Yesterday the World Economic Forum (WEF) published a report on Blockchain for Scaling Climate Action. The focus is on the crypto side of blockchain, including incentive systems for regenerative finance. While many blockchain initiatives on the corporate end of the scale were overlooked in the report, the content is nonetheless valuable because the web3 world provides an opportunity to tap into retail financing for climate action.
As the report outlines, blockchain-based carbon registries offer a transparent digital record. So much so that the World Bank-backed Climate Action Data Trust is creating a registry to store data from multiple registries. Plus, blockchain can be used for measuring and reporting by pairing it with data collected from IoT sensors, smart meters and drone imagery.
To date, governments have recognized that the scale of money required for sufficient climate action is beyond their finances. Hence there’s been a push to include corporates with both compulsory and voluntary carbon credits and numerous other initiatives. The web3 sector presents an opportunity to extend that to consumers, provided it can address its trust issues.
As the report states, “recent movement to ‘tokenize’ (i.e. digitize) credits has enabled fractional (i.e. sub-tonne) ownership of credits, allowing individuals and smaller organizations to participate in the market.”
One of the lead authors of the WEF report is from the Toucan Protocol, which tokenizes Verra carbon credits. While the report doesn’t focus on Toucan, our previous coverage found that Toucan was so successful that in a matter of months from launch, it had tokenized 21 million tonnes of carbon, estimated to represent 2.25% of total credits. That sort of scale attracted Verra’s attention and it wasn’t happy with Toucan’s methodology. That wasn’t because Toucan was doing something dodgy, but because Toucan retired carbon credits at the point of tokenization. Previously ‘retired’ meant a carbon credit had been consumed. Verra thought that was confusing, and as a result, Verra paused tokenization and opened a consultation. It’s in the final stages of coming up with an action plan.
The trust challenge
The WEF report highlights some of the industry’s challenges, including a multi-faceted reputational one. On the one hand, unrelated to blockchain, there’s the potential for carbon offsets to be used for corporate greenwashing. The report also acknowledges crypto’s reputation for scams, which may be the reason why the term ‘crypto’ is barely used in the report. It glossed over the fact that the quality of crypto carbon credits in particular have been questioned.
Several recommendations are made in the report to address many of the challenges. But trust is a key one. When Verra announces its proposals, there’s a chance that they will include Verra performing due diligence on the firms that tokenize its carbon credits, which will be a step in the right direction.