By Stephanie Lai, Head of Research at King’s Commercial Awareness Society
Each Carbon Credit represents a tonne of carbon dioxide removed from the atmosphere, and is purchased by companies aiming to offset their carbon emissions in order to meet their declared commitments to reduce greenhouse gas emissions. With the rise of non-fungible tokens, carbon credits have been tokenised as a digital version of the credit that can be purchased by an individual. However, despite the growth of carbon credit tokens amidst the uptake of NFTs, greenwashing persists in the sector.
Understanding Carbon Credit Tokens
Carbon credit tokens have been de rigeur as a way of incorporating blockchain technology into better environmental practices, as regions, and nations are increasingly monitoring their carbon footprint. A range of carbon credit tokens have been launched, including JustCarbon JCR’s and Moss.Earth’s MCO2x, with an anticipation of more being launched in the near future due to the World Bank encouraging a wider uptake of them to their potential of having high integrity. The uptake of carbon credit tokens is also being enhanced as the market has received a large amount of funding for exploration by large banks, including NatWest who is working alongside other institutions to develop ‘Carbon place’ which ameliorates the traceability of the transactions and history of certified carbon credit tokens that are on the market.
However, the risk of greenwashing persists within the sector, this is when an activity is inaccurately presented as environmentally beneficial. This is especially as there is sometimes limited transparency of the history of ownership of carbon credit tokens, suggesting that it is easier to manipulate the extent of their sustainability, worsening a buyer’s ability to gauge how precisely beneficial the credit is to the environment. Moreover, the anonymous nature of blockchain can allow firms to conceal if their tokens are from a singular project, or a variety of projects of varying benefit to the environment, increasing the risk of greenwashing if the token consists of numerous projects.
Social Impact
The increased use of carbon credit tokens ultimately benefits society as they are a form of carbon offsets, however, this is limited by potential greenwashing, as previously mentioned. For example, the misleading nature of carbon credit tokens is clear in 2021 when a British oil exploration firm and tech start up, Carbonbase, collaborated to stop the extraction of oil in a region of Greenland by purchasing a license to explore the area to keep the oil in the ground and monetise the oil with NFTs. However, Carbonbase discovered that Greenland has never produced oil, highlighting a large flaw in the proposed business venture that could have led to greenwashing accusations. This demonstrates the prevalent disconnect between the environment and technology sectors creating instability in carbon credit tokens that must be improved.
Private Sector Impact
Carbon credit tokens provide opportunities for the private sector, as in banking they allow for a new method of cash management for firms within the corporate bank division. Moreover, as from 2023 onwards, firms in the UK must provide a plan on how they will achieve net zero by 2050, carbon credit tokens are an alternative method to purchasing carbon offsets while firms transition to more environmentally friendly behaviours.
However, firms must recognise greenwashing as a risk, which persists in all carbon tokens whether they are tokenised or not, as if the carbon credits purchased are greenwashed, their plans to decarbonise may be largely impacted, causing a change to their production if they need to become environmentally-friendly faster. Moreover, the uptake of carbon credit tokens by private firms must consider their use of blockchain which may have a potentially large carbon footprint that occurs from the large amount of power it takes to store and run them.
Future Developments
The carbon credit token market is growing rapidly, especially amidst the growth of the use of blockchain online in the forms of NFTs and through the metaverse. It provides an exciting way to engage more people into decarbonising the planet which can greatly aid regions in achieving their decarbonisation goals. However, as explored in this article there is a persisting threat of greenwashing which can occur in carbon credit tokens, although this can potentially be mitigated by more stringent guidelines and independent professional verification.