You’ve probably heard that blockchain technology, especially the one Bitcoin uses, has damaging environmental impacts on the world. This is because mining can emit high amounts of carbon, which could harm the global environment.

However, several organizations have begun using blockchain technology to nullify these emissions in what is called carbon offsetting. So what is carbon offsetting using blockchain technology, and can it really help the environment?

Carbon Offsetting Using Blockchain Technology Explained

Carbon offsetting involves buying carbon credits to make up for your carbon dioxide (CO2) emissions; a carbon credit offsets a metric ton of carbon dioxide. The organization selling you carbon credits typically uses the money you pay to fund actions that remove the same amount of carbon dioxide you emit, like capturing methane gas, building solar or wind farms, and preserving forests.

Some wind turbines on a large wind farm

You become carbon neutral when your carbon credit equals your carbon footprint—the amount of carbon dioxide you emit.

In the 1990s, faced with the evidence of the threat of climate change, the UN launched the Kyoto Protocol, the international treaty that introduced carbon credits to reduce CO2 emissions. This treaty led to the rise of the carbon market, enabling governments, businesses, and other legal parties to limit carbon dioxide emissions.

However, while several international agencies regulate carbon credit registrations and sales, a largely unregulated voluntary carbon market exists. Participants of this voluntary market seek to offset their emissions beyond the mandated requirements. This is where blockchain technology comes in.

The carbon market can be more transparent and easily accessible using blockchain technology. However, some organizations have been known to offer carbon credits that do not fund carbon reduction actions, and some participants in the voluntary market have made false claims regarding their carbon neutrality.

Suppose the voluntary carbon market is placed on a blockchain. In that case, each carbon credit will have metadata proving its origin and quality, offering a transparent, fairly-priced, and highly liquid carbon offset market. Also, regulatory agencies can better review claims of carbon neutrality.

Blockchain technology can reduce costs, help avoid double spending, reduce paperwork, and streamline the carbon market. But blockchains are programmed, so they only function according to the information they are fed. They cannot distinguish between good and bad credit data. However, combined with a central carbon credit agency, blockchain technology can help monitor and verify carbon credit-related data so that the downsides of the voluntary market are avoided.

Although some critics say that carbon credits enable organizations to emit carbon guilt-free, others insist that carbon offsetting can fund sustainable development projects to reduce CO2 emissions if properly executed.

How Does Carbon Offsetting With Blockchain Technology Work?

A diagram of the money flow after a carbon offset is purchased
Image Credit: Josh Raymond/Wikimedia Commons

The first step in carbon offsetting is calculating your carbon emissions. Calculating your carbon footprints regularly and including them in your financial and sustainability reports is good practice, as several countries require emissions reporting. For instance, companies in the US must report annual emissions of over 25,000 metric tons of CO2. You can use protocols like the GHG Protocol to measure and manage your CO2 emissions—usually with a sustainability strategy.

Although you can reduce CO2 emissions using small actions, like switching to greener transportation, you’d likely have to offset a good amount of your emissions. And for you to offset your carbon footprint, you must use a project that has been certified to issue carbon credits, like the Climate Action Reserve. But with blockchain technology, the carbon credits would be created and issued digitally, along with proof that you’ve purchased carbon credits.

Smart contracts on the blockchain can store metadata about carbon credits and convert them into tradable units, enabling swift, transparent, and trustworthy information exchange among network participants. These features can be applied to purchasing carbon credits to improve the carbon market.

3 Examples of Blockchain-Based Carbon Solution Providers

Gold Standard, a certified carbon credit issuer, intends to tokenize carbon credits. However, several blockchains that issue digital carbon credits exist, albeit uncertified. But their credits represent permanent carbon emission reductions or removals and do not cause carbon emissions elsewhere.

These are a few blockchain-based carbon credit issuers.

1. ClimateTrade

The ClimateTrade Platform

ClimateTrade uses blockchain technology, in adherence to a verified carbon standard, to enable individuals and companies to offset their carbon emissions transparently. Each carbon credit transaction is made visible to everyone on the ClimateTrade system. And the platform claims that the UN recognizes it and that it verifies all the carbon projects in its portfolio.

With a ClimateTrade account, you can access and manage all your carbon credit transactions. Also, you can integrate the ClimateTrade API and Widget into your platform, so your products and services will become climate-positive.

2. CarbonX

The CarbonX Platform

This software fintech creates investment for carbon offsetting projects through Carbon X Hub, a private blockchain (different from a public blockchain) that captures carbon emission data for measurement, management, and reporting.

As a result of CarbonX’s partnership with Zerofootprint in 2019, the platform can calculate carbon associated with your products and services and determine the right amount of carbon offsets. You can set carbon-neutrality targets and receive a Zerofootprint certificate when you achieve them.

CarbonX claims to have been recognized by Barack Obama, the government of Ontario, and the Clinton Foundation.

3. IMPT

The IMPT Platform

IMPT was designed to help everyone combat climate change. The platform connects individuals and organizations with verified carbon-offsetting projects.

You can shop with numerous brands, including Samsung, AliExpress, and Nike, via IMPT to earn IMPT tokens. These tokens can be converted to carbon credits, which contribute to reducing global carbon levels. Alternatively, you can buy carbon credits on IMPT to reduce your carbon footprint.

With an IMPT account, you can manage your carbon credits—you can burn, sell, or hold your credits. The platform also offers an IMPT program, enabling you to earn points and swap them for carbon credits. In addition, you can burn your carbon credits to receive a collectible non-fungible token (NFT) that can be traded on several of the best NFT marketplaces.

Blockchain Technology Can Combat Climate Change

Carbon offsetting can curb climate change, but the space—especially the voluntary market—requires a better framework. Blockchain technology is a good solution to the core problems in carbon markets, as it can offer greater transparency and trust.

Although it remains a novel concept, several applications indicate that carbon offsetting using blockchain technology will be vital in the future. The challenge is for regulatory bodies to agree on blockchain standards so that only good data is entered, ensuring on-chain integrity. These bodies must determine how digital carbon credits are created, how they gain value, what they represent, and other relevant details.