Carbon market gets a much-needed boost from blockchain technology

An Allinfra Climate exec thinks digitizing carbon market processes via distributed ledger technology can bring about efficiency and predictability that hasn’t existed before.

Automated systems and blockchain technology are being increasingly utilized to improve the efficiency and accuracy of the carbon market, a critical component in the fight against climate change.

Cointelegraph spoke to Bill Kentrup about the role of blockchain technology in digitizing verifiable data in the carbon market. Kentrup is the head of origination and co-founder of enterprise software Allinfra Climate — a platform designed to help institutions achieve their sustainability goals. According to him, on-chain monitoring, reporting, verification, issuance, allocation and retirement of carbon credits and carbon claims could bring about efficiency and predictability that hasn’t existed in the past.

Kentrup said that by putting everything on “digital rails,” systems for detecting double-counting, corporate carbon accounting, ratings and reporting to government regulators can all go digital, saying:

“It’s far less efficient for a digital accounting system to process data from reports, non-digital sales, purchase agreements and from traditional registries that have limited info in terms of who the final owner of a retired asset is.”

Kentrup mentioned that historically, the challenges and inefficiencies associated with the carbon market have resulted in understandable frustration and significant pushback. According to him, this pushback contributed to the failure to extend the Kyoto Protocol beyond 2012.

The Kyoto Protocol is an international treaty aimed at reducing greenhouse gas emissions and addressing climate change. It established a system of emissions trading, allowing countries that have exceeded their emissions reduction targets to sell their surplus allowances to countries that have not met their targets.

Speaking on how the current manual process of collecting and verifying data in the carbon market falls short — and how blockchain technology can help address these limitations — Kentrup said, “Most traditional approaches used to monitor, report and verify (MRV) emissions reductions use intermittent manual processes to determine the environmental impact of projects. Data collection is often labor-intensive and time-consuming when the number of emission-reducing projects seeking environmental finance increases.”

“Historically, there tend to be significant bottlenecks in terms of the availability of validation and verification bodies required to do the work from start to finish — the process of getting a single issuance of carbon credits issued from a project takes months (sometimes over six months).”

He added:

“In order for organizations to truly reduce net emissions and accurately measure climate impact, it is critical that we have highly provenanced data tied to carbon offsets. A blockchain-based system can help us achieve this with real-time digital data capture that is verifiable and auditable.”

Explaining how the verifiability of data collected through blockchain technology improves the accuracy of reporting in the carbon market, Kentrup said “A blockchain-based system is a way of ensuring that data captured from devices and other carbon-relevant sources retains a high degree of provenance. […] This results in greater predictability, reduced time and cost, and vastly improved verifiability and audibility.”

Automating the collection and verification of data in the carbon market faces myriad challenges, which Kentrup said include the availability of appropriate market-rational technology, as certain aspects don’t yet have suitable technology available to fully automate or digitize. In addition, the over-enthusiasm of “tech for climate” providers that don’t have much experience in climate finance will inadvertently fail and, in some cases, damage the market. This runs the risk of tainting the wider market’s view of “tech for climate.” Finally, resistance to adoption amo traditional market players is also a challenge for the sector.

Despite the challenges, Kentrup expressed his optimism, as new ideas and technology are being implemented and traditional players are shifting toward adopting digital solutions for climate finance.

Remarking on the role blockchain tech will play in the foreseeable future of the carbon market, Kentrup shared, “While potentially not the only solution available, a blockchain-based platform currently provides all stakeholders in the environmental financial product market with greater trust in underlying products, vastly reduced and more predictable time and costs, increased efficiency in allocating value to participating parties, and greater optionality and reporting — ultimately contributing to the acceleration of positive climate action.”

“Putting carbon-related data on ‘digital rails’ is a way of future-proofing a party’s decarbonization activities. In the near term, it allows for quicker, cheaper production of carbon offsets and for better-structured financing, insurance and professional services — all absolutely critical to strive for given the urgency with which we must combat climate change.”