Alongside the criticism of historical issues within the VCM (and an ever-increasing demand for high-quality carbon credits) there has also been a growing recognition and enthusiasm for how emerging technologies and new approaches can expand the reach, credibility, and scalability of carbon markets. 10
“Emerging digital technologies will play a vital role in creating more streamlined, trusted, and transparent carbon markets. Capacity-building and knowledge-sharing will be crucial, particularly in developing countries, to effectively deploy market infrastructure and ensure carbon markets are game-changers in the fight against climate change.11’’
Utilizing Technology for Verification and Measurement
The success and integrity of the VCM is dependent upon the reliability and accuracy of the methods used for measuring reductions in greenhouse gas (GHG) emissions. Measurement, Reporting, and Verification (MRV) is a comprehensive and iterative process designed to measure the extent to which GHG emissions have been reduced by a specific mitigation activity. However, it’s a complex undertaking that can be costly and time-consuming, especially when it relies on manual operations.
By harnessing technological innovation, digital MRV is able to streamline data collection, processing time, and quality control in MRV operations, reducing the time and money it takes to issue verified carbon credits. Remote sensing techniques, such as satellite and drone imagery, enable the collection of accurate and comprehensive data on carbon sinks and emission sources. These technologies provide objective and verifiable information, enhancing transparency and reducing the potential for inaccuracies or fraudulent claims.
While the implementation of digital MRV systems remains complex and costly, their long-term benefits are significant. These systems have the potential to reduce the overall cost of generating carbon credits while simultaneously enhancing transparency and security. They enable more efficient verification processes and pave the way for the real-time generation of carbon credits. The ongoing innovations in MRV have the power to drive global climate action and unlock the full potential of climate finance and the carbon marketplace in combating climate change.12
How Blockchain Technology is Solving Issues Within the VCM
Blockchain technology has emerged as a promising solution to address the historical challenges of the VCM. By leveraging blockchain's transparent and tamper-proof nature, it enhances the credibility and traceability of carbon credits.13 Blockchain enables secure and immutable recording of carbon transactions, reducing the risk of double counting. Moreover, smart contracts and decentralised applications streamline carbon credit verification and trading, making the VCM more accessible and efficient.
Blockchain technology has the potential to address several challenges in the current voluntary carbon market. Here are a few ways in which blockchain can help14:
- Transparency, and Trust: Blockchain is a decentralised and transparent ledger that records all transactions. This ensures that each carbon credit has a unique and tamper-proof record, reducing the risk of fraud or double counting.
- Enhanced Accountability: With blockchain, all participants in the voluntary carbon market can have a shared source of truth. Smart contracts, which are self-executing contracts with predefined rules, can automate verification and ensure that all parties involved fulfil their obligations. This improves accountability and trust among market participants.
- Efficient Verification: Blockchain can streamline the verification process for carbon offsets. By recording project data, methodologies, and third-party audits on the blockchain, it becomes easier to verify the legitimacy and quality of carbon credits. This reduces the time and cost associated with lengthy manual verification processes, making it more efficient for buyers and sellers.
- Streamlining Funding for Projects: Digital carbon markets have the potential to channel more funding towards project developers by streamlining asset discovery and purchase processes (which sits in stark contrast to the historically analogous and inefficient transactions of traditional carbon markets). This helps eliminate the need for intermediaries that traditionally collect and process data, reducing transaction costs. By leveraging blockchain technology, intermediaries can be removed from carbon value chains, allowing more financing to reach project developers directly.
- Democratising Access to the Carbon Market: Traditional carbon finance markets primarily cater to large institutions due to the prevailing practice of selling carbon credits in quantities of at least one tonne of carbon sequestered. Blockchain, however, allows for the fractionalisation of carbon credits, enabling smaller investors to participate in the market. By tokenizing carbon credits on the blockchain, they can be divided into smaller units, making them more accessible to a broader range of tokens, increasing liquidity in the market. investors. While blockchain holds promise, its adoption and implementation in the voluntary carbon market are still ongoing processes. Various initiatives and projects are exploring the integration of blockchain to address the challenges and improve the overall functioning of the market.
Beyond The Voluntary Carbon Market
The Voluntary Carbon Market plays a pivotal role in empowering companies and investors to engage in carbon emissions trading and contribute to a more sustainable future. By understanding the mechanics of the VCM, its benefits, and the transformative role of blockchain technology, businesses can actively engage in carbon offsetting and enhance their environmental reputation. As global efforts to combat climate change intensify, the VCM offers a pathway to unlock sustainability and drive meaningful change. Together, we can create a greener and more resilient world.
11. Why data infrastructure is key for a transparent carbon market https://blogs.worldbank.org
12. What You Need to Know About the Measurement, Reporting, and Verification (MRV) of Carbon Credits https://www.worldbank.org
14. Blockchain for Scaling Climate Action https://www3.weforum.org