As technology continues to advance, there is much space for expansion within the field of blockchain. By combining carbon credits with blockchain technology, there is hope that we can find a more fluid way of trading. While this may all sound incredibly complicated, fear not! While you may be feeling overwhelmed right now, by the end of this article, you will be a pro! Let’s go through carbon credits and blockchain together and break it all down.
What are Carbon Credits?
A carbon credit, or offset, is a tradeable permit that allows the holder to emit a certain amount of greenhouse gases, like carbon dioxide (Kenton, 2023). A single credit allows one ton of carbon dioxide or the equivalent in other greenhouse gases to be emitted (Kenton, 2023). In order to reduce emissions, businesses and organizations can choose to buy these credits and trade them on the market (Ivey, 2023). Businesses and organizations can set a number of credits that will allow them to pollute a certain amount to decline over time (Kenton, 2023). If they go over their proposed caps, they must spend more money to buy more credits (Kenton, 2023). If they have excess credits, they can sell them to other businesses or organizations that need them, allowing them to make more money and providing monetary incentives (Kenton, 2023).
What is Blockchain?
Blockchain is a decentralized ledger that stores digital information (Ivey, 2023). It can securely and transparently record transactions (Ivey, 2023). Blockchain has the ability to make data immutable, meaning that it cannot be altered in any way (Hayes, 2023). This means that the only time the data may be altered is prior to entering it, reducing risk of human error or fraud (Hayes, 2023). A well-known application of blockchain is cryptocurrency (Hayes, 2023).
Putting them Together
According to Co-founder and CEO of Oblique Life ROmi Sumaria, blockchain will allow us to ensure that people who are investing in climate change initiatives can understand where their time and money are going, what metrics they are looking at, and what their return-on-impact is (Farren, 2021). The benefits of combining carbon credits with blockchain technology look promising.
First, blockchain can help prevent fraud and make managing carbon credits more transparent (Ivey, 2023). All carbon credit transactions can be monitored in real time so that the intended use of the credits can be guaranteed (Ivey, 2023).
Second, blockchain can encourage the adoption of cleaner energy sources, such as solar and wind power (Ivey, 2023). It can allow people to buy and sell renewable energy directly from each other rather than through the aid of a centralized organization or company (Ivey, 2023).
Third, blockchain can help with supply chain management for companies by tracking the carbon footprint of materials and products across the supply chain (Ivey, 2023). This will allow them to make more sustainable decisions and reduce their carbon footprint (Ivey, 2023).
Finally, blockchain can help companies monitor their progress and report on their emissions more accurately if they are able to track them (Ivey, 2023). This can motivate companies as they see where they are and continue working towards their goals.
With all that being said, while blockchain offers many benefits, it is not without its unique challenges. One challenge is that there is a need for uniformity and rules that everyone can follow when managing carbon credits and tracking emissions (Ivey, 2023). Another challenge is that blockchain is currently only used to process a small number of transactions (Ivey, 2023). If businesses and organizations all start using blockchain to manage their carbon credits and track their emissions, a bottleneck could occur (Ivey, 2023). Lastly, while blockchain may be implemented with the intent of reducing greenhouse gas emissions, it may increase energy usage as energy will be needed for transactions (Ivey, 2023).
Props to you for making it to the end of this article! As of now, there is not enough knowledge regarding how effective blockchain will be, but it is encouraging to see the innovative ways that technology is being used to address climate change. Hopefully, we will continue to see progress in these areas in the near future.
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Farren, T. (2021). United Citizens Organization launches as a blockchain initiative at COP26. Cointelegraph. Retrieved Aug 2, 2023, from: https://cointelegraph.com/news/united-citizens-organization-launches-as-a-blockchain-initiative-at-cop26?utm_content=bufferd89fe&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer
Hayes, A. (2023). Blockchain Facts: What Is It, How It, Works, and How It Can Be Used. Investopedia. Retrieved Aug 2, 2023, from: https://www.investopedia.com/terms/b/blockchain.asp
Ivey, A. (2023). Can blockchain help combat climate change? Cointelegraph. Retrieved Aug 2, 2023, from: https://cointelegraph.com/news/can-blockchain-help-combat-climate-change#:~:text=To%20reduce%20their%20emissions,%20businesses,documented%20using%20a%20decentralized%20ledger.
Kenton, W. (2023). Carbon Credits and How They Can Offset Your Carbon Footprint. Investopedia. Retrieved Aug 2, 2023, from: https://www.investopedia.com/terms/c/carbon_credit.asp#:~:text=One%20credit%20permits%20the%20emission,limit%2C%20which%20is%20reduced%20periodically.