The Carbon Mitigation Challenge
The carbon mitigation challenge looms large, requiring trillions of dollars in yearly investments for several decades to come. Some of these investments will happen naturally as industries and consumers replace their assets, and they can be funded through existing financial systems. However, other investments, particularly those at the intersection of carbon and nature, will need a well-functioning carbon market for nature and carbon credits. If done effectively, this marketplace could become the linchpin of international climate finance for the foreseeable future.
Barriers to Carbon Markets and Carbon Credits
Unfortunately, the current state of the voluntary carbon market (VCM) falls short of its potential. Two fundamental structural flaws are impeding its growth to a globally significant scale.
- Privatization and Lack of Transparency: The VCM operates as a private market where proprietary information is the norm, impacting carbon markets in general and carbon credits suppliers and buyers in particular. This lack of transparency opens the door to manipulation by profit-seekers and hampers scalability.
- Commoditization of Carbon Credits: Carbon credits are currently treated as generic commodities rather than complex, performance-driven assets, affecting the broader carbon markets. In reality, they are more akin to corporate bonds, with their value determined by their performance over time. This oversimplification hinders the ability to differentiate credits based on their long-term performance.
A Vision for Improved Carbon Markets and Carbon Credits
If these structural flaws can be remedied, carbon markets and carbon credits have the potential to attract substantial private capital to meet corporate and sovereign carbon mitigation commitments. A transparent, performance-driven, and public credit market with floating prices is the most efficient way to allocate capital to various carbon mitigation and nature restoration projects globally, strengthening both carbon markets and carbon credits as financial tools. This market allows stakeholders, including buyers, regulators, rating agencies, certifiers, and others, to track a credit’s performance toward full compliance with chosen standards, even from its early stages.
The Role of Data and Technology in Carbon Markets and Carbon Credits
Central to this reimagining of carbon markets and carbon credits is a transparent and comprehensive open data platform. Centigrade and RMI are developing such a platform. The open data platform will leverage energy-efficient blockchain technology to ensure data transparency and immutability, and provide API connections to stakeholders. Importantly, this platform is solely for data, with no involvement in the ownership, trading, transaction, rating, or certification of carbon credits within carbon markets. Its purpose is to empower carbon markets and stakeholders with the technology to track the performance of intricate credit claims over time.
Join the Effort to Revolutionize Carbon Markets and Carbon Credits
From an engineering perspective, this undertaking is a complex challenge. It requires creating fully digital versions of an array of methodologies and compliance protocols. It involves vast data flows encompassing millions of carbon credits and their complex MRV (Measurement, Reporting, and Verification) data streams over time. While it won’t create its own MRV capability or protocol, it will serve as the central repository for verified data produced by each project or credit within carbon markets and carbon credits.
The journey to reform carbon markets and carbon credits is undoubtedly challenging, but it promises to yield substantial rewards. By constructing a fundamental data utility capable of documenting and tracking complex credit claims over time, we are taking a significant step towards a sustainable future. Whether you’re an investor, engineer, climate scientist, credit developer, buyer, or certifier, we invite you to get involved in this transformative endeavor. Please reach out to us to join this crucial initiative. Together, we can reshape the future of climate finance and carbon markets through an open data platform.
