Can Blockchain Tech Help Improve the Carbon Credit Market? | WSJ Tech News Briefing

foreign for the Wall Street Journal this is a special episode of tech news briefing part of our four-part series on the next generation of climate Tech imagine you're say a company that can't cut your carbon emissions enough you might try to at least offset them by buying carbon credits but it can be hard to track those credits or to know if the projects they're tied to actually reduce the amount of CO2 in the atmosphere One Way some people think carbon credits could be improved stick them on a blockchain The Ledger technology that underlies crypto but existing players in the space like the carbon credit registry Vera see problems using this kind of system in May Vera said it would stop letting credits on its registry be turned into blockchain tokens it's working on new rules for how crypto could be used in this space [Music] so how does this all work anyway and what are Vera's big concerns Dieter Holger covers sustainable business for wsj pro and he joins me now to break things down hi Dieter thanks for joining me hi thank you so how does this process of turning a carbon credit into a token work and apparently I need to know something about retirement here right so the retirement process means that usually a company could be an individual as well or another organization but quite frequently a company that's trying to make up for their emissions would you know buy a bunch of credits and then those credits would be retired when they make a climate claim it's effectively taken out of circulation so this process opened a window for crypto enthusiasts right they saw a means to use this retirement process to take carbon credit out of circulation from a traditional carbon credit exchange like Vera and then place it on the blockchain with a token that has that receipt from that retirement attached to it okay so retiring essentially means the credit has been used but when it's turned into a token I guess that makes it look like it's been used even though it hasn't been claimed by say a business or a government is that what the carbon credit registry Vera has a problem with can you explain a bit more about its concerns essentially Vera was losing control over the carbon credits they verify and the claims buyers make with those credits you're not supposed to be retiring something unless you're claiming a climate benefit right and so that was probably the primary concern and then the second concern which is probably maybe equally valid is once these tokens go on to these crypto exchanges Vera doesn't know their customer they want to know who is using these tokens who is claiming the benefit from them and that becomes essentially impossible once they go into crypto land why is that a problem if they don't know who the client is well the whole goal of carbon credit Registries like Vera right is to support poor environmental projects and direct money to these projects and they want to make sure that the people who are claiming these benefits are doing these for the reasons they should be which is to help the environment right the market for carbon credits is far from the only one that's experimented with blockchain tech over the last few years though many are finding it's not necessarily a silver bullet still there are plenty of crypto enthusiasts who think carbon credits have a legitimacy problem and that blockchain can help one of those people is Luisa dimei the CEO of moss Earth a for-profit blockchain company based in Sao Paulo Brazil last year it raised 10 million dollars from investors and back in August 2020 Moss used a strategy of retiring Vera credits that protected the Amazon rainforest to create its own token I spoke with Louis adame at the end of last year to discuss all of this hi Luis thanks for joining us hi Zoe thank you so much for the invitation I its basic level what's the point of having Carbon offsets on the blockchain okay a carbon credit is a digital certificate that proves that either a company or an environmental project sequestered so took CO2 out of the air or avoided the emission of CO2 it has been a system that has always been based on trust meaning that the company acquired the credit because it did some diligence on the project and it believed that it was trustworthy Etc but it never really knew with 100 certainty whether the project was selling them a hundred thousand credits and effectively it was only retiring or canceling 50 000 and pocketing the fifty thousand difference and when you put it on blockchain you avoid that uncertainty because you can tell the quantity you can tell how much the project actually canceled and retired you can tell the origin you can tell all sorts of information that the previous system really didn't provide I mean could also be kept in another digital version it doesn't necessarily need a decentralized ledger for it I disagree with that point I think there is an important advantage of decentralization because you know one of the complaints that people have about the global carbon credit system is that only a few registries actually control most of the transactions and now the power of decentralization is or the issue that it solves is that the Registries they wear too many hats nowadays so they wear the hat of like the system regulator so they make sure that only trustworthy players are there two they establish what the protocols are on how you know like a wind farm or a conservation project in Brazil in the Amazon forest how to calculate those carbon credits so they're the ones who establish those protocols so that they are standardized and finally they control the Registries which are nothing more than digital Notary offices like databases the problem is that it's all based on trust there's no reason why that is not on blockchain okay okay but if I can just jump in here I mean let let's say we put that on blockchain how do you still know that those projects are legitimate you still need somebody to go and check whether or not they're burned you know whether or not they're retiring some of these credits are those credits actually equivalent to one ton of carbon so there are two issues in discussion here one is the validation of the credits I'm not saying those shouldn't be done by Watchdogs and Global Registries that's their job to have Auditors prepare reports and visit the projects and make sure that they're following the protocols and that they're legitimate right once that's established I'm saying that from that point onwards when you know the project is selling to an intermediator that is selling to a company that whole flow needs to be on blockchain it cannot be off chain because we just have the technology nowadays which is blockchain to make sure that there's no double counting there there's no double spanning and that those can be traced back to the project so it's not you know a Panacea like an all-encompassing solution but it does solve for that transaction after the credits have been issued and have been deemed solid switch to some more recent news we were talking about rules for the carbon credit industry Vera the largest carbon offset registry said it was changing its rules to prevent crypto from effectively being used in carbon credit Registries how has that impacted your business well first it's important to highlight that it was a suspension not a full-time prohibition it has impacted our business in the sense that we lost as a company we lost one of our sales Channel because we sold on crypto exchanges or on token format to some funds and companies and now we're just selling straight non-tokenized carbon credits so in a way it's a bit of an unfortunate setback I think for the world in that we were advancing on the use of blockchain for this and then now we're back to step one I just want to make sure I'm understanding this right at the moment the carbon credits that you're selling are not on blockchain are not on blockchain correct all right Louis adame from Moss thank you so much for joining us for this conversation thank you for the very great questions and for the time zone we reached out to Vera for a comment a spokesperson said the registry will have an announcement on tokenized carbon credits soon now to understand more about the bigger picture challenges facing the carbon credit market and whether blockchain Tech can really make a difference I want to bring back wsj Pro sustainable business reporter Dieter Holger Dieter the CEO of moss split the problems of carbon credits into two buckets first there's this issue of whether a credit is really tied to a legitimate project and second that each credit can be duplicated so that they aren't double counted and he told us that blockchain addresses this second issue but Dieter which is the bigger problem I mean the issue of double counting has long been discussed right this is the problem of potentially two companies both claiming the benefit from a carbon credit the blockchain claims that it can provide a more transparent Ledger right a more publicly accessible transparent ledger so it is certainly a solution solution to this problem but the issue of quality is probably grabbing a lot more attention right now because sure these credits could be counted twice but we mainly want to make sure these credits are at least in the eyes of critics would say that these credits are actually doing something positive for the environment right that they're actually doing what they advertise or accomplishing what they set out to do that's a problem that's going to have to be addressed by standard Setters and regulations you know when people think about blockchain when they think about the crypto industry they often think about how energy energy intensive it can be so what have experts said about how that energy intensive blockchain fits into an area where it's trying to reduce the amount of carbon in the world right so the cryptocurrency industry is well aware of the energy intensive problems that they are facing right we have seen some of the early use cases of these crypto carbon tokens coming from actual other exchanges or crypto platforms so they will buy crypto carbon tokens and then they will what they call burn them so they can claim them against their own emissions so people in the crypto world at least are using crypto carbon tokens today to try to alleviate some of those energy concerns that we're seeing so sort of this circular world of blockchain carbon credits supporting the blockchain carbon credit Market that's exactly right I mean it makes a lot of sense when you think about it that the early adopters of crypto carbon tokens would of course be other crypto platforms or people who are enthusiastic about crypto so that's where we're seeing a lot of the use when it comes to the claiming the environmental benefit of one of these crypto carbon tokens all right that was our reporter Dieter Holger Dieter thanks so much for joining us thank you all right that's it for this episode of tech news briefing be sure to check out the other episodes of our special series on new climate Tech and for more Tech news head over to our website wsj.com I'm Zoe Thomas for The Wall Street Journal thanks for listening [Music] [Music]

Channel: Wall Street Journal

Views: 29,058

Keywords: carbon credit, carbon credit market, blockchain, blockchain tech, blockchain news, co2, carbon, climate, climate justice, blockchain technology, crypto, carbon pollution, pollution, climate change, environment, factories, news, tech news, carbon credit news, techy

Id: 6PbacEHxu64

Length: 12min 58sec (778 seconds)

Published: Thu Jan 26 2023