The Future of Crypto Carbon Offset Projects Like Blockchain and Crypto Tokenization Breaks

Verra, a certifier of carbon credit standards, said on May 25 that it would immediately ban the conversion of withdrawn credits into blockchain tokens, months after crypto platform Toucan’s ambition to use blockchain to disrupt the entire carbon credit system.

In light of World Environment Day 2022, with its campaign this year using the hashtag #OnlyOneEarth to advocate for revolutionary changes in policies and choices to enable a cleaner and greener environment, Verra’s ban is an indispensable step on the way. towards a sustainable life in harmony with nature.

Crypto-backed carbon credit trading has enabled people to trade carbon credits that are converted into crypto tokens. One of these tokens is BCT from Toucan (one BCT stands for one tonne of CO2 removed from the atmosphere). However, the recent announcement of Verra, the world’s largest carbon credit program, points to a possible fraud with the withdrawal of double counting.

Also read:

A “credit withdrawn” indicates that the environmental benefits have been consumed. Therefore, Verra announced an immediate ban on creating tokens or instruments based on withdrawn funds. However, this has compromised the core mechanisms of cryptocurrency-based carbon credit trading platforms such as Toucan and KlimaDAO.

Verra wants to explore the feasibility of “immobilizing” credits in Verra ledger accounts so that they can be tokenized with the transparency and traceability demanded by market participants, provided it can be done in a way that prevents fraud and preserves environmental integrity .

After all, the whole purpose of carbon credits is to offset environmental degradation.

The Future of Crypto Carbon Offset Projects

Several blockchains and crypto platforms that perform tokenization use carbon credits registered with Verra. The credit is marked on the ledger as “withdrawn” before a token is created to avoid double spending. However, Verra noted that some platforms leave the credit active, which can lead to potential fraud.

After Verra’s decision to stop the tokenization of withdrawn credits, Toucan’s main business will stop and the same could happen to KlimaDAO. It is currently unknown what will happen to the 22 million withdrawn assets that have already been placed on the blockchain. Toucan and Klima tokens dropped drastically after Verra’s announcement.

However, crypto-carbon proponents still have some hope. Toucan believes he will be able to help Verra build a new “live” credit tokenization system, as opposed to retirees to continue trading tokenized carbon credits.

However, according to a report from TIME, Verra is keen to partner with a project like Carbonplace, which was set up by a consortium of banks including CIBC and UBS. Carbonplace has similar goals to Toucan, but it operates on a closed, proprietary system as opposed to blockchain. Verra believes that by opting for a more centralized project like Carbonplace, he would have more control over who buys credits, over fears that crypto tokens would be used for shady purposes.

However, Verra also said she would begin a public consultation process to decide on the future. The company says the way forward doesn’t have to be banks, it could be any entity that has advanced KYC controls and the infrastructure to perform those controls. Officials from Toucan and other crypto entities hope to be involved in future decisions.

Carbon Credit Tokenization Issues

Research suggests that some carbon credits tokened by crypto platforms are not as eco-friendly as they claim. Many carbon credits come from age-old projects that offer little value and often don’t require extra money to function. And the idea of ​​some of these platforms to remove these mediocre credits to force big companies to buy better and more valuable carbon credits has failed.

Moreover, quantifying the exact amount of CO2 that a CO2 offset project removes from the atmosphere poses fundamental problems. For example, reforestation projects may not provide long-term value because trees could die, be destroyed or burn in wildfires.

In addition, there are many documented cases of fraud, double counting and creative accounting that make many of the carbon credits unreliable, as one of these activities led to Verra being banned.

With this, there is a lot of ambiguity about the crypto future of carbon credits, but with better regulation and a better framework, the blockchain system has the potential to revolutionize the carbon trading market.

Leave a Comment