Carbon Credit Exchanges Still Being Used
Carbon credits are permits that a company can purchase to offset the emissions of its operations. Companies can buy these permits from a variety of sources, including renewable energy projects and tree planting initiatives.
The global market for carbon credit exchange is growing rapidly, with the total value of transactions reaching $851 billion last year. While governments all over the world have developed carbon markets, the majority of trades are conducted in the voluntary market, which is largely unchecked by regulators. Instead, this market is driven by a set of standards established by respected nonprofit organizations, such as Verra, an organization that promotes integrity and transparency in the carbon credit market.
But despite the rise in popularity of this market, many carbon credits are not being used as intended and may be harming the environment in the process. For example, some of the trees planted for projects to produce carbon credits are being destroyed much faster than they can be replaced. As a result, the environmental benefits of these projects are being negated and the companies purchasing the carbon credits are being deceived.
Are Carbon Credit Exchanges Still Being Used?
A number of crypto groups have taken up the challenge of reforming this market by developing platforms that use blockchain technology to track carbon credit transactions. For example, the Toucan project aimed to upend the carbon credit marketplace by providing infrastructure that would allow companies to purchase carbon credits that could then be retired and put on-chain in the form of a new token. These tokens could then be sold and traded like any other crypto asset, thereby attracting new investors to the carbon credit world and making it more attractive to businesses that had previously been reluctant to spend money on this market.
Unfortunately, Toucan’s efforts ultimately failed. Even if they had been successful, the market for carbon credits is still flawed. There are several key issues that need to be addressed, including a lack of reliable demand signals, market instability and a proliferation of bogus credits.
While some of the issues that have hampered Toucan’s initiative were beyond its control, there are ways to make this market more trustworthy and effective. To start with, there needs to be a more rigorous and consistent standard for verifying the authenticity of carbon credits. The Toucan team envisioned that this should be done through a registry system that requires detailed information on the ownership of active carbon credits, as well as the location and type of project that generated them. Ideally, this data would be verified by experts and then made publicly available.
Another essential step to boosting the credibility of carbon credit markets is to develop liquid reference contracts that can provide price signals to drive supply and liquidity in these markets. In addition, it is important to define a core set of carbon principles and attribute taxonomy that all carbon exchanges must adhere to. This will ensure that the market is driven by genuine environmental impact rather than speculation or a desire to circumvent mandatory carbon reduction systems.