Single Counting: Leveraging Digital Asset Technologies in the Voluntary Carbon Market

The voluntary carbon market (VCM) in the United States can’t count.

A major issue in this unregulated marketplace, which is integral to reducing greenhouse gas emissions by facilitating the exchange of carbon credits to offset emissions, is double counting—claiming credits by multiple entities and exaggerating the impact of emissions reduction.

The structure of the VCM is a double-edged sword. On one hand, it fosters market participation, but the exchange’s decentralized nature enables dishonest practices like double counting largely because registries and exchanges lack standardized tracking mechanisms. In contrast, compliance markets like California’s cap-and-trade system and the Northeast’s Regional GreenhouseGas Initiative (RGGI) are not challenged by double counting due to mandated compliance with government-issued limits on greenhouse gas output.

Although proven to be effective in reducing emissions, compliance markets are an impractical standard across the US given political landscapes across the 50 states. However, there is a promising solution to the VCM’s problems: blockchain/distributed ledger technology (DLT).

Tokenization and DLT

Tokenization is the process of converting real-life assets into digital tokens that leverage DLT to enable the secure, transparent, and immutable recording of transactions across multiple nodes (computers). The most notable form of DLT is blockchain, which is used as the underlying ledger for Bitcoin.

Applying the concept of tokenization to the VCM, a carbon credit is converted into a digital token that represents a specific amount of carbon emissions reduced, removed, or avoided. Once credits are converted to digital tokens, they can reap the benefits of DLT.

Problem Solved: Leveraging DLT

DLT is able to leverage smart contracts, which are self-executing contracts with terms written directly into code, to add new blocks to the DLT system and automatically verify a carbon credit’s authenticity and ownership. Furthermore, DLT has an immutable nature, so once a credit is tokenized and recorded, it cannot be retroactively altered or duplicated. As a result, carbon credits can only be retired once, effectively mitigating the problem of double counting while promoting transparency and information symmetry in the VCM.

Moving Forward with Capturiant

Capturiant, an industry-leading environmental asset authenticator, registry, and regulated exchange, operates a DLT registry to ensure the credibility of carbon credits offered on its platform. By leveraging DLT, Capturiant is at the forefront of transforming the VCM, instilling market confidence, and supporting the transparency of carbon credit transactions.

Disclaimer: This blog post is for informational purposes only and should not be considered as financial or investment advice.

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