Puerto Rico’s Carbon.Credit has launched its bid to become a primary marketplace and advanced secondary market exchange for voluntary carbon credits and energy-related contracts.
- Bank of America projects the voluntary carbon markets will grow 50-fold, but there is a lot of trust to build in the markets.
- The Carbon.Credit exchange works with asset-backed securities, such as carbon credits or energy contracts, that are tokenised on a blockchain.
- As it grows, the market will help enable the development, capitalisation and funding of, as well as potential improvements of, carbon-related assets.
After spending months in stealth mode, Carbon.Credit has announced that it is launching its exchange for carbon credit and renewable energy credits. The exchange leverages sophisticated patent-pending software that aggregates thousands of unique environmental projects into a single market. By combining thousands of bespoke, illiquid assets, the company believes that it can turn them into a consolidated liquid market.
Trading credits on blockchain improves security but raises footprint concerns
The exchange bridges traditional carbon credits and renewable energy contracts into digital assets that are transferable on the Polygon blockchain. Polygon is a public (proof of stake) blockchain built on top of Ethereum.
After seven years of development, the transition to Proof of Stake made Ethereum become the first global collective climate action to shed, through innovation, more than 99.992% of its carbon footprint, according to the Crypto Carbon Ratings Institute (CCRI).
This is hugely important given concerns about the carbon impact of crypto. In 2022 alone, it has been estimated that crypto mining will have generated up to 170 million metric tonnes of CO2, with the US responsible for between 25 and 50 million metric tonnes. This volume of emissions is larger than that generated by several individual countries.
Globally the carbon markets continue to grow
Carbon credit global trading volume has exploded in recent years following the Paris Agreement – a legally binding treaty signed by nearly 200 countries in 2015 to reduce greenhouse gas emissions and limit global warming to 2°C or less. Demand is projected to continue to compound at an accelerated pace as countries and corporations adhere to mandates.
While every carbon credit is measured as an offset to 1 tonne of carbon, they tend to trade in a wide range with different valuations being assigned by market participants based on specific details, including project location, methodologies, date produced, and association to Sustainable Development Goals (SDGs). The Carbon.Credit platform is capable of tracking all of these specific details so that market participants can cherry-pick projects that meet their specific needs.
“Carbon.Credit is embracing as many projects across the industry as it can, even if they consider themselves competing. We will make a bigger impact and be better off working together,” said founder Chris Mack.
The exchange will match a diversified ensemble of renewable energy projects, carbon sequestration projects, brokers and buyers globally. Carbon.Credit supports multiple EVM-compatible contracts, including NFTs. ERC-20, and ERC-1155 standards which means that, if necessary, credits and contracts can be transferred to other markets. It supports negotiated sessions with Request for Quote (RFQ) functionality and also has a product development roadmap for additional innovative features.
Building pipeline access to high integrity credits
In addition to offering direct access to retire-able carbon credits with transparency and provenance to original projects, Carbon.Credit will also be launching its flagship Carbon Credit Collection – a basket of quality carbon credits curated to support increased liquidity. Mack said the credits are designed to create a diversified portfolio of carbon credits in various locations and with different project types.
He said: “We are working with our advisors, that specialize in acquiring carbon credits, to narrow down the parameters of the basket and to ensure that the assets are usable across industries. We are filtering the basket of carbon credits to exclude older vintages, and methodologies that we believe might not meet the test of time.”
He continued: “Our goal as an exchange is to provide access to as many carbon credits possible, so our aim is to support any asset that can be verified by a third party audit. Typically the easiest path is to onboard projects that are submitted through a registry such as Gold Standard. While we don’t conduct audits ourselves, its also our aim to provide full disclosure and transparency into projects including the methodologies used, vintage, location, certification documents, and even associated SDGs. In the end, the market participates will decide on the value of these assets through price discovery.”
Standing out in a crowded market
The voluntary carbon credit market is fragmented at the moment, because each project is different and the variety between them makes the market analogous to fine wine. Traditional exchanges have struggled with this concept and most have made generic carbon markets that lose the unique characteristics of each project.
What makes Carbon.Credit different, according to Mack, is that the company has developed a patent pending solution to aggregate thousands of fragmented, bespoke projects into a single market where they can be traded but still maintain their unique characteristics.
He said: “We are also using blockchain technology to increase transparency, eliminate fraud, and support self custody by market participants. In addition we are openly inviting projects, whether traditional or blockchain based, to the our markets.”
Concern about the integrity of the carbon markets is clearly an ongoing issue but Mack believes that the company has a solution that addresses market concern.
“We reviewed Verra’s comments released earlier this year and believe that we have the solution that addresses the market’s concerns,” he said. “We provide full disclosure and transparency of all carbon credits traded, and we believe that is crucial to maintaining trust. We also have a KYC policy and use the blockchain to prevent fraud and double selling of assets – a common criticism. We are also exploring adding third party ratings. Bank of America (NYSE:BAC) expects the carbon market to grow by 50x in order to meet GHG goals, so we believe that building and maintaining trust is a must.”