Energy

Climate change initiatives led by politicians and sponsored by some of the biggest polluters demand a change in initiatives — Decentralized tech could play a key role.

Climate change has become one of the most pressing issues in the modern world with mounting pressure on companies to develop and implement climate strategies. Politicians around the globe have also been actively involved, with several nations pledging to go carbon-neutral in the next couple of decades.

Amid all the initiatives and conferences led by politicians and billion-dollar companies over the years, the threat of global warming and the carbon emissions spilling into the atmosphere have only risen.

The 2022 United Nations Climate Change Conference, or Conference of the Parties of the UNFCCC, was the 27th United Nations climate change conference. More commonly referred to as COP, the conference is one of the largest of its kind that sees attendance from top policymakers and tech CEOs.

COP27 ultimately resulted in minimal progress on loss and damage, with high-emission countries agreeing to compensate those countries enduring the brunt of the climate mayhem that they played a negligible role in causing. But, once again, no promise was made to stop the emissions fueling this disaster.

Politician-led conferences such as COP27 have become a glaring example of everything that is wrong with such initiatives. COP27 was host to more than 600 representatives of fossil fuel companies and many others who were there to prevent rather than support progress and action. Above all, the event was sponsored by the largest polluter of plastic in the world — Coca-Cola.

The annual climate carnival concept was probably not the best way to encourage meaningful action on global warming. The presence of the fossil fuel industry and continued failure to fulfill their intended purpose means the problem of climate change needs a modern solution, and for many, decentralized tech is the key that can benefit climate initiatives in the long run.

Decentralized solutions

Decentralized tech has proven revolutionary in data management for many industries apart from the financial sector. Climate change initiatives are already integrating blockchain tech to their benefit including an increasing number of projects at COP held yearly conferences. 

KPMG U.S. climate data and technology principal Arun Ghosh told Cointelegraph:

“One of the major outcomes of COP27 was landing on the loss and damage set of agreements enabling wealthier nations to help provision and plan for the recovery of people and livelihoods in under-resourced nations. Blockchain not only provides the trust and transparency set of enablers but with the introduction of CBDC pilots as well as the adoption of BTC as a recognized medium of exchange in countries like El Salvador, there are accelerated investments and plans emerging to integrate and transact between organizations, countries and citizens.”

Blockchain tech can be implemented in many ways to make climate change-related initiatives more efficient.

Recycling is one sector where blockchain can encourage participation by giving a financial reward for depositing recyclables like plastic containers, cans, or bottles. Similar setups already exist in several places around the world.

Recent: Gensler’s approach toward crypto appears skewed as criticisms mount

Plastiks is a nonfungible token (NFT) marketplace that sponsors initiatives to cut down on plastic waste. Plastiks partners with recycling firms and certifies their plastic recycling using NFTs that can become an additional source of income for the recycling firms. The project claims that recycling data, once recorded on the blockchain, also becomes a hard receipt of how much plastic has been removed.

Due to its ability to transparently track crucial environmental data and demonstrate whether obligations were reached, blockchain technology can also deter businesses and governments from breaking their environmental commitments or falsely claiming progress. 

For example, Regen Network offers blockchain-based fintech solutions for ecological claims and data. Some of their offerings include a public ecological accounting system and the Regen Registry, which allows land stewards to sell their ecosystem services directly to buyers around the world.

EarthFund DAO is another environmental initiative that organizes a decentralized community looking to tackle humanity’s environmental problems. The platform enables tokenholders to vote for and crowdfund “world-changing projects” such as the EarthFund Carbon capture project.

Crypto Climate Accord is a private sector-led initiative focused on decarbonizing the cryptocurrency and blockchain industry. To date, more than 250 companies and individuals in crypto, finance, NGOs and more have joined the movement.

Amid all the major use cases of blockchain tech, its progression in aiding the very complex carbon credit market has been most talked about — for both good and bad reasons.

Carbon markets and how they work

A carbon credit represents one metric ton of carbon dioxide, which can be bought, sold or retired. If a business is subject to cap-and-trade regulation (such as the California Cap and Trade Program), it probably has a set number of credits that it can apply to its cap. The company may trade, sell or store the extra carbon credits if it emits fewer tons of carbon dioxide than it is allowed.

An emission allowance from the seller is bought when a credit is sold. Despite the fact that emissions reduction is the result of an action, a credit becomes tradeable as a result of a genuine reduction in emissions.

Carbon markets aim to reduce greenhouse gas emissions, enabling the trading of emission units (carbon credits), which are certificates representing emission reductions. Trading enables entities that can reduce emissions at a lower cost to be paid to do so by higher-cost emitters. By putting a price on carbon emissions, carbon market mechanisms raise awareness of the environmental and social costs of carbon pollution, encouraging investors and consumers to choose lower-carbon paths.

There are two main categories of carbon markets: cap-and-trade and voluntary. Cap-and-trade sets a mandatory limit (cap) on greenhouse gas emissions and organizations that exceed these limits can purchase excess allowances to fill the gap or pay a fine. As its name suggests, the mandatory market is used by companies and governments that are legally mandated to offset their emissions. The voluntary carbon market, on the other hand, operates outside the compliance markets but in parallel, allowing private companies and individuals to purchase carbon credits on a voluntary basis.

Problems with carbon credits

Carbon credits have been touted as a market-based fix to help curb carbon emissions, but they come with a slew of problems. Carbon credit markets are ridden by poor offset quality, where certain credits might not be of the same quality as marketed and some are outdated and no longer meet the standards of top carbon offset certification organizations.

Some organizations offering such carbon offsets don’t do what they say they will. Voluntary carbon markets are largely unregulated and companies often get away with false advertising called greenwashing. These businesses either invest in non-verified credits or double-count the same credit. All of these actions trick buyers into believing they are reducing their emissions when they are actually not.

For example, according to Yale Environmental 360, a total of one billion tons of CO2 worth of credits have been made available for purchase so far on the voluntary carbon market. However, there are roughly 600–700 million tons more sellers than purchasers. Consequently, only roughly 300–400 million tons of CO2 offsets are actually achieved. This indicates that somewhere between 600 and 700 million tons of CO2 are produced without being offset.

How blockchain can help

There have been significant advances in computational technology within the blockchain realm that can enhance the efficiency of these carbon markets. Blockchain tech can aid in the process of credit creation and validation. R.A. Wilson, chief technology officer at digital carbon offset trading platform 1GCX, told Cointelegraph:

“Blockchain can vastly improve existing bottlenecks within the current carbon credits market, including issues surrounding fraud and misrepresentation and duplication of credits. While these improvements will be key to scaling the carbon credits market and building greater trust within the industry, blockchain is only one part of the solution. To scale the tokenized carbon credits market to its full potential, the industry will also require participation by trusted and established carbon credit providers, as well as collaboration with regulators and government agencies.”

KLIMA DAO is driving the development of the voluntary carbon market by building a decentralized infrastructure that makes the market more transparent and accessible. It sells bonds and distributes rewards to KLIMA tokenholders. Every bond sale adds to an ever-growing green treasury or improves liquidity for key environmental assets.

Nori is another blockchain-based carbon credit market built with farmers in focus. This project supports farmers adopting regenerative agriculture projects to remove CO2 from the atmosphere.

Tegan Keele, KPMG U.S. climate data and technology leader, told Cointelegraph that blockchain, along with other technologies, certainly has the ability to help carbon credit markets in terms of traceability:

“A credit can be traceable but not high quality — blockchain won’t inherently solve the quality problem, but it can help validate when a credited producer makes statements regarding origin or quality.”

Still, not everyone is convinced. Dan Stein, director of the Giving Green earth climate initiative, believes the problem is much bigger than double counting or traceability.

Recent: NFTs could help solve diamond certification fraud

Stein told Cointelegraph that blockchain-based climate solutions are hot air and that the real problem with carbon credits is offset quality:

“If anything, chain-based carbon credits exacerbate this problem by creating a credit as a commodity when it is instead a differentiated product. In fact, I’ve heard stories of companies ‘laundering’ old offsets that they couldn’t sell any other way onto these chain-based solutions.”

He added that by making transactions easier, “it turns credits into more of a commodity, and everyone treats them as the same. What has happened in practice is that project developers have taken old low-additionality credits that they can’t sell in a normal market and loaded them ‘on-chain,’ where suddenly they have found new buyers.”

The use of blockchain technology in the climate change fight has faced appreciation and criticism alike. On one hand, decentralized tech is being actively integrated for new solutions at a global level to make certain aspects more transparent and streamlined. On the other, climate activists believe that current blockchain solutions aren’t as helpful and only focus on tokenization.

Looking ahead, it will be interesting to see which projects catch on and scale to meet the challenges of climate change.