Tokenization of carbon credits: What impact and what opportunities?

The tokenization of real assets (RWA) occupies an important place in the crypto ecosystem today. As a reminder, this process consists of creating a digital version of a real asset through the use of tokens on a blockchain. These assets can thus be bought or sold at any time. The tokenized RWA market is dynamic and fluid, it is even opening up to new promising use cases. Among these is the tokenization of carbon credits, which could have a significant impact on the ecology. Let’s talk about it in this article.

The tokenization of carbon credits under the magnifying glass

A carbon credit is a monetizable and tradable unit equivalent to one metric ton of carbon dioxide removed or neutralized from the atmosphere. This financial tool is used both to finance ecological projects, by providing funds to the seller, and to compensate for the environmental impact by allowing the buyer to counterbalance a ton of pollution emitted. It thus constitutes an essential mechanism in the protection of the environment.

THE carbon credits can be sold on the carbon market to other companies or projects that are struggling to meet their own emission reduction targets. Unfortunately, this market today is very fragmented. There is a lack of effective, accurate and reliable means to define, monitor and verify carbon credits. The transactions that take place there suffer from the slowness of verifications and complaints.

As a result, current inefficiencies in the carbon credit market are crippling buyers and new projects are struggling to find finance. This prevents these financial tools from playing their role well.

This is where blockchain technology comes in. It can help solve persistent problems for the carbon market, in particular through the tokenization of financial credits.

Tokenization of carbon credits: what contribution?

The tokenization of carbon credits as digital assets on the blockchain presents an opportunity for this market. It improves the transparency of this market and can in particular help to:

• Facilitate the creation and trading of green bonds,
• Log project measurement and reporting data directly on-chain for buyers, auditors and credit agencies to review,
• Code royalty systems into smart contracts that enable additional revenue streams for project developers each time credits are traded,
• Enable fairer and higher price discovery and directly connect suppliers to buyers and investors,
• Create new use cases for more affordable real-time microtransactions.

Many of these applications and use cases are currently being developed and tested, and are supported by forward-thinking and progressive leaders and initiatives.

In short, the tokenization of carbon credits is a relevant opportunity and an excellent prospect for the market for these financial tools. It could improve the transparency of operations, promote liquidity and improve the efficiency of market infrastructures. In the long term, this approach could unlock capital at the pace and scale required to meet global climate goals.