Indonesia Weighs Blockchain-Powered Carbon Trading Scheme • TechCrunch
Indonesia wants to direct blockchain mania towards greener uses. The Indonesia Stock Exchange (IDX) has signed a memorandum of understanding with Metaverse Green Exchange (MVGX), a Singapore startup specializing in digital exchange technology. The intended collaboration centers around IDX’s allowance trading scheme that is scheduled to launch in 2025, and MVGX’s job is to help IDX build a carbon registry and exchange with blockchain as the infrastructure layer.
Using blockchain in carbon trading solves the so-called double-counting problem where two entities or an entity and a country claim the same climate action, Bo Bai, executive chairman and co-founder of MVGX, told TechCrunch. Founded in 2018, MVGX is licensed by the Financial Conduct Authority of Singapore to provide securities and custody services. Offering SaaS to commercialize carbon credits, the startup’s focus is on “emerging markets seeking to offer access to their emissions reduction projects internationally.”
“The infrastructure also provides an immutable record of the creation and ownership of the credit, as well as a tamper-proof record of the performance of the green project to which the carbon credit is linked, to date,” explains Bai.
Indonesia has joined a number of countries that increase their environmental responsibility with a financial mechanism. As of July, 46 countries priced emissions through carbon taxes or emissions trading schemes (ETS), according to the International Monetary Fund.
“The Indonesian government has recognized the important role that the financial services industry can play in strengthening the country’s sustainability commitments. IDX is currently preparing for the possibility of becoming a carbon exchange in Indonesia and started discussions with several parties to deepen our knowledge, Jeffrey Hendrik, director of business development at IDX, said in a statement.
Carbon trading is not a panacea for climate change. The mechanism incentivizes carbon emitters to be less polluting, otherwise they have to buy from those with excess carbon credits to offset their carbon footprint. The capital generated from the sale of carbon credits can then go towards funding conservation efforts, at least in theory. But one of the biggest criticisms of the mechanism is that offsetting allows entities to claim carbon neutrality without making a significant effort to reduce emissions in the first place.
While blockchain is believed to help create a streamlined public record for carbon trading, it does not address the incentive issues surrounding offsets. It also does not ensure the quality of the emission reductions from credit issuers or whether these claims hold up in the long term.
Crypto’s reception in the carbon trading world isn’t particularly warm either. Startups working to tokenize carbon credits have surged in popularity over the past year as they promise to lure more investors into the world of carbon trading. One of the liveliest projects is Toucan, which started late last year by bridging credits issued by Verra, the carbon trading industry’s standard-bearer, to the blockchain and “retiring” the credits as tradable tokens. In May, Verra banned the conversion of retired credits into cryptocurrencies “on the basis that retirement is widely understood to refer to the consumption of the credit’s environmental benefit.”
The Toucan backlash hasn’t stopped countries from embracing blockchain carbon trading. Aside from the potential partnership with Indonesia, MVGX has also been working on carbon trading initiatives in China, including the Guizhou Green Finance and Emissions Exchange, and is in advanced talks with relevant authorities in Malaysia and Taiwan to collaborate on infrastructure projects, according to Bai.
