Combining carbon credits with blockchain technology and virtual assets
Interest in carbon trading is increasing in response to climate change, but the carbon market has problems such as limited supply, lack of liquidity and opacity due to low access to transactions
As various countermeasures are being sought, the combination of carbon emission rights, blockchain technology, and virtual assets is drawing attention as an alternative as the use of blockchain technology expands
Characteristics such as security and transparency of blockchain technology enable improved tracking and management of carbon emission trading and can activate transactions by improving the carbon emission trading system to prevent double calculation
Various discussions have been conducted at home and abroad on the combination of blockchain and carbon emission rights, and according to this trend, the use of virtual assets as a compensation system for the emergence of carbon emission-based virtual assets and carbon emission reduction is increasing
The combination of carbon emission rights and blockchain and virtual assets is increasing, and expectations for revitalization of the carbon emission market are rising, while the possibility of overheating of the carbon emission market is also needed to be considered
Interest in carbon trading is increasing in response to climate change, but the carbon market has problems such as limited supply, lack of liquidity and opacity due to low access to transactions
□ Interest in carbon trading is increasing in response to climate change, but the carbon market has problems such as limited supply, lack of liquidity and opacity due to low access to transactions
— As an effective means of achieving carbon neutrality in 2050, we are implementing a carbon emission trading system that can be traded through the market with the aim of promoting companies’ reduction of greenhouse gas emissions, and the movement to introduce it worldwide is strengthened 1)
· Carbon emission rights are a concept that encompasses quotas and credits, and the carbon emission trading system is the first system in Europe to allow emissions within the allocated range if the government sets the total greenhouse gas emission rights and allocates them to each company
— Global carbon emission market value was $851 billion as of the end of 2021, up 164% year-on-year, accounting for 90% of the total market in Europe 2)
· Europe has led various climate agreements and is still implementing the strongest regulations on carbon emissions
— Although the carbon emission market is expanding rapidly like this, there is a limit to transparency regarding the price and transaction details of limited supply and emission rights
·There is also a problem that it is difficult to compare prices and track transactions due to limited supply, low accessibility due to insufficient infrastructure, opaque pricing of emission rights, and transactions 3)
As various countermeasures are being sought, the combination of carbon emission rights, blockchain technology, and virtual assets is drawing attention as an alternative as the use of blockchain technology expands
— International discussions are underway on the use of the voluntary carbon market to solve the problem of liquidity shortage in carbon emission trading, and financial investment companies are also making efforts to develop various products for investors
·The voluntary carbon market is a market that voluntarily implements carbon reduction projects and trades ‘carbon credits’ approved by authorized agencies, and plans to establish international standards to evaluate the appropriateness of the use of carbon offset credits
·Financial investment companies strengthen their role as investment brokers by developing and selling various investment products related to carbon emission rights
— In particular, the use of blockchain technology for carbon emission trading can be expected to improve the stability and transparency of transactions and expand liquidity, emerging as a major alternative
· Blockchain is a distributed data storage technology that transparently records transactions on a book that anyone can read, replicates, and stores them on multiple computers. Each data block is connected to allow users to monitor
· In addition, linking carbon emission rights with virtual assets expands the scope of investment and makes it easier for individuals or companies to invest
□ Characteristics such as security and transparency of blockchain technology enable improved tracking and management of carbon emission trading and can activate transactions by improving the carbon emission trading system to prevent double calculation
— Effective linkage is possible by utilizing blockchain technology in which a large number of members participate without a centralized management entity in transactions between various entities such as countries, companies, and individuals of carbon emission rights
— Building a carbon emission history management system that records and tracks carbon emission transactions on the blockchain based on the security of blockchain technology
· Blockchain technology is based on distributed Ledger technology, so it is advantageous to strengthen security
— Blockchain technology can also be used to strengthen transaction transparency in carbon credits and improve transaction systems 4)
·It can be used to improve the carbon emission trading system, such as strengthening transparency in carbon asset records and automating payments using blockchain technology
·With the development of a platform for P2P renewable energy transactions, consumers can purchase, sell, or exchange renewable energy using tokens or virtual assets related to a certain amount of energy production
· Blockchain technology can ensure that funds are allocated to projects in a transparent manner, as well as crowdfunding and P2P financing that supports climate action
·Easy tracking and reporting of greenhouse gas (GHG) emissions can solve possible double calculation problems
Various discussions have been held at home and abroad on the combination of blockchain and carbon emission rights
— The U.S.-EU Trade and Technology Council (TTC) said it recognizes blockchain technology as a potential tool for measuring and utilizing greenhouse gases (GHGs) 5
·Plans to cooperate in research and development of various technologies, including blockchain technology, with the goal of improving methods and processes for tracking carbon emissions
— Japan’s Ministry of Environment certifies the operation of blockchain platforms capable of renewable energy transactions to reduce companies’ carbon emissions and sponsors 6)
·Energy exchange startup called Power Sharing manages and supervises the blockchain platform, and energy companies and Softbank participate
— In September 2018, the ‘Green Innovation Forum’ on the link between carbon emission rights and blockchain was held in Korea, and various discussions were held
·To take the lead in applying the link between blockchain and climate-related activities to the public sector, a blockchain-based carbon emission history management system established by the Ministry of Environment’s Greenhouse Gas Information Center was selected 7)
According to this trend, the number of cases such as applying blockchain technology to the carbon emission market and using virtual assets as a compensation system due to the emergence of carbon emission-based virtual assets and the reduction of carbon emissions is increasing
— Using blockchain technology to improve data storage and trading systems related to carbon emissions
·The World Bank’s Climate Warehouse requested the development of a data-sharing prototype for transparent sharing of data related to climate projects in consultation with blockchain companies regarding the construction of public data 8)
·Cryptex Finance (CTX), a British carbon rights exchange, has signed a contract with Climatecoin, a U.S. blockchain-based company, for a carbon rights trading system using blockchain technology between individuals
· The “Standard for Using Blockchain for Carbon Trading Applications” proposed by China’s energy company State Grid affiliate is registered as the world’s first blockchain international standard in the area of carbon emission trading
— Also, as of January 2022, among 17 million Bitcoin-linked carbon credits, 9), carbon credits traded in combination with various virtual assets
·KlimaDAO is an investment association to cope with climate change, providing incentives to reduce greenhouse gases by setting prices for carbon emission reduction through virtual assets, and investors who purchase their own virtual asset tokens can participate in the carbon emission business and earn profits
·MOSS of the United States is a startup that invests in the carbon emission business and issues carbon emission tokens, issues and sells NFTs for Amazon conservation to cover some of its profits with maintenance costs
·In addition, a virtual asset called “Green Trust” and Ethereum token “MCO2” for carbon emission rights were also listed and traded with the aim of reducing pollutants and expanding renewable energy
— In Korea, companies and public organizations are also moving to expand investment related to the combination of carbon emission rights and blockchain
·Samsung Electronics invested in Flowcarbon, a virtual asset startup based on carbon emission rights 10)
·A local government promotes the establishment of a platform that invests in renewable energy projects and transparently distributes investment on the blockchain when operating profits are generated by providing investment opportunities to local residents who want to participate in carbon neutralization 11)
·In addition, virtual assets that transparently prove carbon emissions with blockchain technology and compensate for reduction with coins appear 12)
The combination of carbon emission rights and blockchain and virtual assets is increasing, and expectations for revitalization of the carbon emission market are rising, while the possibility of overheating of the carbon emission market is also needed to be considered
— As blockchain technology is used in the carbon emission trading market, expectations for increased transparency in emission rights are high, so carbon emission management and transaction transparency are expected to be secured
·As the number of startups using ‘carbon fintech’ increases due to the combination of carbon emission rights and blockchain technology, the climate technology startup market size in 2021 was $40 billion, more than 600 investments were made, more than doubling year-on-year 13)
Blockchain technology can be an effective means of reducing greenhouse gas emissions due to the impact of carbon reduction on the national economy. The issuance of virtual assets related to carbon emission can raise public interest in carbon emission
— However, concerns about the possibility that the combination of virtual assets and carbon credits will weaken efforts to combat climate change by increasing interest in the digitization of carbon offsets 14)
·As 20 million carbon offsets have been converted to digital tokens since October 2021, prices have soared due to explosive expansion of demand, and the market overheats
·There is a possibility that virtual asset transaction participants will invest without understanding collateral assets by combining them without verification of the quality of carbon offset products, which is likely to make investments that do not help the actual goal of carbon reduction
KOREA CAPITAL MARKET INSTITUTE — Senior Researcher Hong Jiyeon
탄소배출권과 블록체인 기술 및 가상자산의 결합 | 자본시장포커스 | 발간물 | 자본시장연구원 (kcmi.re.kr)
