Here’s what you need to know

Cryptocurrency players have created digital tokens based on carbon credits, but doubts surround their green claims

• Crypto firms aim to bring liquidity to the carbon market

• But they have fueled speculation and instability

• Tokenization of carbon credits has been suspended by Verra

By Fabio Teixeira and Avi Asher-Schapiro

RIO DE JANEIRO/LOS ANGELES, Sept 13 (Thomson Reuters Foundation) – In 2021, crypto companies were on top. Last November, the world’s largest cryptocurrency, bitcoin, jumped to a record high of around $69,000 as investors fell into a bull run.

Meanwhile, blockchain – the distributed ledger technology behind cryptocurrencies – was touted as a solution to many of the world’s problems, including climate change, by increasing transparency and facilitating the sale of carbon offsets.

A number of prominent crypto projects have begun creating digital versions of carbon offsets and trading them online.

The underlying assets are credits that companies can buy from green projects on the voluntary carbon market that reduce emissions of carbon dioxide (CO2) from planet warming via initiatives such as protecting forests or building renewable energy plants.

The buyers usually “retire” the credits – meaning they are removed from the market and cannot be resold – to compensate for greenhouse gas emissions from their own operations.

But instead of using them to offset emissions, some crypto actors have put those credits on the blockchain ledger, floating them on crypto exchanges where they can be bought, sold, and traded for other cryptocurrencies.

The Thomson Reuters Foundation found that a major pioneer in this new market, the Brazilian “green” crypto firm Moss, bought carbon credits it privately said were of “low quality” – a judgment it later reversed in response to the investigation – and mixed them with others for to back the digital token, and sell them on for far more than what was paid.

Here’s how crypto players have impacted the voluntary carbon market:

How do crypto companies claim to help fight climate change?

Crypto firms say they will help fill a major funding gap for projects tackling climate change, and claim their involvement will expand the market for carbon credits that finance emissions reductions and conservation efforts.

A 2021 McKinsey report said about $4 trillion in new funding is needed over the next 30 years to expand such projects — to produce clean energy, manage waste or preserve forests and other ecosystems — to the scale needed to mitigate climate change.

Crypto companies claim that by putting carbon credits on the blockchain, they can expand liquidity and reach a wider customer base, driving more money into conservation efforts around the world.

One cryptocurrency project, KlimaDAO, which issues tokens backed by carbon credit projects, reported more than $3 billion in transactions in the last three months of 2021.

How does tokenization work?

To put credits on the blockchain, crypto firms first “retire” them on the Verra system or on other carbon credit registries such as the Gold Standard and the American Carbon Registry.

This is a way of showing that the emission reductions that each credit (one tonne of CO2) represents have been calculated against a company’s or individual’s target – essentially used up.

Based on this, crypto companies then issue a digital token worth one carbon credit, which can be traded on crypto exchanges or “burned” by the buyer to offset their emissions.

What has gone wrong?

Since 2019, crypto companies have been putting carbon credits on the blockchain, making it easy for them to buy and sell.

But researchers have found that a proportion of these were so-called “zombie credits” – offsets that were issued more than 10 years after a project had made the alleged emission reductions.

On registries, they went largely unsold because their quality was questionable, research by the nonprofit CarbonPlan found.

But that did not stop the digital tokens backed by them reaching high prices on exchanges, where transparency about the quality of the underlying credits is low.

At the peak of the crypto market, in late 2021 and early 2022, the crypto-backed carbon tokens flourished.

KlimaDAO’s coins traded for more than $1,000 each for a short period, even though the carbon credits behind them sold for less than $10 each.

KlimaDAO’s tokens were in turn backed by other cryptocurrency tokens from companies such as Moss and Toucan.

But the high price of tokens did not mean that more money flowed directly to environmental projects on the ground.

Speculators and middlemen sometimes reaped a significant portion of the revenue, the Thomson Reuters Foundation found, which has raised concerns among veteran players in the carbon market.

What happens afterwards?

In the first months of 2022, the cryptocurrency market crashed. Bitcoin, for example, now trades for less than $20,000.

In May, Verra suspended the tokenization of retired carbon credits on its books, pending the conclusion of a public hearing, which will last until early October.

It has been tasked with determining under what circumstances credits can be tokenized and used by crypto market players to create financial instruments.

That has led some cryptocarbon companies, such as the company Flowcarbon – which raised around $70 million in May to tokenize more carbon credits – to suspend their operations.

Also in May, the American Carbon Registry banned the tokenization of its carbon offset credits unless it explicitly authorizes the process.

Verra’s decision has left the value of millions of cryptocurrency tokens in limbo.

And while crypto firms want a quick fix for the impasse, registries are taking their time to find an acceptable path forward for a complex asset.

Last month, International Finance Corp – a World Bank affiliate – said it supports a blockchain-enabled platform to trade carbon offsets, but only unused credits from an established registry that pass its extra quality checks.

Related stories:

LONGREAD: Fears of ‘subprime’ carbon assets stall crypto mission to save rainforests

INSIGHT-Low carbon bitcoin? Crypto miners’ green power talk angers Texas locals

When ether adopts energy-saving “merging”, will bitcoin follow?

In focus: Bitcoin and climate change

(Reporting by Fabio Teixeira and Avi Asher-Schapiro; Editing by Megan Rowling and Kieran Guilbert. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, which covers the lives of people around the world who struggle to live freely or fairly. Visit

Our standards: Thomson Reuters Trust Principles.