How startups are using blockchains to improve carbon credits

• Startups including Toucan and Topl are building blockchain tools to issue carbon credits.
• Blockchains, they have said, make the climate data behind the credits more transparent.
• After initial resistance, climate organizations such as Gold Standard are exploring the technology.
• This article is part of the “Gains in Green Tech,” a series showcasing some of the most transformative solutions to the climate crisis. For more news on climate action, visit Insiders A planet hub.
  

Carbon credits are meant to be an easy way for companies to help bankroll projects that help preserve the environment in exchange for their own not-so-climate-friendly activity. In practice, however, the carbon markets are far from transparent, and it is an open question whether the credits are effective at all.

Several companies, including Toucan, Return, Topl and Open Forest Protocol, are now aiming to improve the transparency and reliability of carbon credits by linking climate initiatives with blockchain technology. Recently, even some big, established names in the industry have begun to explore the idea.

The need for greater transparency in carbon markets

Companies buy carbon credits to compensate for the amount of greenhouse gas emissions that their operations generate. These funds go towards environmental initiatives, including reforestation projects. As companies produce emissions, these projects are in theory intended to reduce the effect.

But it is not clear whether these projects actually reduce carbon emissions meaningfully. In January, The Guardian published an investigation which found that 90% of rainforest carbon credits issued by Verra, one of the largest non-profits in the industry, were worthless because the projects they were linked to did not meaningfully reduce carbon emissions. Verra has disputed The Guardian’s report, but Verra has also announced that it will introduce a new methodology for its carbon credit standard.

Even before the results of this survey, scientists and technologists in the climate industry had long lamented the challenges of bringing quality climate initiatives to voluntary carbon markets. Some have mentioned the prohibitive costs for smaller, locally based initiatives to obtain verification with an organization such as Verra or Gold Standard. Others have pointed to the need to establish stricter control standards, which they believe cooperation between various groups – including corporations, nonprofits and local residents – can best help achieve.

“It’s a fundamental problem in the space,” said Erin Murphy, chief growth officer at Topl, which has developed a blockchain specifically designed for climate-related applications. “We want to see more competition, more scientific rigor in this space.”

Before joining Topl, Murphy worked in development aid and fair trade fashion, where she developed an interest in using technology to trace the provenance of materials and verify their green bona fides.

The potential benefits of credits on the blockchain

That’s where blockchain technology comes in, Murphy and other advocates said. Crypto, of course, has faced an onslaught of criticism following the failure of companies including FTX, BlockFi and Celsius. But some in the climate industry believe that blockchain technology itself – apart from speculation in specific currencies – could bring greater transparency to carbon credit markets by bringing together different groups to evaluate a project’s benefits, incentivize their participation and clearly lay out the criteria used. to generate a specific credit.

The blockchain-based system, they said, could also protect against the same credit being issued to more than one company — a problem known as double counting. And as several blockchains – especially ethereum – have sought to reduce energy consumption, the technology has become more palatable to those conscious of their carbon footprint.

Aureus Earth, which develops financial tools to encourage reduced carbon emissions in the construction and real estate industries, turned to blockchain technology to increase the rigor of its data collection process, Salmeron Barnes, the company’s co-founder and CEO, told Insider.

“The decentralized verifiability, and the promise of new low-emission blockchain offerings, is what attracted AE to create a blockchain-based registry,” he wrote in an email.

After initial resistance, the climate industry is opening up to blockchain

To be sure, early efforts to move carbon credits to the blockchain have encountered some speed bumps.

When Toucan, in late 2021 and early 2022, first began moving existing carbon credits from Verra onto the blockchain, the process resulted in a flood of older – often low-quality – credits in the registry. In response, Verra banned such credit conversions last May. John Hoopes, one of the founders of Toucan, told Insider that the company intended the initial conversions of credits to the blockchain to be a small pilot, but received much more interest than expected.

Despite the failures of the first attempt, it showed strong demand for blockchain-based carbon credits, Hoopes said.

Other established organizations are beginning to notice the technology’s various use cases. In September, the United Nations Development Program placed Topl in its Digital X catalog of digital tools to address issues including the climate crisis, gender disparities and global health disparities.

And after early resistance, even large, standard-setting organizations such as Verra and Gold Standard have shown a willingness to explore the technology. Verra completed a consultation on blockchain technology in January and plans to finalize its approach “in the near future,” a spokesperson told Insider.

Meanwhile, Gold Standard is working with several startups to develop a potential set of standards for blockchain-enabled credits. A spokesperson said the company has not made a final decision on whether to enable the use of blockchain, but is “looking carefully at how the use of the technology can be enabled to realize the benefits it can offer.”

Hoopes, whose startup is among those invited to work with Gold Standard on its blockchain pilot, is optimistic.

“Having the first authorized credit tokenized is going to be a real milestone,” he said. “Once we establish a framework, we’ll be able to go crazy building out all these use cases and prove that blockchain-based carbon registries are better than the alternative.”

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