The World Bank’s IFC supports blockchain project for carbon offset trading

The International Finance Corp (IFC), which is affiliated with the World Bank, told Reuters on Wednesday it is backing a blockchain-enabled platform to trade carbon offsets, aiming to attract more support from institutional investors for climate-friendly projects in emerging markets.

It is a bet that the use of blockchain – a digital database of information that can be shared publicly within a large decentralized network – will increase the use of carbon compensation to a greater extent than more traditional methods.

These credits are used by businesses and organizations to offset emissions when taking into account their carbon footprint. They are supported by projects that compensate for emissions, such as tree planting or creating solar and wind power.

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Several fintech firms have emerged over the past year to turn carbon offsets into digital tokens, but the market has struggled to attract corporate and institutional investors due to concerns about the origin and environmental benefits of some of the traded credits. Blockchain technology has also been criticized by environmentalists for being too energy-intensive.

Verra, operator of the world’s largest registry of carbon credits, has said it will not allow the retired carbon offsets to be tokenised and has announced a consultation on the tokenisation of the credits.

The IMF is trying to bring more attention to climate-conscious projects by supporting a blockchain-enabled platform to trade carbon offsets. Pictured: A tree is ready to be planted at a reforestation project in Nova Mutum, Brazil, 19 February 202 (REUTERS/Alexandre Meneghini/File Photo/Reuters Photos)

An IFC spokesperson told Reuters that it would only source, tokenize and sell unused credits from an established registry that passes the additional quality checks.

The IFC has partnered with sustainability finance company Aspiration, blockchain technology firm Chia Network and biodiversity investor Cultivo to launch the Carbon Opportunities Fund, which will provide carbon offsets on the blockchain.

With $10 million as a proof-of-concept, the fund will purchase carbon credits from projects selected by Aspiration and Cultivo, which will then be tokenized using technology from Chia and tracked using the World Bank’s Climate Warehouse database.

A spokesperson for Verra said it was talking to IFC about its role in the climate warehouse.

“It’s going to set a standard and a benchmark for the market that makes it more likely that other institutional capital will come in behind it,” said Steve Glickman, president of Aspiration’s international arm.

Glickman added that only about 10% of carbon credit projects will currently meet the fund’s criteria.

Carbon credit markets are largely unregulated as governments have yet to agree on trading rules. Many countries and companies are considering offsetting as a way to help reach their goals of net zero carbon emissions by 2050, a crucial goal for mitigating the effects of climate change.

Yet only a third of the 50-60 gigatonnes of emissions that must be cut annually can be eliminated through renewable energy sources and efficiency measures, according to Aspiration.

IFC’s fund has identified 250,000-300,000 tonnes of credits that can be purchased by the end of the year and is conducting due diligence on projects representing around 1 million tonnes of credits that could be available in the coming months.

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Bruce Keith, senior investment officer at IFC, said the platform’s transparency would help companies and investors better assign value to the environmental projects behind the offsets.

“Why is a credit from the Amazon worth more or less than a credit from the Congo Basin? Or more or less than a credit from a forest in the southern United States? You (now) have the means to know,” Keith said.