World Bank affiliate IFC supports blockchain for carbon credits
The World Bank’s affiliate, International Finance Corp (IFC), announced its support for a blockchain-enabled platform for trading carbon credits.
IFC wants to attract more support from institutional investors for climate-friendly projects in emerging markets.
The financial company believes blockchain can help increase the use of carbon compensation to a greater extent than traditional markets.
Blockchain-backed carbon credit
A blockchain is a digital database of information that can be shared publicly within a large decentralized network. It has recently been in the spotlight as tokenized carbon credits are on the rise.
Organizations and businesses use carbon credits to offset emissions when taking into account their carbon footprint. They are supported by projects that compensate for emissions. Tree planting and creating renewable energy sources are common.
- A number of tech firms have emerged over the past year to turn carbon offsets into digital tokens.
In May of this year, Ripple announced its $100 million commitment to help grow carbon markets using blockchain.
But this market faces challenges in getting hold of investors and firms. And that is mainly because of questions about the origin and environmental benefits of some of the traded credits.
Environmentalists and green groups also criticize blockchain technology as too energy-intensive.
Even the largest carbon credit registry Verra recently announced that it will not allow its retired carbon offsets to be tokenized. Verra later opened a public consultation on the tokenization of the credits.
The IFC told Reuters it will only source, tokenize and sell unused carbon credits from a known registry that passes quality checks.
In March last year, the International Emissions Trading Association (IETA) issued guidelines for the use of blockchain in carbon markets. It aims to establish a functional framework for trading carbon credits.
IFC’s Carbon Opportunities Fund
The IFC also launched the Carbon Opportunities Fund to provide carbon credits on the blockchain.
It is partnering with the following companies to launch the fund:
- the sustainability finance company Aspiration,
- blockchain technology firm Chia Network, and
- biodiversity investor Cultivo.
The fund, with $10 million, will buy carbon credits from projects selected by Aspiration and Cultivo. Blockchain technology from Chia will symbolize these credits that will be tracked by the World Bank’s climate inventory.
The fund has identified 250,000 to 300,000 tonnes of credits to be purchased by the end of 2022. It also appears to carry out due diligence on projects that represent 1 million tonnes of credits that will be available in the coming months.
Steve Glickman, president of Aspiration’s international arm noted that:
“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.”
He further said that only approx 10% of carbon credit projects will meet the fund’s criteria.
Carbon credit markets are largely unregulated as governments do not yet have standard rules for trading credits. But both companies and countries use offsets as an alternative to reach net zero emissions targets by 2050. It is an important goal to help reduce the effects of climate change.
According to Aspiration’s analysis, only ⅓ of annual emissions can be reduced by using renewable energy sources and increasing efficiency. This means that a significant part of these emissions must rely on carbon credits to compensate.
Image taken from Shutterstock
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