How the blockchain will impact the carbon offsetting industry
The blockchain ecosystem has seen enormous growth in the past few years. Companies and startups have found ways to revolutionize many different industries. This is our take on why the carbon offsetting industry is perfectly situated for a blockchain revolution.
The current carbon offsetting market
The current focus of most companies is on the reduction and elimination of CO2 emissions. This is and should be the main priority, as a straightforward reduction of emissions is the best thing a company can do for the environment. The problem, however, is, that oftentimes a complete reduction is not entirely possible. Some harmful processes are still fundamental to businesses operations, and oftentimes it is not technologically feasible to use alternatives. This is where carbon offsetting becomes extremely necessary.
Carbon offsetting is the support of projects enabling the reduction or removal of greenhouse gas emissions, in order to compensate for emissions made elsewhere. Projects that offset create certificates representing greenhouse gas removal. Some examples are reforestation, waste to energy, and forest preservation projects. Increasing public and shareholder pressure has led to ESG goals including offsetting. A fifth of the world’s 2000 largest companies have committed to becoming carbon neutral². This is causing the carbon market to skyrocket. McKinsey estimates it to grow by a factor of 15, reaching $50 billion by the year 2030.
Problems with the current market
The current market is extremely inefficient and not suited to actually achieve net-zero goals set forth by firms. A majority of the deals occur over the counter and involve a private negotiation, which makes the process strenuous and unclear for both companies and projects. There are thousands of different projects at price points between $1–1000+ per tonne, carried out by different firms, completed in different regions, and verified using different standards. Accordingly, firms oftentimes do not know where to start.
In 2019, global carbon emissions from fossil fuels and industry reached a high of 36.44 billion metric tons⁴. The COVID-19 crisis has caused a decrease in emissions, however emissions are expected to surpass the 2019 high again.
Another issue is that many companies and countries that aim to become net zero have not made public what kinds of offsets they will use. In fact, 48% of firms have not made clear what sorts of credits they will use³. This opens the door for so-called “junk credits”; these are credits that have little or no substantial impact. For instance, some credits represent the implementation of carbon saving technology although it is already mandated.
Blockchain is having an impact on the market
Blockchain is a system of recording information and transactions, in a way that makes it theoretically impossible to alter or hack the data. The last few years have seen an adaptation of the technology for a variety of different use cases. The use case for carbon certificates is one that is currently gaining a lot of interest, especially because of the fundamental intransparency in the current certificate market.
Traditional offsetting works in the following way:
Certification agencies such as the Gold Standard issue certificates for Co2 emissions.
These certificates are transferred to companies that want to offset.
The certificates can be transferred from companies in the registry to a retirement account, this shows that the company has actually eliminated the emissions (this is to stop them from buying credits, claiming credit, and then reselling them). Companies can only claim credit when the credits are in the retirement account.
The idea is that carbon certificates can be digitally represented on the blockchain. By bridging the certificates onto the blockchain it easily becomes possible to see how, where, when, and by who certificates were created. To a certain extent, existing systems try to do this as well. However, the blockchain is far more efficient because it allows firms to record the data in a public and extremely transparent way. Another benefit of using the blockchain is that the certificates can be more easily transferred from party to party before being retired, which helps to create a marketplace.
The aforementioned process can be replicated on the blockchain.
By using tokenization technology, the credits can be digitally represented on the blockchain.
They can be sold to companies.
They are sent into an account (so called blockchain wallet) that shows that they have been eliminated (or burned on the blockchain).
The blockchain process enables organizations and individuals to more transparently show their commitment to the environment. By addressing issues in the current market, it will become a core technology of future carbon markets.
Certain Blockchain “Systems” are now so efficient that their environmental footprint is near insignificant. Read more here.
What Sustaim does
At Sustaim, our goal is to create a direct connection from firms to projects. We combine high quality projects and the benefits of the blockchain in an easy to use dashboard. We aim to be the most transparent way for companies to offset. By enabling businesses to invest in quality and transparent carbon offsetting projects, we give them the opportunity to show their commitment to the environment and fulfill their ESG goals. Learn more at www.sustaim.earth.
Blaufelder, Christopher, et al. “A Blueprint for Scaling Voluntary Carbon Markets to Meet the Climate Challenge.” McKinsey & Company, McKinsey & Company, 19 Feb. 2021, https://www.mckinsey.com/business-functions/sustainability/our-insights/a-blueprint-for-scaling-voluntary-carbon-markets-to-meet-the-climate-challenge.
“Taking Stock: A Global Assessment of Net Zero Targets.” Energy & Climate Intelligence Unit, https://eciu.net/analysis/reports/2021/taking-stock-assessment-net-zero-targets.
“The Carbon Offset Market Is Falling Short. Here’s How to Fix It.” Financial Times, Financial Times, 5 May 2022, https://www.ft.com/content/32b1a051-7de6-4594-b31b-753e78aefde1.
Published by Ian Tiseo, and Nov 22. “Annual CO2 Emissions Worldwide 1940–2020.” Statista, 22 Nov. 2021, https://www.statista.com/statistics/276629/global-co2-emissions/.
About Sustaim: At Sustaim we believe that an impactful and trustworthy climate-compensation market is necessary to successfully mitigate the effects of climate change.
We are a German based sustainability company that aims to support organizations that take their net-zero promises seriously. Sustaim offers climate-compensation solutions that generate publicly verifiable impact. Through utilizing both technology and close partnerships, we provide full transparency so that our partners can be sure that their financial efforts actually have an impact on the environment. Learn more at www.sustaim.earth.
Milan Koehler LinkedIn: https://www.linkedin.com/in/milan-koehler-862a951bb/
Peter Lange LinkedIn: https://www.linkedin.com/in/peter-lange-124791189/
Alexander Krost LinkedIn: https://www.linkedin.com/in/alexander-krost-a0280018b/