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Currently, over 17 million carbon credits worth more than USD 100 million are traded on unregulated markets. Last May, Verra, a standard for certifying carbon emissions reductions, decided not to tokenise retired carbon credits on the blockchain. Following this, the prices of Toucan and Klima tokens plunged. Such minor setbacks notwithstanding, the crypto carbon market is poised to grow.
The three major trends in the crypto carbon markets are tokenisation of carbon offsets; eco-friendly cryptocurrencies; and blockchain-based carbon exchanges.
Cryptomining is an energy intensive process. Bitcoin consumes an estimated 150 terawatt-hours of electricity annually, emitting 65 megatons of carbon dioxide in the process. On the other hand, the crypto carbon ecosystem facilitates easier tracking and reporting of emission reductions.
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The mainstream cryptocurrencies have drawn flak over their carbon footprint. Cryptocurrencies using the Proof of Stake (PoS) system are more environmentally friendly than those that use the Proof of Work (PoW) system. PoW and PoS are two consensus-based mechanisms used to verify transactions and add them to the blockchain. PoW requires a huge amount of processing power and hence is not eco-friendly. Cryptocurrencies like Blockchain and Ethereum depend on the PoW approach.
In PoS, a network of validators “stake” their crypto in exchange for a chance to validate a transaction, update the blockchain, and earn a reward. PoS approach helps maintain network security but requires drastically fewer calculations and can be done on a desktop computer. The process consumes way too less energy than the PoW approach. Solana, Terra and Cardano cryptocurrencies use PoW. Further, Ethereum, the second-largest crypto by market capitalisation after Bitcoin, is in the midst of a transition from PoW to PoS.
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Some cryptocurrencies use ASIC-resistant algorithms that consume disproportionately more energy than their PoW-based counterparts. For example, RavenCoin has a market capitalisation of 0.06%; however, it consumes 4.32% of the total power of the top 20 cryptocurrencies. At times, the market forces also determine the energy consumption of cryptocurrencies. For example, mining takes a backseat when the price of cryptocurrencies drop.
The world is gravitating towards carbon-friendly cryptocurrencies such as Bitgreen, Solarcoin, IOTA, Chia, Nano, Signum, and Holo tokens.
Tokenisation of carbon credits
Carbon credits are digital certificates that organisations purchase to offset their carbon emissions. Roughly, one carbon credit stands for removing one metric tonne of carbon. Tokenisation of carbon offsets allows securitising carbon credits in exchange for tradable assets.
Tokenised carbon credits can be utilised as a financial tool within cryptocurrency ecosystems to enhance liquidity within the carbon markets. Further, it enables individuals, corporations, and governments to access carbon as an investable asset. The carbon credits are bridged from voluntary carbon market registries onto the blockchain. Tokenising ensures accurate measurement of removed carbon, and the tokens facilitate verification of carbon offsets.
MCO2 (“Moss Carbon Credit”) is a blockchain-based token minted by MOSS, an environmental platform that provides carbon credits to offset emissions. The Moss Amazon NFT represents a certain portion of Amazon forestland at-risk for deforestation.
Klima, a fungible token backed by at least 1 tonne of tokenised verified carbon offsets, is minted by KlimaDAO. KlimaDAO has been able to absorb 17,631,912 tonnes of carbon that is equivalent to 88,159 hectares of forest.
Blockchain-based carbon exchanges
AirCarbon Pte: Singapore-based AirCarbon Pte launched the world’s first blockchain-based carbon trading exchange that allows airlines and other corporate buyers to buy as well sell tokens backed by carbon offset credits approved by the International Civil Aviation Organisation.
Carbon Trade Xchange: CTX is the world’s first electronic exchange for the voluntary carbon market. Through this platform, corporates, project developers and brokers can buy and sell carbon credits including VERs, CERs, VCUs, EUAs and EUAAs. It is one of the leading global spot trading platforms for VCCs.
ClimateTrade: It is the first organisation in Europe that uses blockchain-based carbon offsetting on both the voluntary and mandatory carbon markets. Since its inception in 2017, it has facilitated more than two million tons of CO2 offsets.
SDG Exchange: It is a global exchange for carbon credits. It has launched a blockchain-enabled, transparent, third-party verified global carbon marketplace that is compliant with Article 6 of the 2015 Paris Agreement. In this marketplace, transactions can be carried out through fiat currency, Bitcoin or Ethereum.
Antier Solutions: Uk based Antier Solutions provide An end-to-end blockchain-based carbon trading software underpinned by all essential components to enable smooth creation, distribution, and exchange of carbon credits.
Apart from these, popular crypto exchanges like Binance and Coinbase also deal in carbon-related tokens.