The future of Crypto Carbon Offset projects such as breaks in blockchain and cryptotokenization

Verra, a certifier of CO2 credit standards, said on May 25 that it would immediately ban the conversion of withdrawn credits into blockchain tokens, months after the cryptocurrency platform Toucan’s ambition to use blockchain to disrupt the entire CO2 credit system.

In light of World Environment Day 2022, with its campaign for this year using the hashtag #OnlyOneEarth to advocate for revolutionary changes in policies and elections to enable a cleaner and greener environment, the ban introduced by Verra is a indispensable step towards a sustainable life in harmony with nature.

Crypto-supported trading of carbon credits has allowed people to trade carbon credits that are converted to cryptocurrencies. One of these tokens is BCT by Toucan (one BCT represents one tonne of CO2 removed from the atmosphere). However, the recent announcement of Verra, the world’s largest CO2 credit program, points to a potential double-counting of CO2 credits that has been withdrawn.

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A “credit withdrawn” indicates that its environmental benefits have been used. Therefore, Verra announced an immediate ban on the creation of tokens or instruments based on withdrawn credits. However, this has jeopardized the core mechanisms of crypto-based CO2 credit trading platforms such as Toucan and KlimaDAO.

Verra aims to explore the possibility of “immobilizing” credits in Verra Ledger accounts so that they can be tokenized with the transparency and traceability required by market participants, provided this can be done in a way that prevents fraud and preserves environmental integrity.

After all, the whole purpose of CO2 credits is to offset the environmental degradation.

The future of crypto-carbon offset projects

Several blockchains and cryptocurrencies that perform tokenization use carbon credits registered with Verra. The credit is marked as “expired” on the general ledger before a token is created to avoid double consumption. But Verra noted that some platforms let the credit be active, leading to potential fraud.

Following Verra’s decision to stop the tokenization of withdrawn credits, Toucan’s main activity stops, and the same can happen for KlimaDAO. At the moment, it is unknown what will happen to the 22 million withdrawn credits already placed on the blockchain. Toucan and Climate tokens dropped drastically after Verra’s announcement.

However, crypto-carbon supporters still have some hope. Toucan believes he will be able to help Verra build a new “live” credit tokenization system as opposed to retirees continuing to trade in tokenized carbon credits.

But according to a report from TIME, Verra is keen to work on a project like Carbonplace, which has been created by a consortium of banks, including CIBC and UBS. Carbonplace has similar goals as Toucan, but it works on a closed, proprietary system as opposed to blockchain. Verra believes that by choosing a more centralized project like Carbonplace, he would have greater control over who buys credits, as there were fears that the crypto token would be used for shady purposes.

But Verra also said she would begin a public consultation process to decide the future. The company says the way forward does not have to be banks, it can be any entity that has sophisticated KYC checks and the infrastructure to perform these checks. Officials from Toucan and other crypto entities hope they will be involved in future decisions.

Problems with carbon credit tokenization

Research suggests that some carbon credits tokenized by cryptocurrencies are not as environmentally friendly as they claim. Many CO2 credits come from age-old projects that offer very little value and often do not need additional funds to function. And the idea of ​​some of these platforms to remove these mediocre credits to force large companies to buy better and more valuable CO2 credits has backfired.

In addition, it presents fundamental problems to quantify the exact amount of CO2 that a carbon offsetting project extracts from the atmosphere. For example, replanting projects may not provide long-term value because trees can die, be destroyed, or burn in forest fires.

In addition, there are widely documented incidents of fraud, double counting and creative accounting that make much of the CO2 credits unreliable as one of these activities led to Verra being banned.

With this, there is a lot of ambiguity regarding the crypto future of carbon credits, but with better regulations and better frameworks, the blockchain system has the potential to revolutionize the CO2 trading market.

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