Article04.01.2023
We can't expect even the highest quality carbon offsets to drive the necessary shift to net zero if carbon markets as a whole are marred by trust issues. ZeroSix's Arno Laeven explores this issue and explains how "removing the need for trust" can be part of the solution.
According to a recent Guardian analysis, some 90% of the carbon credits issued by one of the largest registries in the global voluntary carbon market (VCM) did not represent actual emissions reductions. That’s problematic, to say the least. It undermines trust in the VCM at precisely the time when a robust market is needed most to drive investment into projects that reduce and/or avoid emissions en route to net-zero.
At the heart of the matter — including the Guardian exposé — is whether any given carbon credit is ‘real.’ If the answer is ‘no,’ then the buyer of that carbon credit is de facto greenwashing, whether they intended to or not. Worse, it also means that the project associated with that carbon credit has not helped the planet’s emissions balance move any closer to actual net-zero.
In 2023 and amidst heightened scrutiny, ‘real’ carbon credits more than ever must equate to either new avoided emissions, emissions reductions, or sequestered carbon vs. what would have happened without investment via the carbon credits. This is commonly referred to as additionality. The projects associated with high-quality carbon credits should meaningfully contribute to changing the global emissions trajectory; they cannot amount to merely ‘buying’ a green claim that doesn’t change the overall global emissions balance.
HOW CARBON MARKETS LOST PUBLIC TRUST
The fact that the overwhelming majority of carbon credits examined in the Guardian analysis didn’t represent actual emissions reductions was the core fundamental failing that lost public trust in at least a part of the VCM. But how the collective ‘we’ can audit and verify the integrity of carbon credits is also partly to blame.
Of course, carbon credit buyers cannot individually inspect every project associated with their carbon credits. They are therefore wholly reliant on the claims of intermediaries: registries, verifiers, brokers, project owners, auditors. Yet trust in this ‘just trust us’ network of intermediaries is not always justified, as a 2020 Bloomberg analysis found (not unlike the more recent Guardian piece).
Blind trust in this system has failed carbon credit buyers. And it shouldn’t take a major investigation from one of the world’s leading journalism institutions to uncover faults in the market. In other words, the VCM has a big trust problem. But rather than throw away carbon markets altogether, we need to make them work better as originally intended.
TACKLING THE TRUST PROBLEM BY REMOVING THE NEED FOR TRUST
The solution — perhaps ironically — is to remove the need for trust as much as possible.
In the late 1980s, then-U.S. President Ronald Reagan famously said to ‘Trust, but Verify.’ He was referring to nuclear disarmament with the Soviets, and Reagan’s quip originally came — also ironically — from an old Russian proverb.
Decades later in the modern era, blockchain technologists have today further adapted the maxim as ‘Do not trust. Verify.’ And herein lies the salvation of carbon markets.
Blockchain, of course, is one flavor of digital solution. If you’ve been watching recent carbon market developments, then you’ve also probably seen a proliferation of so-called ‘tokenized’ carbon credits. They create transparency after a carbon credit has been issued, but they say little about the project and protocols that generated the credit in the first place. These solutions still suffer from the problem of ‘garbage in, garbage out.’ In other words, the ability to audit a carbon credit claim on a blockchain is relatively worthless if the data that’s been anchored to the chain is of dubious origin.
Solving the trust problem in carbon markets requires leveraging blockchain technology to a greater extent. It must not be about mere digitization or tokenization of off-chain data. The very nature of the carbon credit itself — a project’s type and location, the methodology by which metric tons of carbon have been calculated, the additionality and permanence of the credit, its provenance and chain of custody — all of it can and must become a part of its record.
This is what we are doing at ZeroSix. We are making the shift from a carbon token that simply digitizes a given claim about metric tons of carbon, to a carbon token enriched with full end-to-end transparency into how that carbon credit came to be in the first place. Anyone can independently verify the associated proofs and claims, so that hopefully investigative exposés like that of the Guardian become a thing of the past.
Without the need to trust, but with the ability to verify, the VCM can grow significantly to allow the world to get to net zero emissions. ‘Bad’ carbon credits will have nowhere to hide, while buyers can confidently invest in high-quality carbon credits that get us collectively closer to a 1.5ºC world.
