Blockchain, the technology made famous for underpinning cryptocurrency, is now being used to reduce the effects of carbon dioxide and greenhouse gas emissions, among other use cases. There are four types of blockchains—private, public, hybrid and consortium.

In very simple words, it is a decentralized or distributed ledger where data in the form of transactions or records are stored on the ledger. All these records and transactions are immutable, meaning no one can modify or change the data once recorded.

Scores of transactions are added in one block and each new block is linked or chained to the previous block, creating a chain of blocks in which every participant or node always holds a copy of the network ledger.

This provides transparency to identify if someone changes the data in their ledger going beyond the well-defined rules, the other participants or nodes will discard that change, considering it invalid according to the rules. With a “single source of truth” in the form of data, this system develops a trust factor among participants with clarity. Blockchain brings the “smart contract” concept to the table with its business application and intelligence.

The link between blockchain and carbon offsetting

Carbon offsets are carbon credits—measured and sold in metric tons of CO2 equivalent (CO2e) or a metric ton of carbon dioxide—that a polluting company buys to make up for the greenhouse gases it has emitted or emits.

To reduce CO2 emissions, the United Nations launched an international treaty named the Kyoto Protocol, which introduced carbon credits in the 1990s.

Following the Kyoto Protocol, the carbon market came into existence and rose with time—giving birth to several international agencies that regulate carbon credit registrations and sales.

Today, a largely unregulated voluntary carbon market exists, where participants seek to offset their emissions beyond the set rules and requirements, make false claims regarding carbon neutrality and offer carbon credits that do not fund carbon reduction actions.

These credits or the funds are used somewhere in the world to remove the same amount of carbon from the air, like capturing methane gas, preventing carbon emissions, usage in solar or wind farms that generate renewable energy and preserving forests. A company becomes carbon neutral when its carbon credits equal the amount of CO2 it emitted.

Now imagine the voluntary carbon market on a blockchain. While digital carbon credits come with proof that an organization has purchased carbon credits, the regulatory agencies can better review carbon neutrality claims.

Blockchain can reduce costs, alert before double spending, delete paperwork and streamline the carbon market, with smart contracts on the blockchain storing metadata on each carbon credit, while converting them into tradable units.

This enables swift, transparent and trustworthy information exchange among network participants. Metadata also shows its origin and quality with a transparent, fairly priced and highly liquid carbon offset.

The role of carbon credits in meeting sustainability goals

On the threshold of major climate change, one question that’s often asked is: “Can carbon offset help reduce GHG emissions or are they another greenwashing tool?”.

According to World Economic Forum (WEF), while detractors say that offsetting allows companies to avoid cutting their emissions while letting them claim they are, proponents argue back with its proper applications. They say funds from offsetting help in conservation and sustainable development projects that will not only reduce emissions, but also give companies time to work toward zero emissions.

Green initiatives powered by blockchain

There are many organizations that have already understood the importance of blockchain and are now moving operations to a greener path with their moves toward sustainability. Let’s look at some of the examples:

1. In 2020, a 900-MW wind-powered crypto mining farm was built in Morocco by Soluna Power.
2. After becoming the first nation to accept Bitcoin as a legal tender, El Salvador has already explored the use of energy from its volcanoes for mining.
3. In 2021, Tesla stopped accepting Bitcoin payments due to its fossil fuel-based energy usage.
4. British firm CarbonChain calculates the carbon footprints of corporations’ trade finance portfolios, does carbon risk evaluations for clients and allows enterprises to receive green funding.
5. Another British firm ReGal 38183 offers green financial compliance solutions where clients can invest in sustainable initiatives with its virtual platform OIII3 BANK that incorporates ESG parameters into financing and investing choices.
6. German firm Tomorrow offers mobile banking services that let organizations fund carbon offset projects in Vietnam, Uganda and Peru as well as with green bonds from Förderbank Nordrhein-Westfalen.
7. Norwegian firm MIRIS develops a Green Finance Framework that’s a methodology platform that identifies, monitors and documents the cash flow in financial projects.
8. Chinese firm TREELION creates a blockchain-based digital financial network for environmental firms for compliance launch and management of green digital products.
9. Sun Exchange, a renewable energy firm in South Africa that uses Bitcoin for making cross-border payments, allows people to purchase solar panels online and rent those panels out to various companies in the country.
10. Australian tech firm Power Ledger established a pilot project in India’s Uttar Pradesh where homeowners with solar panels on their rooftops will sell power to others on the grid.
11. Blockchain-based dApp Foodtrax tracks food from its origin to the shelf to eradicate food waste due to storage and improper handling.
12. The Plastic Bank leverages cloud technologies to create an app that can help to monetize ocean plastic.
13. Blockchain-based dApp RecycleToCoin provides users with a reward and incentive system for recycling aluminum, plastic and steel cans.
14. The second largest crypto asset Ethereum recently opted to change its consensus mechanism to Proof-of-Stake (PoS) from proof-of-work (PoW), reducing energy usage by 99%.
15. Committed to reducing the environmental impact of blockchain operations, Crypto Climate Accord brings industry leaders, organizations and individuals together as they aim to make the crypto industry 100% renewable by 2030.

“Blockchain-based traceability solutions can bring in much required transparency and assurance around the environmental claims. Blockchain has the potential to be the right tool for compliance against the evolving anti-greenwashing regulations around the world,” said Santhosh Jayaram, Senior Vice President & Global Head – Sustainability at HCLTech.

However, not all blockchain networks are green. The adoption of bitcoin has damaging environmental impacts because mining requires significant electricity use, leading to the emission of high amount of carbon. There are also many blockchains that issue digital carbon credits, but they are uncertified. Among the verified and certified ones are ClimateTrade, CarbonX and IMPT.

Ultimately, however, blockchain can bring transparency and trust to the carbon markets with a better, more traceable network. Carbon offsetting with digital carbon credits can track insights into carbon neutrality and curb climate change. The challenge in deploying these solutions lies with the regulatory bodies, who need to agree on blockchain standards, ensuring on-chain integrity.