However, these markets face significant challenges due to heavy fragmentation and inadequate management systems. To address these issues and unlock the true potential of these markets, blockchain technology emerges as a game-changer.
At InterOpera, we firmly believe that blockchain serves as a single gateway, connecting key market stakeholders - global registries, green project developers, and end-buyers or investors. By leveraging the power of blockchain, we can establish an interoperable infrastructure that revolutionises data and transaction management within the carbon credit and REC markets.
1. Interoperable data and transaction management between registries, project developers, and buyers.
We believe the most compelling reason for using blockchain in carbon credit and REC markets is that it can serve as a single gateway to connect key market stakeholders - global registries, green project developers, and end-buyers or investors (Schematic A). The single gateway would perform three key functions:
a. Ownership structure management: Blockchain is used to connect different global registries as well as authorised brokers and custodian providers to provide unique digital representation of ownership of carbon credit and RECs.
b. Project data management: Blockchain can be seamlessly integrated with a layer of meta-data from green projects. These green data attributes can be further processed to allow buyers and investors to better understand and assess the quality, value and even risk of these green projects.
c. Buyer requirements data: When applied to a marketplace or exchange infrastructure, blockchain can streamline cross border trading and global offsetting among countries, by providing businesses with the most suitable types of carbon credits/RECs to achieve their internal sustainability goals.
2. Blockchain technology enables the connection of fragmented markets, creating a vast global inventory and liquidity pool. This facilitates the inclusion of even small carbon assets that hold value, allowing them to participate in the carbon market and contribute to sustainability efforts.
Interoperable blockchain solutions can potentially lead to the creation of a large product inventory pool by linking global independent registries as well as national level registries (e.g. the International REC Standard, the Clean Development Mechanism, the Verified Carbon Standard, and the Gold Standard, etc.). Interoperability enables fungibility between different carbon credit and REC standards. It can also enable sub-tonne ownership for individuals, which can be effective in promoting public understanding and participation in climate change and green initiatives.
Previously, there was no proper system to manage and utilise small quantities of carbon credits or RECs, However, InterOpera’s blockchain solution can establish channels where ownership transfers can be monitored even as small amounts of carbon assets are sold globally. Here, both businesses and individuals can trade and distribute their minimal quantities of carbon credits or RECs through a blockchain-based exchange.
3. Blockchain's true value is in cross-border trading and offsetting
The end goal of applying blockchain technology to the carbon credit and REC markets is to achieve true carbon reduction and to foster global economic collaboration through the activation of trading, offsetting, and cooperation among different countries. This will be driven by:
a. Arbitrage opportunities: Blockchain platforms can provide real-time market data and liquidity to allow traders to exploit price disparities and supply-demand variations in fragmented carbon credit and REC markets.
b. Facilitating policy and regulatory compliance: Blockchain automates compliance processes by embedding regulatory requirements and standards into smart contracts. This ensures transactions and offsetting activities align with regulations, enhancing the integrity of the carbon market. It also streamlines processes, reduces costs, eliminates paperwork, and minimises the risk of fraud.
c. Promoting international collaboration to build a shared infrastructure: Blockchain's decentralised nature fosters collaboration among multiple countries, providing a shared infrastructure for working towards common climate goals. It facilitates knowledge sharing, best practices, and innovative solutions to address global environmental challenges.
In conclusion, blockchain revolutionises carbon credits and RECs markets by connecting global stakeholders, streamlining transactions, and driving sustainability goals. It creates a global inventory, empowering businesses and individuals to participate. InterOpera envisions a future on shared blockchain infrastructure which fosters international collaboration and cross-border trading.