As COP28 commences, the Interwork Alliance (IWA) published the Carbon Emission Token (CET) Protocol. It’s a method for companies to collect and validate their greenhouse gas (GHG) emissions in a DLT agnostic manner. Just as important, it helps to communicate that to customers and investors in a standardized format.
When we think about tokens we tend to think about assets. In the sustainability context we might think about carbon credits or offsets. A CET isn’t like that because it’s not saleable. It’s really a liability. The token isn’t really transferrable apart from within an organization if it needs to attribute the emissions across divisions.
The CET Protocol was developed by an Interwork Alliance working group led by Hedera’s HBAR Foundation and EY. And the IWA is part of the Global Blockchain Business Council (GBBC). The Working Group is seeking feedback by February 17.
DLT and blockchain are useful both for the asset side – tokenizing carbon credits and offsets – and also for measurement and traceability. The IWA previously published a digital Measurement Reporting and Verification (dMRV) Framework.
Passing the baton
Our view is that the latest CET protocol is particularly useful in communication. Manufacturers use third party components and need accurate data about the indirect emissions involved in the parts they buy. It’s a little like passing the baton, but wanting to know the details of the baton you were just handed. CET helps provide the baton details.
If a property developer needs to report its GHG emissions it will mint tokens for its direct emissions (Scope 1), the energy it consumed to construct the building (Scope 2) and the indirect emissions (Scope 3). Scope 3 includes emissions involved in producing the windows, the tiling, air conditioning units and the like. If the manufacturer shares the details of its CET tokens for the windows – in a nice standardized format – it makes it much easier for the developer to make accurate calculations rather than guessing.
There is one aspect in which the more conventional concept of tokens dovetails with CET tokens. If a company wants to reduce its footprint, it may buy some carbon offsets. And it can apply the offsets against the CET tokens, reducing the carbon footprint of a product.
Meanwhile, yesterday Hedera announced a trial with EDF, which explored tokenized renewable energy certificates (RECs). Additionally, Nasdaq announced a smart contract and (optionally) blockchain solution for the issuance, trading and custody of carbon credits.