoke with Bill Kentrup about the role of blockchain technology in digitizing verifiable data in the carbon market. Kentrup is head of Origination and co-founder of the enterprise software Allinfra Climate – a platform designed to help institutions achieve their sustainability goals. According to him, the monitoring, reporting, verification, issuance, allocation and retirement of carbon credits and carbon claims can lead to efficiencies and predictability that have not existed before.

Kentrup said that by putting everything on “digital rails”, systems for detecting double counting, corporate carbon accounting, assessments and reporting to public regulators could go digital, saying:

“It is far less efficient for a digital accounting system to process data from reports, non-digital sales, purchase agreements and from traditional registers, which have limited information about who the ultimate owner of a retired asset is.”

Kentrup mentioned that historically, the challenges and inefficiencies associated with the carbon market have resulted in understandable frustration and significant backlash. According to him, this setback contributed to the fact that the Kyoto Protocol was not extended beyond 2012.

The Kyoto Protocol is an international treaty that aims to reduce greenhouse gas emissions and deal with climate change. It established a system of emissions trading, which allows countries that have exceeded their emission reduction targets to sell their surplus allowances to countries that have not met their targets.

Speaking about how the current manual process of collecting and verifying data in the carbon market falls short, and how blockchain technology can help address these limitations, Kentrup said: “Most traditional approaches used to monitor, report and verify (“MRV”) emission reductions use intermittent manual processes to determine the environmental impact of projects. Data collection is often laborious and time-consuming as the number of emission reduction projects seeking environmental funding increases.”

“Historically, there tends to be significant bottlenecks in the availability of validation and verification bodies required to do the work from start to finish – the process of getting a single issue of carbon credits issued from a project takes months (sometimes over 6 months).”

He added:

“For organizations to truly reduce net emissions and accurately measure climate impact, it is crucial that we have highly documented data related to carbon offsets. A blockchain-based system can help us achieve this with real-time digital data capture that is verifiable and controllable.”

Explaining how the verifiability of data collected through blockchain technology improves the accuracy of reporting in the carbon market, Kentrup said “A blockchain-based system is a way to ensure that data captured from devices and other carbon-relevant sources retain a high degree of provenance. […] This results in greater predictability, reduced time and costs, and significantly improved verifiability and auditability.”

Automating the collection and verification of data in the carbon market faces a myriad of challenges. Kentrup mentioned that these challenges include the availability of appropriate market rational technology as certain aspects do not yet have suitable technology available to fully automate or digitize. In addition, the over-enthusiasm of “tech for climate” providers who do not have much experience in climate finance will inadvertently fail and in some cases harm the market. This risks tarnishing the wider market’s view of “technology for climate.” Finally, resistance to adoption from traditional market players is also a challenge for the sector.

Despite the challenges, Kentrup expressed his optimism as new ideas and technology are being implemented, and traditional players are moving in the direction of adopting digital solutions for climate finance.

Related: Takeaways from Davos: Blockchain is changing the way we fight for sustainability

A note on the role blockchain technology will play in the foreseeable future for the carbon market, Kentrup shared; “While potentially not the only solution available, a blockchain-based platform currently provides all stakeholders in the environmental financial product market greater confidence in underlying products, significantly reduced and more predictable time and costs, increased efficiency in allocating value to participating parties, and greater choice and reporting – which ultimately helps accelerate positive climate action.”

“Putting carbon-related data on ‘digital rails’ is a way of future-proofing a party’s decarbonisation activities. In the short term, it allows for faster, cheaper production of carbon offsets and better structured financing, insurance and professional services – all absolutely essential to strive for given that urgency to combat climate change.”