All across the planet, temperatures have been rising in recent decades at a much faster rate than they have since the Earth formed, some 4.5 billion years ago. With countries experiencing temperatures as high as 50°C, various actions have been implemented to reclaim the environment and reduce global warming. One of the many initiatives put in place is the carbon credit, designed to offset carbon in the atmosphere.
Many startups are looking to improve the traditional carbon credit system with blockchain. With new regulations in force, many businesses are open to reducing their carbon footprint and selling off carbon credit with blockchain-related solutions that solve the drawbacks affecting the traditional system. This article discusses how the blockchain, when properly implemented, can benefit the carbon credit market.
What are carbon credits?
Carbon credits are carbon reduction credits that represent the removal of one metric ton of carbon dioxide or its carbon dioxide-equivalent (CO2e). These permission credits are trades, and upon ownership, they allow both government and private entities to compensate for their offset greenhouse gas emissions.
Born out of the Kyoto Protocol of 1997, carbon credits are significantly important in controlling greenhouse gas (GHC) emissions. Carbon credits employ the mechanism of assigning monetary value to each credit sold, allowing organizations to shift to energy-efficient, cleaner technologies. Carbon credit trading, or carbon offsetting, promotes the development of projects that can help reduce GHC in the environment as well as provide other environmental benefits.
How do carbon credits work?
The average American alone produces <15 tons of CO2 a year. While this may sound like ‘rookie’ numbers, the average car at a speed of 7.8 km/L generates just 1 CO2e driving from one state to another. Many developed countries generate a hazardous amount of carbon, hence the need for a low-cost method for reducing pollution.
Carbon credits are generated when environmental projects that reduce GHC are developed. These projects can focus on land use improvement, energy efficiency, methane capture, or biomass sequestration. They are then assessed for quality based on certain criteria and certified by third-party bodies like the International Carbon Reduction and Offset Alliance (ICROA), registered if they meet the requirements, and carbon credits are then issued. Usually, developed countries receive these credits, while developing countries receive investment and technology. Excess carbon credit can be traded in the voluntary or compliance carbon market.
Drawbacks of the traditional carbon market
The carbon marker allows carbon sellers and prospective buyers to buy and sell carbon credits and offsets, providing multiple job opportunities. As of today, the compliance carbon market, where companies and countries are mandated to buy credits, accounts for the majority of the credit sold or purchased. In comparison, total carbon traded at the compliance market exceeded 12 GtCO2e, while the voluntary market had around 300 MtCO2e as of 2021.
The traditional carbon market, including carbon trading software systems, faces multiple drawbacks despite offering benefits. One of the many concerns is the issue of transparency and tracking. Due to the complex process of creating credits, the system is unable to provide accurate records about carbon credit transactions, which has made it difficult to verify transactions. This drawback has paved the way for double-counting, which has made it difficult to measure the environmental impact of these environmental reclamation projects.
In addition, confirming carbon credits often involves paperwork and time-consuming procedures that are prone to human error; the carbon credit system lacks a standardized methodology for validating carbon offset projects. The traditional carbon credit software system sidelines small and medium enterprises interested in offsetting their carbon as it is being handled by large players in the market. Difficulty in registering and accessing this system plays a huge role in the monopolization of the software. The problems facing the traditional carbon system are undoubtedly endless, hence the need for a technology that eliminates these bottlenecks.
Blockchain-based Carbon Credit Software Platforms: What Happens When Blockchain Meets the Carbon Credit Market?
As more software solutions are built, the blockchain serves as the perfect technology that solves common drawbacks. Here’s what happens when the blockchain meets the carbon market:
The blockchain encourages transparency
The blockchain is an immutable, public, digital ledger that securely stores transactions with a timestamp. This feature is particularly useful in the carbon market to store credit transactions, which will encourage authenticity and avoid double-counting.
The blockchain offers security
Carbon transactions are securely stored on the blockchain and are impossible to alter as the blockchain employs a unique, chain-like encryption mechanism that prevents data tampering. When data is secure, project developers, carbon credit facilities, and environmental specialists can work hand-in-hand to develop projects and reduce GHC in the environment.
Blockchain allows for automation to increase efficiency
Blockchain-based carbon credit software can be programmed to be self-executing and automate certain tasks through smart contracts. Activities like verifying the standard of carbon reduction projects or registering new enterprises can be automated to reduce operational time and cost. Blockchain automation also eliminates human error and ensures results remain accurate.
Blockchain encourages standardization
There is a need for universally agreed-upon standardization in the carbon credit market, as projects and credits are issued under independent crediting standards that employ different standards of their choice. With blockchain and smart contracts, a common standard can be developed to make project scrutiny effective and faster and also improve the rate of carbon credit development.
The blockchain can improve accessibility
The traditional market is overgrown with larger entries that control the sales and purchase of carbon credit. With the blockchain, the carbon market can improve accessibility and encourage newer parties, particularly small businesses and enterprises, to engage in carbon offsetting. This will shift attention from the top players to new startups.
Key Features of a Blockchain-Based Carbon Credit Trading Marketplace
Many companies have leveraged the blockchain to solve climate-related issues and simplify the credit process. Some of these companies include IBM, “IBM Blockchain for Climate,” Veridium, and more. Some of the blockchain-powered features in these solutions are:
Friendly interface: In addition to the solutions provided by the blockchain, many carbon credit software systems have an easy-to-use user interface that allows prospective users to navigate the application and perform basic interactions like registering their details.
Self-executing processes: The blockchain has allowed for the automation of certain processes that once required manual validation. This feature has reduced time, cost, and energy input.
Scalability: The blockchain is highly scalable, handling billions of transactions seamlessly. Thousands of purchases and sales can be conducted easily and without experiencing downtime.
Carbon credit tokenization: Carbon credits can be made into digital tokens and sold on the blockchain. These tokens can be sold to raise funding (ICO) or confer certain preferential benefits on holders.
Can You Make Money From Carbon Credits?
The carbon credit market aims to offset GHC in the environment and reduce the effects of global warming. However, certain activities associated with carbon offsetting can offer revenue to those involved. Like cryptocurrency, the carbon credit market is volatile, as prices can change depending on the time and place. Some market players buy carbon credits in bulk and sell them to earn profits. As it becomes more difficult to get credit from the compliance market due to the growing market and strict regulations, manufacturing enterprises are trying to find providers in the voluntary market.
PTPShopy: Your Trusted Carbon Credit Software Development Provider
If you are looking to create a profitable niche in the carbon trading market, then you must stay ahead of your competitors by simplifying carbon credit purchases. PTPShopy is a leading blockchain development service provider with expertise in carbon credit software development.
Our developers have detailed knowledge and experience in developing innovative carbon credit software solutions in line with regulatory frameworks to meet your needs. PTPShopy offers white-label token development services that can be customized to match your goals.