- Major global institutions are pushing for blockchain in carbon credits.
- Global carbon markets soared 164% last year to $760 billion
- Markets are expected to rise further due to regulatory pressure
Most discussion about blockchain and carbon emissions has centered on the negative. This is largely due to the sizeable energy consumption of many blockchain networks, including bitcoins.
But blockchain technology is proving it can help reduce carbon emissions. Leading global institutions are now betting on crypto to fight climate change.
One of the most promising applications is carbon credits. These tradable certificates represent the reduction of one metric tonne of carbon dioxide or its equivalent.
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The World Economic Forum, a lobbying organization focused on technology and sustainability, has promoted using blockchain to tokenize carbon credits.
Carbon credits stem from a system called cap-and-trade. Governments set a certain limit on the number of carbon emissions and allow companies to buy and sell credits through an exchange.
Carbon credit schemes are currently up and running in several regions, including the European Union, New Zealand, and California.
Are Carbon Credits a Good Investment?
The EU is by far the biggest market for carbon trading. It accounts for 90% of the global carbon market, valued at $760 billion.
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Currently, the EU’s Emissions Trading Scheme (ETS) covers significant portions of its economy, from generating heat and electricity and commercial aviation. It also includes oil refining and the production of aluminum, iron, glass, paper, and more.
All companies in these industries are subjected to caps on the number of carbon emissions they can produce. If their emissions are higher than their cap, they have to buy carbon credits from companies with lower emissions.
Due to that dynamic, the prices of carbon credits are proliferating. In 2021, the global carbon market soared 164%, driven by the high demand for carbon credits. This figure will likely go much higher as regulators further restrict supply.
For investors, carbon credits are similar to commodities. Holding carbon could be attractive to traders like copper, oil, or gold if their price increases. Traders can decide when to sell the commodity depending on market conditions.
Moreover, the price of carbon credits is mostly impacted by regulation, not the stock market. Their low correlation with the stock market potentially makes carbon credits an attractive asset for diversification.
Investing in carbon credits could help offer investors diversification while also helping the environment. At the same time, it would help reduce current emissions and incentivize new projects promoting clean energy.
Using Blockchain to Trade Carbon Credits
However, carbon trading has been inaccessible to the general public, says Zhi Li, CEO of blockchain-based climate tech company Carbon Credit Technology.
“Trading carbon credits is usually restricted to institutions and large corporations due to the complexity of the process and high transaction costs,” said Zhi.
The use of blockchain will reduce costs and accelerate trading. This will help more people participate in the green energy economy, Zhi explained.
To help make that a reality, Carbon Credit Technology has launched its own carbon credit token. The CCT tokens would give individual investors exposure to the carbon credit market. Backed 1:1 by EU carbon credits, the price of CCT will reflect that of carbon credits.
“CCT token allows retail investors to get exposure to the carbon credits market, which was once only accessible to large financial institutions,” according to Zhi.
CCT token is part of a larger initiative toward sustainable blockchain technology thought up by the World Economic Forum (WEF). To coordinate with other major players, Carbon Credit Technology has joined the WEF’s Crypto Sustainability Coalition.
Major institutions believe that blockchain technology is the key to the green energy economy. Carbon credits are one of the many blockchain use cases that could help tackle the climate crisis.
By democratizing carbon trading, crypto will help incentivize the energy transition while also giving retail investors a chance to benefit from a growing asset class.
“The crypto revolution has the power to democratize carbon markets and help create a more equitable future,” said Zhi. “By making carbon credits accessible to everyone, we can start building a greener economy that works for all.”
On the Flipside
- Commodity traders face criticism for allegedly making the prices of tradeable goods higher for consumers. Some could argue that trading carbon credits could make these more expensive than they should be.
Why You Should Care
Carbon credit tokens could help make crypto and blockchain technology more accessible to the public, contributing to their mass adoption.
