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Gold Standard launches consultation to support carbon credit tokenisation

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Gold Standard has launched a 6-week consultation, inviting stakeholders’ opinions on its development of a framework for approving tokenised carbon credits.

  • Gold Standard is conducting a consultation among stakeholders on the process it should apply when consenting to the creation of tokenised carbon credits.
  • There is increasing focus on tokenised credits and blockchain, but little clarity as yet on how this should be integrated into existing markets.
  • A robust framework for the digitalisation of voluntary carbon markets could help attract the investment needed to bring them to scale, but must not risk sacrificing the credibility of verified carbon credits.

The standards setting body currently restricts the creation of tokens representing its verified carbon credits to those that receive its express written consent. 

The consultation will support the development of a standardised framework for granting such consent, enabling a larger supply of carbon credits to be traded through blockchain-based digital markets. 

A robust framework, says Gold Standard, will be crucial in digitalising the supply side of the voluntary carbon market while ensuring that available tokenised credits represent the quality, integrity and transparency required by its standards.

Digitalised value chain critical to developing scale

A report by the City of London estimates that demand for voluntary carbon credits will reach between 1.5 and 2 gigatonnes of CO2 equivalent by 2030. In order to meet this demand, voluntary carbon markets must be scaled rapidly. 

Carbon offsetting projects will require substantial investment to produce enough credits to satisfy this growing market. Blockchain-based marketplaces are expected to help mobilise capital towards offsetting projects by improving buyers’ trust through the transparency enabled by their ability to trace credits back to their origin.

Gold Standard, however, believes that the existing process for digitalising voluntary carbon markets holds many risks that have not yet been adequately mitigated.

Crypto reputation appears at odds with carbon market principles

The used of token based verified carbon credits has also been tested by fellow standards organisation Verra. The complexity of its process, however, meant that the market began trading low-quality and/or invalid carbon credits.

Although Verra has now suspended its practice of creating blockchain tokens based on retired carbon credits, the problems that arose serve as an example of the ongoing contradiction between the aim of voluntary carbon offsets and the real-world outcomes of their transaction via digital marketplaces.

Consultation by exchanges seeks to align stakeholders

The lack of a standardised approach to the digitalisation of carbon marketplaces raises important questions as to whether it can ever deliver with transparency and integrity.

Gold Standard’s consultation signals that, despite the issues experienced so far, efforts to develop an effective digital carbon market will continue. Verra has launched a similar consultation, through which it will work with stakeholders to identify and implement measures to prevent the fraudulent use of tokenised credits.

The different approaches of the two standards bodies remain to be seen. Their work could be crucial in attracting the substantial amount of private investment need to bring the voluntary carbon market to scale, but such reward must not come at the expense of the quality, integrity and trust that are central principles of carbon trading.

The need to attract large amounts of private investment is not argued by the two carbon credits registries. Crypto investors can contribute to driving additional investments, but not at the expense of compromising quality, integrity and trust that is integral to creating carbon credits.

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