Curbing Climate Change: An Analysis of the

Blockchain’s Impact on the Voluntary Carbon

Market

by

Owen Baim

Thesis Advisor: Peter A. Adriaens

A thesis proposal submitted in fulfillment of the requirements of the

We are currently facing a major global crisis. Climate change is one of the most pressing
threats to humanity and yet our system is failing to take the necessary actions to protect our
planet from environmental destruction. There is an undeniable coordination issue that has led to
ineffective policy, lack of capital, and unsustainable carbon emissions. Deforestation, ocean
acidification, glacial retreat, forest fires, heatwaves, droughts, and flooding, among other things,
are becoming more prevalent and occurring more often. The voluntary carbon market is one
potential solution to help fight climate change, but the current system is plagued with issues that
has stifled efforts to scale this market. What if human beings repurpose how we operate to create
an environment in which the system itself is regenerating? The movement of rewarding
ecological activities with economic incentives has become known as regenerative finance, or
ReFi, and is a promising space seeing significant growth. To advance this movement, new
technologies are being evaluated as having the potential to fix a lot of the problems existing in
the traditional voluntary carbon market. Through the implementation of the blockchain in the
voluntary carbon market, there is an opportunity to enhance the current system and help put
monetary value on conservation rather than extraction and depletion. Web3 technologies has the
potential to act as a contributing force that can make a meaningful and measurable impact in the
fight against climate change for individuals, households, and communities across the world. This
paper identifies the cutting-edge blockchain-powered technologies and companies optimizing the
voluntary carbon market. In doing so, it analyzes whether these nascent innovations can catalyze
the ReFi movement to promote and accelerate climate action.
Table of Contents

Introduction…………………………….…………………………….…………………………..1

Overview: Traditional Voluntary Carbon Market…..……...…….…………………………...4

Issues: Traditional Voluntary Carbon Market……………………..………………………….7

What is Web3 and the Blockchain……………………….………….………………………....12

Overview: Blockchain Carbon Market Ecosystem….…………...…………………………...14

Advantages: Blockchain-Powered Carbon Market…………........……….………………….15

Pioneering Blockchain-Based Carbon Companies……………....…………………………...21

Limitations: Blockchain-Powered Carbon Market……………...…………………………...33

History: Blockchain in the Voluntary Carbon Market………………………………………36

Recommendation…………………….…………………………….…………………..………..39

Conclusion…………………………….…………………………….…………………………..42

Appendix…………...………………….…………………………….…………………………..43

References…………………………….…………………………….…………………………...48
Introduction

How we interact with the environment and the impact we impose on Earth over the next

few decades will be critical in our efforts to save this planet from environmental devastation.

Human activities have caused a persistent increase in the concentration of greenhouse gases

(GHGs) in the atmosphere, leading to a rise in global atmospheric CO2 levels from

approximately 280 parts per million in the 18th century to a record high of around 415 parts per

million in 2022, which is more than 50% higher than pre-industrial levels (see Appendix A)

(NOAA, 2022). The release of greenhouse gases into the atmosphere due to activities such as

burning fossil fuels for energy reduces the planet's ability to release heat, resulting in an increase

in global temperatures. This phenomenon, known as global warming, has significant impacts on

the planet's ecosystems, human health, and the economy.

Human-induced climate change is affecting weather and climate extremes in every region

across the globe (IPCC, 2021). According to NASA, since reliable record-keeping began, global

sea levels have risen, the intensity and frequency of hurricanes have increased, wildfire seasons

have been longer and more severe, sea ice cover in the Arctic Ocean has decreased significantly,

and more species are facing extinction, among many other alarming signs of climate change

(Shaftel, 2022). Between 2030 and 2050, 250,000 additional human deaths are projected per year

due to climate change (WHO, 2021). The effects of global warming are not limited to humans, as

it is projected that one-third of the world's plant and animal species will become extinct by 2050

if current levels of greenhouse gas emissions continue (“Global Warming and Endangered”). The

Intergovernmental Panel on Climate Change (IPCC) Working Group II Co-Chair Hans-Otto

Pörtner hashly said, “The scientific evidence is unequivocal: climate change is a threat to human

wellbeing and the health of the planet. Any further delay in concerted global action will miss a

1
brief and rapidly closing window to secure a liveable future” (IPCC, 2022). While human

activity to date has caused considerable damage, future human activities will determine if the

severity and implications of climate change will persist forever.

At the 2015 United Nations Climate Change Conference, 196 parties adopted the Paris

Agreement, a legally binding international treaty concerning climate change. Through this

landmark agreement, the world set a goal to limit global temperature rise to 1.5 degrees Celsius

above pre-industrial levels by the end of the century (United Nations Climate Change, n.d.).

Over seven years later, a new report from UN Climate Change shows that the world is far from

reaching the 1.5 degree reduction by 2100 and is at risk of irreversible environmental damage

(United Nations Climate Change, 2022).

There are many players in the climate space trying to mitigate and prevent the most

destructive environmental disasters from occurring including governmental agencies, coalitions,

NGO’s, startups, corporations, communities, and individuals alike. While there have been

countless attempts to organize international diplomatic measures, ineffective policy, unaligned

incentives, misallocation of capital, mass bureaucracy, and uneven sharing of this global burden

have limited these endeavors. In order to meet environmental goals and help save this planet,

many people believe the entire system needs to be realigned to fix this global coordination issue.

For this to happen, leaders have urged that differences be put aside and that the world works in

unity to solve an issue that is threatening to destroy everything and everyone, regardless of

geographic location, income, race, or religion.

With the world struggling to rapidly eliminate GHG emissions, many governments,

companies, and individuals are turning to carbon credits. Carbon credits are created through

initiatives that decrease, avoid, or eliminate emissions from the atmosphere. One carbon credit

2
represents one tonne of carbon dioxide or the equivalent amount of another greenhouse gas. The

carbon market enables a trading system in which carbon credits are bought and sold, and they are

being used by many to offset their emissions and meet ESG demands. As we wait for new

environmental technologies to develop, the carbon market offers a way for companies to offset

emissions they cannot cut today. While this market has exponentially increased in demand, the

legacy system is littered with flaws that are restricting its potential to be one of the most

impactful forces in saving the planet.

Regenerative finance, or ReFi, is a promising new movement that is attempting to solve

these problems. The goal of ReFi is to transfer control of capital to those looking to solve

systematic problems that regenerate and preserve natural environments. More simply, ReFi aims

to realign economic incentives in order to promote activities that support regeneration, while

discouraging those that contribute to degradation. In theory, this would foster greater economic

value to preserve natural resources (e.g. planting trees) rather than extract resources (e.g. cutting

down trees for lumber).

At the heart of this movement is the third evolution of the web known as web3.

Organizations, communities, and individuals are uniting under a common objective to leverage

the blockchain to address the most threatening sustainability challenges. Under this new

paradigm, web3 technologies are attempting to reshape the voluntary carbon market (VCM) by

creating a more connected, transparent, and accessible ecosystem.

In analyzing how ReFi and the blockchain can be transformative, it is important to first

understand the potential of the carbon market and how the current system operates. Accurately

describing the shortcomings and inefficiencies of today’s voluntary carbon market will be

essential to understanding why innovation is necessary. Subsequently, it is important to

3
understand what is meant by the blockchain, its environmental impact, and how it works. This

will help to understand how web3’s objectives, values, and ideas align with the ReFi movement.

Then, analyzing how the blockchain can add value to the voluntary carbon market and how this

new system could contribute to the environment. This includes an evaluation of the pioneering

companies disrupting the space and how they are utilizing this technology to enhance the legacy

market. Using all of this information, it will be determined whether web3 technologies should be

leveraged to promote and accelerate climate action in the VCM.

Overview: Traditional Voluntary Carbon Market

As the fight against climate change heightens, more and more companies and individuals

are pledging to do their part in this incessant battle. While some have made progress in reducing

their carbon footprint, many have struggled to eliminate their greenhouse gas emissions and are

looking for alternative methods to reach carbon neutral1. Consequently, public and private

companies as well as households and individuals have turned to carbon markets. Carbon markets

create a way to buy and sell carbon credits. A carbon credit is produced through projects that

reduce, avoid, or eliminate one metric tonne of CO2–or an equivalent amount of a different

greenhouse gas (CO2e)–from entering the atmosphere. These regenerative projects can range

from biodiversity protection to rainforest conservation to renewable energy implementation,

among a host of other climate-action initiatives. Governments, companies, or individuals can

then fund or purchase these carbon credits through a carbon market to offset emissions.

According to the Taskforce on Scaling Voluntary Carbon Markets (TSVCM) which is sponsored

by the Institute of International Finance (IIF) with support from McKinsey, “the market for

1
Carbon Neutral: removing as much carbon dioxide as one emits

4
carbon credits could be worth upward of $50 billion in 2030” via an estimated 15-fold increase

in demand over this time period (Blaufelder et al., 2021).

There are two main types of carbon markets that are helping the world move towards

net-zero2: mandatory (compliance) carbon markets and voluntary carbon markets. Compliance

markets are used by governments and corporations who are legally mandated to offset their

emissions. These markets are typically regulated and enforced by internationally, nationally, or

regionally qualified organizations and legal systems. The most prominent of these is the Clean

Development Mechanism (CDM) in the 1997 Kyoto Protocol, a treaty created by the United

Nations that sets binding emission reduction targets for developed nations. The CDM permits

countries with emission-limiting commitments to create regenerative projects in developing

countries. In turn, these projects earn certified emission reduction (CER) credits for each tonne

of CO2 sequestered or prevented. In order to earn CER credits, a project must pass an intensive

public registration and issuance process given by the Designated National Authorities and

overseen by the CDM Executive Board. The seven-step process consists of project design,

national approval, validation, registration, monitoring, verification, and CER issuance (“United

Nations Framework,” n.d.). Eventually, the country producing the CER credits can “retire” them

and claim the underlying reduction towards their Kyoto Protocol emission commitments. This

protocol invented a commodity that helped place a price on carbon and incentivized the

reduction of carbon emissions. CER credits became the first standardized emissions offset

instrument, a pioneering innovation. While CDM was the first and largest program, carbon

credits have been integrated into other regulatory emissions systems as a compliance tool.

However, compliance carbon markets cover specific sectors and a limited amount of activities,

reducing their ability to scale.

5
 Rooted in corporate social responsibility, reputational benefits, and altruism, the

voluntary carbon market, on the other hand, are utilized by businesses, governments, nonprofits,

universities, municipalities, and individuals looking to voluntarily offset their carbon footprint.

Since entities can willingly participate in the offset market, there is more potential for scale and

thus a larger environmental impact. According to the latest State of the Voluntary Carbon

Markets report from Ecosystem Marketplace, “the VCM grew in value towards $2 Billion in

2021,” up from $520 million in 2020 (The EM Insights Team, 2022).

The key players in the voluntary carbon market consist of financers, project developers,

registries, and buyers (see Appendix B). Generally, the process begins with financers such as

banks, asset managers, or capital market participants providing capital to project developers to

green their portfolio and meet ESG demands. Project developers use that money to build

environmentally regenerative projects that reduce, avoid, or eliminate carbon emissions. At the

same time, project developers sign up on their preferred credit issuance registry and undergo

“know your customer” (KYC). The four largest VCM registries include Verra, Gold Standard,

American Carbon Registry, and Climate Action Reserve. Combined, these four markets account

for over 1.5bn tons of carbon issued across over 5,000 projects (Macfarlane, 2022). Once a

registry is chosen, the project developer must choose the relevant methodology to develop the

project. The methodology, which outlines an extensive list of guidelines and procedures for

quantifying GHG emissions, typically exists as a pre-approved methodology for project

categories such as forestry, agriculture, and waste disposal. Following this, the developer drafts a

project specific requirement report, sometimes called a Project Description Document (PDD) or

Project Plan, which describes project activity details such as location and size, among all the

other necessary details pertaining specifically to that project. The project developer then pays an

6
approved third-party auditor, sometimes called a validation and verification body (VVB), to

assess the documents. As the project matures, which can take years, it undergoes MRV:

measuring, reporting, and verification. The project developer is responsible for overseeing the

project by following the methodology and PDD to report relevant data about the project.

Examples of this may be the height and diameter of trees in a rainforest project or soil samples to

measure the carbon sequestration in a soil project. The VVB must visit the project on-site to

make sure the procedures outlined were followed and that the data is accurate. The VVB and

registry also require proof to ensure the GHG reductions were additional, meaning the

elimination of carbon emissions would not have occurred in the project’s absence. Once verified,

the results need to be approved by the administrators of the registry. If successful, the project

developer pays an issuance fee and the carbon credits are issued to the project developer's

account and accessible to be held, sold, transferred, or retired. This typically happens via

electronic certificates that represent the CO2 reduction claim, which are then added onto the

registry’s centralized ledger to be made public along with all the other documents and

verifications pertaining to the project. These documents serve as a reference for stakeholders

(e.g. investors and buyers) on the caliber of the project. Consumers, such as individuals or

organizations looking to offset their carbon emissions, purchase and retire the carbon credits and

claim their environmental impact against their own emissions.

Issues: Traditional Voluntary Carbon Market

While this process may sound relatively straightforward, the journey of a carbon credit

from inception to retirement is incredibly complex, bottle-necked, and siloed. The lack of

transparency and trust significantly contributes to the issues and risks of these legacy systems.

7
According to BloombergNEF, the voluntary carbon market could be valued at $1 trillion

annually by 2037 “if several fundamental issues are addressed” (BloombergNEF, 2023). Many of

these issues stem from the insufficient quality of carbon credits which affect every stakeholder

and stage in the value chain. An inadequate market can lead to poor demand, less supply, and

false claims of carbon offsetting. This may stifle climate action and innovation, overstate the

progress on climate change mitigation, and even add to the climate crisis.

The way the current system is set up requires a significant number of forms and

paperwork including:

● Methodology type

● Project Description Document

● Contracting an approved auditing body

● Validation and verification assessment

● MRV data tracking

● Additionality report

● Carbon credit issuance

● Historical tracking of credits (sold, transferred, retired)

The current process to collect and distribute all this data is slow and not scalable. With

the outdated infrastructure and tools used by legacy registries, “Current measurement, reporting

and verification (MRV) methodologies are numerous, require significant manual work, are slow

to follow and measure against and are often redundant. Many methodologies for the collection,

analysis and distribution of data remain non-digital and lack machine-readable auditability”

(World Economic Forum, 2023). Additionally, the necessary data for any given credit can

substantially differ based on the registry, project type, methodology, vintage3, location, scale, and
3
Vintage: the year the credits were issued

8
complexity, contributing to a lack of credit standardization. With multiple registries and

protocols, the traditional carbon market is complex and fragmented, requiring “the onerous

processing of disparate and heterogenous data sources'' (Wolfberg & Adriaens, 2021).

Consequently, data made available to public and private sectors can have a large latency to be

aggregated, grouped together, and standardized. Even Gold Standard, one of the largest

registries, said in a public consultation that “The conventional verification process is costly and

time consuming due to the lack of appropriate automation (digitalisation) and so it cannot be

done in ‘real-time’ and therefore periodic delays are the norm, often verification starts after a

year of data monitoring and reporting” (Gold Standard, 2023). Legacy systems lack the

technological infrastructure to collect, process, and disseminate real-time data which has resulted

in a core issue with traditional carbon markets: quality.

With a lack of real-time data, accurate tracking and transparency diminish. The system

suffers from quality control issues and thus struggles with proper governance and enforcement.

This can lead to double counting which occurs when the same emission reduction or removal is

claimed and counted towards multiple mitigation targets or goals. Carbon Direct says that, “In

most cases, retiring parties can purchase offset tons and account for the carbon offset without

oversight” (Macfarlane, 2022); to make matters worse, there is little to no responsibility for the

quality of those offsets. This is a significant problem as it undermines the environmental

integrity of the carbon market and can lead to an overestimation of emission reductions.

This is known as greenwashing, which can occur when stakeholders make false claims

about the benefits of their carbon emission reductions. These misleading claims can derive from

purchasing carbon credits of poor quality or that face issues with additionality, leakage4, or

4
Leakage: project directly or indirectly displaces greenhouse gas emissions outside of the project boundary

9
permanence5. Companies and individuals buy these inferior credits, which are typically cheaper,

and insist that they have reduced their carbon emissions more than they actually have. Recently,

a nine-month investigation into the world’s leading carbon standard found that “more than 90%

of their rainforest offset credits – among the most commonly used by companies – are likely to

be ‘phantom credits’ and do not represent genuine carbon reductions” (Greenfield, 2023). When

the quality of projects and their carbon credits are questioned, project financers may be more

reluctant to provide capital and buyers may resist purchasing to avoid involvement in risky

projects or being scrutinized for greenwashing. This harms project developers who require both

funding and purchasers to participate in the market.

Moreover, due to the distinctive attributes of each project and its carbon credits, credits

are “traded and sold like differentiated products (e.g. wine) rather than like commodities (e.g.

corn or rice)” (“Introducing Carbon Pools”, n.d.). With limited standardization, it is difficult for

project developers to know how much to list their credits and for buyers to know how much to

spend on credits. Consequently, around 75% of voluntary carbon credits are bought and sold over

the counter (OTC) (Yin, 2022). OTC markets operate through a network of dealers or market

makers who facilitate the trades. Carbon credit OTC markets lack real-time data, liquidity, and

price transparency. As written in a McKinsey carbon market report, “Transparent reference and

market data are not readily available now because access to data is limited and the OTC market

is difficult to track” (Blaufelder et al., 2021). Less-resourced project developers and buyers rely

on intermediaries, such as a broker or consultant, to navigate the OTC market. Project developers

typically sell their carbon credits to an intermediary who purchases the credits at one price, takes

5
Permanence: maintaining GHG emission reductions or removals; not allowing carbon to be released back to the
atmosphere

10
a large fee, and then resells the credits for more. This system is inefficient and reduces the

financial return for project developers while increasing the price for buyers.

This decreased financial reward is amplified by the high costs charged to project

developers. Throughout the development of a carbon offset project, project developers are

required to pay a myriad of fees. These can differ based on the registry, methodology, and project

type, but generally include:

● Account opening fees

● Annual registry account fees

● Methodology approval fees

● Certification review fees

● Validation and verification fees

● Carbon credit issuance fees

● Transaction/transfer/delisting fees

● One-off fees (e.g. additional rounds of review or design change)

A major contributor of these high fees are from registries relying on manual, human

processes. This was made evident through Gold Standard’s public consultation as “There is

growing interest among stakeholders to accelerate progress on the journey from today’s

conventional MRV, roughly characterised as 90% manual and 10% digital, to transition towards

more digital MRV, roughly characterised as 10% manual and 90% digital” (Gold Standard,

2022). These high costs make the current system exclusive and disincentivizes project

developers from participating.

In all, when evaluating the flaws in traditional carbon markets, the core issues compound

and produce more problems (see Appendix C). Disparate and siloed data with high latency

11
generates issues with data accessibility, transparency, and tracking. When key players in the

value chain struggle with this, integrity and trust diminish and so does quality. This increases the

cases of double counting and greenwashing in the market, which has a negative environmental

effect. Lack of quality causes project financers to provide less capital, decreases the number of

end buyers, increases costs, and thus reduces the supply of project developers. This is

detrimental to a market that is necessary for reducing greenhouse gas emissions and accelerating

the transition toward a low-carbon economy.

What is Web3 and the Blockchain

In understanding how web3 technologies can be advantageous in the voluntary carbon

market and curbing climate change, it is important to first understand what is meant by web3 and

the blockchain. Web3, also known as web 3.0, is the third iteration of the World Wide Web. With

its inception in 1989, web1 gave rise to the internet in a “read-only” fashion, providing the

infrastructure for static, non-interactive websites. While revolutionary, it was web2 that helped

shape the internet as we know it today– an interactive platform that allows for user generated

content and engagement. This life-changing innovation helped onboard billions of people onto

the web and gave birth to “big tech” such as social media and conglomerates like Google and

Amazon. Over time, power distilled into the hands of centralized organizations and concerns

over data privacy and censorship have increased. Web3 is a transformative technological

development that gives ownership to the user in a decentralized manner via the blockchain.

The blockchain is the underlying technology that powers all of web3. It is a chain of

linked blocks that each contain data and forms a collection of records on a digital ledger. Each

block has a limited amount of data storage, so once a block reaches capacity it is added to the

12
chain of other blocks via a shared network of computers. Since the blockchain is a string of

interconnected data structures, it is immutable– any modification to one block would necessitate

changes to all subsequent blocks.

The blockchain is often viewed as having a negative impact on the environment and as a

technology that exacerbates climate change. While this may be true in some instances, what

determines this is the type of blockchain and its consensus mechanism6. There are a host of

different consensus mechanisms, but the two most common are called Proof-of-Work (PoW) and

Proof-of-Stake (PoS). This matters because PoW, which powers the popular blockchain known

as Bitcoin, is extremely energy intensive while PoS, which powers the second largest blockchain

known as Ethereum, uses little energy. This is because Proof-of-Work requires powerful,

energy-intensive computers to power the blockchain. Essentially, tens of thousands of computers

race to be the first to solve a complex math problem, which enables the winner to confirm the

block and add it to the network where it's distributed to the rest of the miners7. These computers

are operated all over the world by many individuals and organizations, giving the blockchain its

decentralized nature. Miners are incentivized to do this work through the reward of newly

created cryptocurrency coins and transaction fees. This also acts as compensation for their efforts

in maintaining the blockchain network and ensuring its security, which includes expenses such as

energy bills, computer hardware, maintenance, and time.

Contrast this PoW model with the PoS consensus mechanism which reduced Ethereum’s

annualized electricity consumption by more than 99.988% (“Ethereum Energy Consumption,”

2022). In Proof-of-Stake, validators are required to have minimal hardware and stake money as

collateral to secure the network. Instead of running thousands of energy-intensive computers,

6
Consensus Mechanism: a standardized method for computers to agree and verify the data in each block
7
Miner: individual or organization that validates transactions on a blockchain network

13
validators can operate the necessary software on an ordinary computer. And instead of

consuming loads of energy to solve a complex problem, validators are randomly chosen to add a

new block to the network and confirm its validity. In all, users can operate on and benefit from

the blockchain without negatively affecting the environment through Proof-of-Stake blockchains

such as Ethereum, Polygon, and NEAR, among many others.

Overview: Blockchain Carbon Market Ecosystem

In order to understand the innovation occurring in the blockchain-powered voluntary

carbon market, it can be helpful to distinguish the aspects of the digital carbon market

ecosystem. At the base layer is infrastructure, which is driven by the type of blockchain, carbon

bridges, exchanges, and market data providers. Ethereum, Polygon, Celo, NEAR, Cosmos, and

Bitgreen consist of some of the most popular blockchains that carbon companies are using to

build. These blockchains may differ based on their consensus mechanism, smart contract

language, and transaction processing capacity, fees, and execution times. While these nuances

make each blockchain appealing for various reasons, every blockchain listed above is

eco-friendly and energy efficient. Carbon bridges built on the blockchain are used to convert

already issued, off-chain carbon credits into on-chain digital tokens. Exchanges, on the other

hand, enable carbon credit users to interact with the DeFi ecosystem. Market data providers

aggregate, analyze, and provide data about carbon markets, allowing anyone to easily access and

verify market data.

Applications built on top of the infrastructure layer consist of three key components:

project financing, on-chain retirement, and marketplaces. To aid in the supply side of this market,

companies have built unique applications to innovatively deploy capital to project developers.

14
On the demand side, various protocols facilitate on-chain credit retirement. Marketplaces provide

the platform for suppliers to list credits and buyers to purchase credits.

Built on the blockchain and used within applications are carbon assets including

tokenized carbon credits, crypto-native credits, and NFTs. Tokenized credits consist of carbon

credits that originate from off-chain registries and are bridged on-chain. Crypto-native credits, on

the other hand, are issued directly on-chain. Other pioneering companies are leveraging the

properties of non-fungible tokens (NFTs)8 to innovate carbon on the blockchain. In discovering

novel use cases within the infrastructure, application, and asset stack, new blockchain carbon

companies are pioneering the space.

Advantages: Blockchain-Powered Carbon Market

There are a few key characteristics of the blockchain that make it a valuable technology

to implement in the voluntary carbon market (see Appendix D). A blockchain is decentralized,

meaning transactions are verified by a network of users and nodes and enforced using

cryptographic trust. The decentralization of data storage and uptime removes concerns about a

single point of failure in maintaining VCM database records. Additionally, the legitimacy of the

data is required to be approved by various entities and doesn’t rely on a central authority. This

reduces the chances of a bad actor and eliminates the power of a single entity making decisions

for the entire system.

One use-case prompted by the blockchain’s decentralizion is the ability for pre-approved

validators with a range of relevant expertise to verify the data being captured on projects9. For

example, the validators could consist of tech companies, development agencies, environmental

8
NFT: represents ownership of a unique item stored on the blockchain; not interchangeable
9
This method is being implemented by Open Forest Protocol, a company that is analyzed later in this paper

15
NGOs, government agencies, VVBs, and research institutions who vote on the legitimacy of the

cross-examined data provided by the various validating bodies. A native token10 can be issued on

the blockchain and used as payment for validation, acting as an incentive that rewards truthful

verification and a financial dissuader for doing otherwise.

Another essential characteristic of the blockchain is its immutability. Once code has been

programmed into smart contracts and data has been recorded on the blockchain, it cannot be

changed. This tamper-proof system increases trust by eliminating the fear of data manipulation.

The blockchain is also interoperable, making for a more connected and holistic market.

This enables the integration of carbon credits from multiple registries into a single

interconnected marketplace. Instead of having siloed data on various platforms, it can all be

aggregated on a single platform and accessed by anyone. This interoperability also allows data

from various sources and technologies to easily connect to the blockchain and be made available

to the public, providing real-time information on the MRV of projects.

Given the programmability of the blockchain, human processes can be replaced with

code and increase the efficiency of the system while also cutting costs. Smart contracts11 make

the payment process more desirable because they facilitate faster transactions by automatically

executing when conditions are met. For project developers that require payment in a timely

manner, immediate payment and reduced fees can incentivize continued participation in the

market. Smart contracts also open new forms of innovation that can positively impact project

funding. One example is recurring royalties which entitle project developers to a percentage of

each subsequent carbon credit transaction in perpetuity12. Additionally, risk-averse financers

10
Native Token: represent the value of the ecosystem
11
Smart Contract: programmed with "if-then" statements to enforce an agreement; once conditions are met, the
contract automatically executes
12
This would be the case if the tokenized carbon credit is resold and not immediately retired

16
have the opportunity to provide upfront funding to projects requiring capital, while also ensuring

that these projects are adhering to the standards to issue high-quality credits. Financers can pool

money into smart contracts that restrict access to the funds until predetermined criteria are met. If

the milestones are reached, the smart contract executes and provides the money to project

developers. For example, a forestry project could receive $10,000 of funding if the trees mature

to a specific height predetermined by the participating parties. Once the trees are verified to have

reached that height and the data is uploaded to the blockchain, the smart contract will execute

and the capital will be released to the project developer.

Transparency and traceability are also key features that provide value to a carbon market

that is often criticized for being opaque and prone to fraud. All transactions and activities are

visible on a public ledger and accessible by anyone. If users have full access to data about carbon

credits including their issuing registry, project type, vintage, trading activity, and retirement

status, buyers can better understand the quality of the different credits. Having insight into the

quality of credits help determine their appropriate value and alleviates concerns about purchasing

inferior credits or greenwashing. This combined with an auditable log of activity, such as the

costs of comparable credits that have already sold, can significantly help with price transparency

and discovery.

Typically, those on both the demand and supply side of carbon credits rely on brokers and

consultants to help them find the appropriate counterparty. Now, both buyers and sellers can

seamlessly partake in the market. Having a marketplace to directly buy and sell on is an

important innovation that cuts out fee-taking intermediaries who are typically required in the

complex, opaque, and restrictive OTC markets. The log of activity can also help prevent double

counting and ensure that carbon credits are only sold once. Eliminating the double spend

17
problem has been core to blockchain technology since its inception. As written in the original

Bitcoin whitepaper from 2008, “we propose a solution to the double-spending problem using a

peer-to-peer distributed timestamp server to generate computational proof of the chronological

order of transactions” (Nakamoto, 2008).

Financers benefit from the transparency and traceability too as it significantly improves

visibility into project developers, project history, and project plans. Having this information

reduces time-consuming and costly due diligence, increases trust in the investee, and allows

financers to feel more confident in the integrity of the project. This also alleviates the fear of

being scrutinized for double counting or greenwashing and can simplify the reporting process.

As governments move forward with requiring the public sector to comply with ESG regulations

and report disclosures (e.g. Task Force on Climate-Related Financial Disclosures), it will become

more critical for these stakeholders to reliably invest in high-quality carbon credits.

Once carbon credits are tokenized on the blockchain via a carbon bridge or natively

issued on-chain, a host of other innovations add new novelties that can transform how this

system operates and what can be accomplished. Through the programmability of the blockchain,

tokenomics can be “baked into a particular cryptocurrency’s computer code by its founding

developers” (Stevens, 2022). Tokenomics enable a protocol’s native tokens to take on different

properties and functions such as a fixed or unlimited supply, divisibility into smaller units or

bundling into standardized units, specific rules for transfer and ownership, or granting access to

certain services and platforms. Supply of tokens can have a major impact on scarcity and thus

price. Having the flexibility to determine this supply can influence incentives to buy and hold

tokens. Additionally, enabling tokens to be purchased in fractional quantities can make carbon

credits more affordable and scalable. Instead of people needing to offset full tonnes of CO2, they

18
can purchase smaller quantities. Through fractionalized tokens and an application programming

interface (API), any company in any industry can provide a checkout option for customers to

offset the emissions of their purchase (e.g. paying extra to offset the emissions released from

getting groceries delivered). Standardizing carbon credits, on the other hand, is also enabled

through tokenization. According to Nori, “To accomplish scalability, carbon markets will have to

look more like commodities markets” (Nori, n.d.). This can be achieved through the bundling of

tokens. Criteria gates implemented by protocols grant access to different carbon credits with

similar attributes from varying projects, registries, and vintages to be bundled into a carbon pool.

In exchange for a credit that matches the pool’s criteria, the supplier receives a standardized

credit that acts like a commodity. Having various carbon pools set by distinct criteria establishes

different classes of carbon assets. This helps the market determine the price of each asset class

and creates a standardized asset that is composable with the emerging decentralized finance

(DeFi) ecosystem (more on this below). Lastly, tokens can be used as a governance mechanism

through a decentralized autonomous organization (DAO). Ownership of the protocol’s native

token delegates voting power in community-led decisions such as the types of projects accepted

on the platform (e.g. only carbon removal projects), criteria for different carbon pools (e.g. only

forest projects issued credits within the last five years), and which entities to approve as

validators (e.g. an accredited tech company), among others. Voting power is typically distributed

by a person’s percentage of the overall supply of tokens which can also incentivize the holding of

the token.

Decentralized finance (DeFi) is a new and rapidly evolving ecosystem that uses

blockchain technology to provide financial services and products. Given that the fight against

climate change is global, it is extremely advantageous that DeFi operates on a permissionless

19
blockchain and is accessible to anyone with internet access. According to the World Bank,

around 1.4 billion adults globally remain unbanked (World Bank Group, 2022). DeFi, however,

eliminates many of the barriers that traditional financial institutions impose. Individuals who

don’t have access to normal financial services can use cryptocurrencies to send remittances, buy

stablecoins in times of fiat volatility, and easily send cross-border payments. Decentralized

financial markets are also open and accessible 24/7 and enable instant transactions. These

benefits increase the appeal of DeFi and can onboard millions of people to participate in the

voluntary carbon market. DeFi also provides opportunities to interact with decentralized

exchanges (DEXs)13, different currencies, lending, borrowing, and staking. Trading tokenized

carbon credits on a DEX enables order matching engines known as automated market makers

(AMM) to pair buyers and sellers in real-time without the need for intermediaries. It enables

individuals to pay or receive payment in their preferred currency, lend money and accrue interest,

borrow money to participate in the market, or stake money to validate the blockchain. These

DeFi applications help address the major liquidity and efficiency issues in the legacy VCM. All

this to say, DeFi can enable greater access and innovation for both suppliers and buyers. It can

help project developers get their credits to market faster and more cost-effectively while also

providing additional financing opportunities and flexibility to buyers. DeFi can enable a small

land steward in Copenhagen to directly list their project on a blockchain-powered marketplace,

and an individual in a developing nation to purchase those carbon credits. DeFi opens access to

liquidity from everywhere in the world and financing from investors globally. The blockchain

powers DeFi and DeFi is one part of ReFi’s wider tech stack. ReFi builds on the movement of

DeFi by taking some of its key building blocks and applying them to the most urgent global

challenge: climate change.

20
Pioneering Blockchain-Based Carbon Companies

The 1997 Kyoto Protocol was the official formation of a carbon trading market. Since

then, various players have entered the space to iterate, transform, and improve the system. When

Bitcoin was issued in 2008, blockchain technology came into public view. As people uncovered

the capabilities of the blockchain, its applications expanded. By the mid-2010s, the blockchain

began to be viewed as a technology with the potential to positively disrupt the climate space.

From approximately 2017 onward, new organizations have joined the ecosystem as

first-generation blockchain carbon companies. Today, we are witnessing the evolution of these

pioneering companies as well as the emergence of the next generation of blockchain carbon

innovations. Although still considered a nascent space, additional organizations continue to enter

the domain.

I had the opportunity to engage in conversations with companies widely regarded as

some of the most disruptive and revolutionary in the space. These include:

● Toucan

● Chainlink

● KlimaDAO

● Open Forest Protocol

● Moss

● Nori

● Thallo

● Blockchain Triangle

● Flow Carbon

21
 ● Regen Network

Throughout this process, I had the privilege of conversing with individuals occupying

diverse positions ranging from CEO to Chief Blockchain Officer to Head of Carbon and

Sustainability Solutions. These insightful conversations consisted of general questions about the

space as well as company-specific questions14. This provided a range of perspectives on the

legacy system, the impact of blockchain technology, and the future of the space. Below are

writeups of each company based on the conversations and other information collected via

company websites, whitepapers, and documentation15.

Toucan
Founded in 2020, Toucan is an infrastructure provider built on Polygon and Celo that

utilizes a carbon bridge, carbon pools, and a blockchain-based registry database for users to

easily and transparently buy, sell, transfer, retire, or hold tokenized carbon credits.

Toucan’s carbon bridge allows anybody to bring a group of verified carbon credits

on-chain as a carbon batch NFT. These NFTs can be sold on marketplaces, used as collateral, or

fractionalized and turned into an equivalent amount of fungible16 carbon credit tokens called

TCO2 ("Toucan" or "tonne" or "tokenized" carbon credits). Although fungible, the attributes of

the original carbon credit, including project and vintage, are attached and viewable by anyone.

Once carbon credits are bridged and fractionalized, the TCO2 token can be deposited and

locked into carbon pools. Each pool (e.g. BCT and NCT) contains different attribute gating

criteria that the TCO2 token must satisfy in order to receive a corresponding carbon reference

14
Questions: What does your company believe are the key challenges with the traditional voluntary carbon market?
How is your company using the blockchain to solve these issues? What are some of the biggest challenges and
barriers your company is facing and how are you addressing these pain points? How do you envision this space
taking shape in the short term and long term?
15
Please note that this space is iterating at rapid speed; new updates are constant and current company offerings
change
16
Fungible Token: represents ownership of a interchangeable or identicle item stored on the blockchain

22
token. For example, BCT (Base Carbon Tonne) pool criteria is a credit issued from Verra with a

vintage of 2008 onwards; NCT (Nature Carbon Tonne) pool criteria is a credit issued from Verra

through a nature-based methodology and from a vintage of 2013 onwards (with a ten year rolling

acceptance window). This homogenizes the credits and can help address the liquidity issues that

stem from varying credit traits. Reference tokens can be traded on DEXs or used in other

blockchain applications that accelerate climate action. Carbon reference tokens can be exchanged

back into TCO2 tokens and retired on Toucan’s platform. Accurate carbon accounting is

maintained by redeeming and burning the TCO2 tokens locked in the carbon pool, which is then

recorded on the public blockchain forever.

Toucan’s Open Climate Registry (OCR) contains tokenized credits that are either natively

issued directly on-chain by registries or brought on-chain via Toucan’s carbon bridge. The OCR

is a connected, transparent database that aggregates the information and trading history of all

recorded carbon credits. This accessible and traceable database can enhance the buying and

selling of credits and help the carbon market scale. Through increased price discovery, buyers

can make more informed decisions and suppliers have more negotiating power.

Through Toucan’s infrastructure, other climate-positive products and protocols can be

easily built using the company’s software developer kit (SDK) and API. Real-world tokenized

carbon credits are made available to be utilized in web3 markets and leveraged throughout the

DeFi ecosystem, generating an amplified effect (see Appendix E).

Chainlink
Founded in 2014, Chainlink is a decentralized oracle network. Oracles provide the

infrastructure that transfer off-chain data (e.g. energy data) onto a blockchain and enables

connectivity between blockchains. While it may not directly impact the carbon markets,

23
Chainlink plays a key role in providing tamper-proof and reliable information, such as price

feeds and trading activity, to carbon companies operating on-chain. Given that there are various

carbon credit standards and registries each with its own data quantification requirements and

verification processes, Chainlink's decentralized oracle network helps aggregate the data and

provide a single source of truth for carbon market participants. This makes it possible to access

accurate and up-to-date information, helping improve latency and information asymmetry. This

technology enables key players in the system to modernize their infrastructure and provides a

more transparent, efficient, and cost-effective system.

KlimaDAO
Founded in 2021 and built on the Polygon blockchain, KlimaDAO is working to

democratize access to carbon markets through its core infrastructure. By enabling organizations

to build products and features on top of its infrastructure, Klima is trying to create a virtuous

cycle of growth. The company has also created its own marketplace where already-issued credits

can be easily and transparently bought, swapped, and retired. In addition, Klima has built a

carbon dashboard that acts a market data provider.

Partnering with carbon bridge companies such as Toucan and Moss, stakeholders can

transfer verified off-chain credits onto KlimaDAO’s on-chain platform. With on-chain carbon

credits, users can choose from a host of carbon pools built by various blockchain carbon

companies and receive different fungible base tokens in return. These base tokens can either be

sold or converted into KLIMA, the protocol’s native token. KLIMA can be used in numerous

ways including as payment to retire tokenized credits on the blockchain. KlimaDAO’s retirement

certificate is ingrained with essential information that confirms the retirement and operates as

proof that the tonnes have been offset, eliminating the potential for double counting. KLIMA can

24
also be locked up to accrue rewards or held and used as a voting mechanism. KlimaDAO is a

community-led initiative that allows KLIMA token holders to participate in the decision-making

process and help shape the direction of the organization (e.g. propose and vote on the carbon

pools available to users). Leveraging its infrastructure and the DeFi stack, KlimaDAO is opening

avenues of innovation that connects the market and drives funding to sustainability projects

worldwide (see Appendix F).

Open Forest Protocol

forest projects of all sizes from around the world to accurately measure, report, and verify

(MRV) their forestation data on the blockchain. OFP is built on the energy-efficient NEAR

blockchain, a proof-of-stake network that allows OFP to be open-sourced and scalable.

First, project developers17 register and upload basic information about their forestry land

plots on the Open Forest Protocol platform. OFP’s Project Operator Dashboard uses this

information to generate geolocated NFTs for each designated forest plot. These NFTs serve as a

virtual representation of land ownership and permanently store and update every project detail in

the token’s metadata. The dashboard also randomly assigns field agents, responsible for

monitoring the progress of the forest project, to sample different plots. Through the simplicity of

a smartphone, field agents can use OFP’s Forester app to collect and upload data from their

assigned sample plots. Due to the ease of this MRV process, data is collected more often and for

cheaper, occurring every six months for the first two years and then annually moving forward.

The field data obtained can be accessed on a dashboard by approved validators and undergoes

rigorous testing using a variety of distinctive capabilities, data sets, and remote-sensing

technologies provided by each validator. Validators combine this with their forest expertise to
17
Project developers are referred to as operators on the OFP platform

25
review and vote on the data for each project. The communal network of validators verifies or

rejects uploaded project data which is stored in a transparent manner on the blockchain. This

generates an unalterable ledger of forest activity, along with a continuously expanding data pool

for validators to analyze and compare against (see Appendix G).

In exchange for their verification and to incentivize truthful actors, validators earn OPN

(Open) tokens which are automatically distributed via smart contracts. Live projects can then be

viewed on the OFP Project Explorer where anyone can access general information (e.g. location,

description, goals), uploaded MRV data, and validation history of each project.

While currently in development, Open Forest Protocol has plans to expand project

categories beyond forest projects18, issue its own on-chain credits, create a wallet to hold,

transfer, or retire tokenized credits, build a digital wholesale offramp for OFP-supplied credits,

pre-fund projects, and make decisions governed by a DAO in part through OPN tokens. With the

power of blockchain technology, these initiatives will continue to increase transparency and

access, helping to improve liquidity and price discovery.

Moss
Founded in 2020, Moss is a carbon platform that makes it simple and transparent for

businesses and individuals to offset their emissions by supporting Amazon REDD19 projects.

Moss buys credits from Verra certified environmental preservation projects and uses a carbon

bridge to add them to the blockchain. Each carbon credit is tokenized on a one-to-one basis via

the issuance of fungible MCO2 (Moss Carbon Credit) tokens on the Ethereum blockchain.

MCO2 is meant to be “primitive” to allow for other innovators to leverage the token for new

functionalities, products, and services. MCO2 is listed on global exchanges and can be bought on

18
such as mangroves and biodiversity projects
19
REDD: Reducing Emissions from Deforestation and forest Degradation

26
Coinbase and Gemini20– the only carbon credit company in the world with tokens listed on these

platforms. Once purchased, MCO2 can be sent by users to an Ethereum address designated by

Moss who then retire the corresponding carbon credits.

While Moss also sells non-tokenized credits, the company’s reasoning for tokenization is

primarily for security purposes. Their securely programmed smart contracts create a layer of

safety that lead to high credibility, transactability, and low transaction costs. Additionally, by

tokenizing this process, activity can be publicly traced and audited, generating a faster and more

secure transfer of carbon credit legal ownership (VERPA). By having carbon credits on the

blockchain, real-time data such as total supply, price, and unique holders can be viewed through

Ethereum’s block explorer and analytics platform Etherscan or KlimaDAO or Dune Analytics.

Lastly, Moss offers Amazon NFTs, allowing easy access to purchase the rights of the

property and protection of forested land. Through these NFT sales, owners implicitly sign and

agree to keep their area of the Amazon Rainforest preserved. To properly maintain the area’s

security, a 30-year forest protection fund was established by Moss from a portion of the NFT

revenue.

Nori
Founded in 2017, Nori has created a carbon removal marketplace on the Polygon

blockchain. The company works directly with carbon removal project developers to issue NRT

(Nori Carbon Removal Tonne) tokens directly on-chain via their in-house methodology

processes. By focusing on carbon removals as opposed to avoidances or reductions, MRV is

easier, more effective, and reduces concerns about additionality (see Appendix H). One NRT

represents one tonne of CO2 removed and stored for at least ten years, with re-verification every

20
Based on current trading volume, Coinbase and Gemini rank as the second and twelfth largest centralized
exchanges (CEX) in the world, respectively

27
three years. These NRT tokens get listed on Nori’s marketplace and can be directly bought by

users via the NORI native token. A portion of NORI’s token supply is automatically withheld

and used as an insurance reserve and warranty to remunerate buyers should carbon be lost before

the end of ten years.

NORI functions as a fungible digital currency within Nori's marketplace and can be

exchanged for NRT tokens on a one-to-one basis. Acting as a commodity that can be actively

traded on exchanges, the NORI token can help scale markets and provide market pricing. Once

NRT tokens are sold on the marketplace, the credits are retired immediately, eliminating

intermediaries and preventing double counting. NRT tokens are minted as NFTs that contain

details on the carbon removal data. When purchased, the NFT is updated to include a unique

certificate that confirms the buyer's ownership, sale price, and date of retirement, helping to

promote transparency.

Given that NORI is a crypto token, it can be purchased in fractional amounts. With this in

mind, Nori is building an API that can be integrated into platforms so carbon removals can be

purchased as part of other transactions (e.g. buying a plane ticket).

Thallo
Founded in 2021, Thallo aggregates carbon credits from project developers in one

easy-to-use marketplace built on the Polygon blockchain. Thallo’s two-way carbon bridge allows

project developers to transfer issued credits from major registries to the blockchain. Thallo's

bridge can successfully store critical information about a project such as its vintage and serial

numbers, and create a log of activity that is easily traceable through a single click function.

These carbon credits can be transferred on and off the blockchain in a manner that maintains

accountability. All events conducted on the underlying registries are reflected on-chain and all

28
activity on-chain is accounted for on the underlying registry. By ensuring that every transaction

is recorded and traceable, Thallo can help prevent issues of double counting.

The process for project developers is simple and consists of joining the platform and

undergoing KYC, transferring carbon credits onto the platform, and receiving instant payment

upon sale. Project developers can easily set a price based on real-time data and receive passive

income through royalties from the credits’ secondary sales. Providing direct access to a

transparent market can help cut out intermediaries, making it more profitable for project

developers and less costly for buyers.

For businesses and individuals, Thallo’s platform has advanced project filters for easy

carbon credit exploration. Through Thallo’s dynamic pooling, buyers can specify credit attributes

(e.g. project type, vintage, location) and create their own pool of fungible tokens that match the

criteria (see Appendix I). This blockchain-enabled innovation can help solve the liquidity issue

that exists from selling widely heterogenous credits. The platform also helps with price discovery

on the demand side by providing critical information such as the listed price of each project and

the price history of sold credits.

By leveraging the public, immutable, and distributed nature of the blockchain, Thallo

makes it possible for anyone to access this data at any time, thereby promoting transparency and

trust in the system. As a result of Thallo’s modern architecture and blockchain execution, the

platform charges a lower-than-average flat fee of 3% for all transactions. Enabling higher

margins encourages project developers to continue to participate in the market by reinvesting in

existing or new project operations.

Blockchain Triangle

29
 Founded in 2018, Blockchain Triangle is a digital finance platform that enables real-time

data feeds for banks, asset managers, and capital market participants to help with climate

compliance, performance, and benchmarking. The company combines financial asset

information with smart meter and IoT sensor data and links them to create a digital asset on the

blockchain (see Appendix J). More specifically, assets that can be tracked through these devices

are recorded on the blockchain where the various data points are embedded, aggregated, and

organized for various stakeholders in the financing value chain to easily understand. Through the

blockchain, these unalterable tokenized assets are updated in real-time, which is more

dependable, trustworthy, and consistent than its non-digital equivalent. Providing timely and

detailed information enhances liquidity while minimizing risk.

The ability to represent numerous tokenized assets in a single portfolio of assets also

decreases the inefficiencies that come with reporting disclosures and regulatory compliance,

making green financing more appealing to capital providers. This automated, low-cost software

approach can significantly reduce the cost of capital and the cost of administration. This

reduction has a two-fold effect: it democratizes access to projects for smaller investors which in

turn provides funding to additional projects.

Flow Carbon
Founded in 2021, Flowcarbon is focused on creating a liquid and transparent carbon

market by bringing nature-based (e.g. conservation, reforestation, nature restoration) carbon

credits onto the blockchain. Users can initiate a transfer of issued credits from one of the four

market-recognized registries into a special purpose vehicle (SPV) that is overseen by a reputable

third-party and frequently audited. Batches of off-chain credits, unique to a project and vintage

year, are then bridged on-chain as GCO2 tokens. Each batch of GCO2 tokens is unique and

30
equivalent to the number of credits transferred (see Appendix K). Flowcarbon’s two-way bridge

allows for autonomy in the preferred configuration of the credit, giving users the option to switch

back and forth between off-chain tokens and different on-chain tokens. On account of the

blockchain, reliable accounting can be verified through a publicly accessible registry that uses

unique identifiers to ensure that the credits are legitimate.

These unique GCO2 tokens can then be combined with other GCO2 tokens of similar

attributes and converted into an equivalent amount of fungible bundle tokens. The GNT

(Goddess Nature Token) is the first bundled token created on Flowcarbon. To obtain a GNT,

Flowcarbon requires users to exchange a nature-based GCO2 token that is issued by a

market-recognized standard and has a vintage within five years of the current year. This

commoditization can help create liquidity and optionality in the market.

Due to the interoperability enabled by the blockchain, bundled tokens can be leveraged in

liquidity pools, lending protocols, and other DeFi applications. The tokens can also be retired

on-chain where they are stored transparently in the contract until they accumulate to a full batch.

Flowcarbon then retires the corresponding credits in the carbon credit registry and records a

tamper-proof checksum for auditing purposes. Through smart contracts and the blockchain, these

full-functionality tokens expand the innovative possibilities, democratizing access to carbon

credits and increasing price discovery in a safe and trackable way.

Regen Network
Founded in 2017, Regen Network operates through three intertwined functions: Regen

Ledger, Regen Marketplace, and Regen Registry. The Regen Ledger, developed with the Cosmos

SDK, is a Proof-of-Stake blockchain that provides a decentralized, transparent, and immutable

infrastructure. This blockchain infrastructure facilitates communication and transactions among

31
multiple registries, resulting in the creation of a transparent accounting system that is accessible

to the public.

The Regen Marketplace, powered by the Regen Ledger, is a platform used to create,

bundle, and sell on-chain carbon credits called ecocredits. Ecocredits get issued through the

Regen Registry, which develops its own methodologies for nature-based projects. The Regen

Registry is a decentralized registry operated by experts and earth stewards that works to lower

the barriers for project developers through more approachable processes, less costly onboarding,

and community-driven decisions. The Regen Network is governed by REGEN token holders,

allowing the community to determine how the network evolves and functions. Unlike centralized

carbon registries, decisions such as new project standards and peer review processes are decided

upon and approved by the community. To carry out transactions on the Regen Marketplace, users

pay a small quantity of REGEN as a fee to compensate the validators who enable the continued

uptime of the Regen Network blockchain.

Using Toucan’s two-way bridge, NCT tokens can also be brought onto Regen’s

blockchain. NCT tokens can be redeemed for ecocredits, which can then be retired on the Regen

Ledger. Conversely, eligible ecocredits can be exchanged for NCT tokens and bridged off

Regen’s blockchain and onto the Polygon blockchain.

The interchangeability and interoperability enabled by the blockchain allow for credits on

the Regen blockchain to be used across DeFi applications and in a more liquid manner. As a

result, Regen’s infrastructure can help project developers gain greater access to buyers while also

avoiding fees charged by intermediaries. On the buyer side, high-quality carbon credits can be

purchased, traded, and retired with greater transparency and accountability, eliminating the fear

of double counting and greenwashing.

32
Limitations: Blockchain-Powered Carbon Market

While technology may make something possible, it may not necessarily be the right fit

for implementation. While the blockchain can and is being used in the voluntary carbon market,

it is important to understand whether it should be used in the VCM.

The blockchain can facilitate data through its interoperable system, but it critically

depends on other technology to digitally monitor, report, and verify (dMRV) that data. New and

developing technology such as geospatial analysis, remote sensing, drones, big data, and

artificial intelligence are being used to collect data in a more efficient and effective way, helping

to modernize GHG methodologies and streamline verification. The blockchain can play a

complementary role in facilitating a connected, holistic market, however, this is not possible

without accurate, real-time data about the projects via dMRV.

Moreover, smart contracts have a lot of upside, but they are only as secure as the code

they are built on. In the event that there are vulnerabilities present in the code, malicious actors

can exploit the smart contract to steal funds or disrupt the network. This can be problematic as

attackers could steal or transfer tokenized carbon credits without authorization. This can damage

the integrity of the carbon market by undermining the trust of investors and participants.

Furthermore, given the blockchain’s interoperability and building block infrastructure, more

touchpoints become accessible for hacks to occur; this can take place via cross-chain bridges, hot

wallets, or DeFi protocols. With 2022 being the biggest year ever for crypto hacking

(Chainalysis, 2023), this is a major concern that needs to be considered when bringing any

component of the carbon market on-chain.

33
 Another important thing to consider is where in the value chain it would make most sense

to implement the blockchain. Tokenizing off-chain issued credits does not fix the problems that

currently exist with the issuing process such as inefficiencies, high-costs, and questionable credit

approval. Verra, Gold Standard, American Carbon Registry, and Climate Action Reserve are all

formed as nonprofits. Nonprofits typically focus on operational stability over profit and can

sometimes suffer from a lack of resources and complex regulatory compliance. This may

contribute to why legacy registries have historically been expensive and slow to adopt new

technologies, hampering the space from achieving efficiency and scale. Consequently, project

developers have suffered from high registry costs and bottlenecks. Additionally, if legacy

registries are issuing low-quality credits, which many reports have indicated, their on-chain

equivalents are also inadequate. According to Carbon Direct’s 2022 Commentary on the

Voluntary Registry Offsets Database, “Rather than sourcing high-quality credits, blockchain

buyers have been retiring credit categories at most risk of being low quality” (Carbon Direct,

2022). One reason for this is the gating criteria in carbon pools, allowing for low-quality credits

to be standardized and sold to less knowledgeable buyers. If carbon pools enable users to

exchange poor-quality credits such as from faulty carbon avoidance projects or old vintages, it

can create demand for non-additive credits and promote greenwashing.

While the supply of faulty credits on the blockchain may come from individuals looking

to game the system, the demand is likely coming from naive individuals. This is another

potential issue with the implementation of blockchain technology. Navigating the carbon market

is already difficult for the average company or person. Adding an additional layer of complexity

via web3 can be even more problematic. Gilles Dufrasne, the policy officer for a watchdog NGO

called Carbon Market Watch, bluntly described this new market saying, “It may be transparent,

34
but it’s not accessible because nobody understands how it works apart from the fintech people”

(Lo, 2022). Using a web3 wallet, bridging credits on-chain, exchanging credits in carbon pools,

fractionalizing credits, and interacting with the DeFi ecosystem all require high tech literacy.

Even those who are tech-savvy may struggle to understand these features. This can turn away

various stakeholders from getting involved in the voluntary carbon market and have a negative

effect on the overall system.

There are also general concerns about the web3 space as a whole. Given the youth of this

technology, there is both regulatory and legal uncertainty that exists. Many governments are

unsure about the blockchain and have yet to establish the proper frameworks to create regulation

and legal clarity around its use. The anonymity of web3 is a contributing factor to this skepticism

and another concern in the voluntary carbon market. At present, the registries require all account

holders to undergo KYC verification, comply with anti-money laundering (AML) regulations,

and agree to their “Terms of Use”. There is concern that the anonymity of web3 can bypass these

mandates. Failure to conduct these safeguards on holders of tokenized credits could provide an

avenue for malicious actors to acquire these assets and heighten the risk of fraud.

There are other features enabled by the blockchain that could contribute to instability in

the market. Given a protocol’s ability to issue a native token, a lot of value is determined by the

token's price. Many times, profits are based on the value of the token which, in the web3

ecosystem, can be very volatile (see Appendix L). If a protocol relies on the value of this token, a

decrease in its price due to a market crash, speculation, or any other reason, can be detrimental to

the platform and its impact on the carbon market.

It is also worth examining whether certain features need to be powered by the blockchain

or if they can simply be carried out by traditional, centralized organizations. In Moss’

35
whitepaper, they state that the MCO2 token was purposely designed to be “primitive” and that

the company is not trying to create a new market in primary or secondary trading or in fractional

or whole trading because all of it exists already (“Moss Whitepaper”, n.d.). As the leading global

spot trading platform for voluntary carbon credits, Carbon Trade eXchange (CTX) does have

some comparable features that make it appealing. The platform is available 24/7 and claims to

offer reports with live market pricing. There is also the Global Emissions Offset (GEO) future

market, the first voluntary carbon market standardized contract launched by the Chicago

Mercantile Exchange (CME Group) on Xpansiv market CBL. This platform commoditizes

carbon credits and can be seen as a centralized equivalent of carbon pooling. Another example is

U.C. Berkeley’s Voluntary Registry Offsets Database (VROD) which presents data on all carbon

projects, credit issuances, and credit retirements listed globally by the four main registries.

It is also important to consider that some of the issues with the current voluntary carbon

market may not be directly solved with the implementation of blockchain technology. Currently,

97% of all projects issuing credits over the past two years were reductions, not removals, which

typically have few durable storage options and are more at risk of reversal (Carbon Direct,

2022). Additionally, while credit supply has been increasing, retirements fell in 2022 for the first

time since 2016 (see Appendix M). And with the credits that are being retired, buyers are retiring

older credits. The average age of retired credits rose to 7.3 years in 2022 compared to 6.1 years

in 2021 and 5.3 years in 2020 (Carbon Direct, 2022).

History: Blockchain in the Voluntary Carbon Market

Considering the advantages, applications, and limitations listed above, it is important to

understand how the space has played out to date. Beginning around 2017, blockchain carbon

36
innovations started to launch, and consequently, a few of the registries started to explore the

blockchain’s potential. In January of 2021, Regen Network sold the first natively

blockchain-produced carbon credits to Microsoft, a convincing signal of demand for tokenized

credits. In October of 2021, Toucan released BCT, one of the first bundled carbon tokens. By the

end of the year, around 15 million carbon credits had been tokenized and deposited into the Base

Carbon Pool (Khodai, 2022).

In April of 2022, CarbonPlan, a nonprofit organization that produces research on the data

and science of carbon removal, released the Zombies on the blockchain article (Badgley &

Cullenward, 2022). This report highlighted the artificial success of carbon credit tokenization

and halted the momentum that was being driven by BCT tokens. The article explained that with

the initial rollout of projects like Toucan, the crypto market assigned a greater value to carbon

credits in tokenized form compared to their off-chain equivalents. This created an arbitrage

opportunity that attracted a significant influx of credits to be bridged on-chain. However, the

report claimed that most of the activity generated was for low-quality, neglected credits that had

experienced little demand over recent years. CarbonPlan proved this claim through “projects like

VCS191 that hadn’t seen a single retirement prior to Toucan. Although this hydropower project

started operating in 2006 in Yunnan, China, its first retirement on Verra’s system occurred in late

December 2021 as part of a bridge transaction to Toucan. Since then, Toucan-based transactions

have retired over 2 million credits from the project” (Badgley & Cullenward, 2022). In response

to this report, Toucan COO Robert Schmitt said, “The only reason CarbonPlan was able to do

this analysis is because it’s on-chain. They could never have done this in the traditional market”

(Calma, 2022).

37
 In May, Verra responded to CarbonPlan’s groundbreaking report by issuing a statement

that “Verra will, effective immediately, prohibit the practice of creating instruments or tokens

based on retired credits” (Verra, 2022). Gold Standard, American Carbon Registry, and Climate

Action Reserve also followed suit, releasing similar reports restricting the tokenization of their

issued credits. While this was a stifling shift for blockchain innovation, “it also created an

opportunity for the development of digitally native methodologies, registries and digital

environmental assets” (Nesbitt, 2023). There was also some optimism within the blockchain

carbon space as Verra, Gold Standard, and American Carbon Registry launched public

consultations and working groups in the months following, showing that registries recognized

the potential and demand generated by the blockchain’s implementation.

In December of 2022, the World Bank’s Climate Warehouse program, the Government of

Singapore, and the International Emissions Trading Association (IETA) developed the Climate

Action Data Trust (CAD Trust), a blockchain-powered platform that aggregates and

synchronizes carbon credit data from all major registries; this was an exciting announcement for

the space given the commitment of governmental entities to leverage the blockchain.

In January of 2023, Verra published its public consultation and is currently finalizing its

approach. In February, Carbonplace, a blockchain-based carbon marketplace that was formed by

a group of banks, raised $45M from nine leading global banks (“Carbonplace Announces”,

2023). This was an indication that banks prefer their clients to transact carbon credits on a more

secure system, and was a market signal of corporate demand.

In March of 2023, Gold Standard used the information collected from their public

consultation and working groups to initiate a readiness phase. Consulting with five blockchain

38
carbon companies including Toucan, Flowcarbon, Thallo, Earthchain, and Bitgreen, the registry

has plans to issue tokenized carbon credits for the first time in May of 2023 (Velev, 2023).

Recommendation

After examining all the information presented through an objective lens, it is evident that

the voluntary carbon market can make the greatest environmental impact by adopting a

comprehensive strategy that includes several different approaches. These approaches include

digitizing the system through dMRV, fostering collaboration among legacy registries and

blockchain carbon companies, and promoting continuous education and regulatory reform. By

taking this multi-faceted approach, the voluntary carbon market can be strengthened and

improved to make a meaningful contribution towards reducing carbon emissions and mitigating

the impacts of climate change.

While the blockchain offers significant value to the voluntary carbon market, the latest

dMRV developments must also be incorporated to ensure maximum growth in the VCM. While

this does take time, costs money, and differs based on the project, the long term value outweighs

these concerns. By integrating the most advanced dMRV technology and connecting them to the

blockchain, the system will benefit from improved data collection and quality. This will help

speed up methodology quantification and streamline the verification process, making the system

more connected, efficient, and cost-effective. It is expected that the implementation of this

approach will enhance the quality of the carbon credits that are issued, thus reducing the

prevalence of low-quality credits brought on-chain.

Moreover, it is recommended that blockchain carbon companies adopt a collaborative

approach with existing registries and support their evolution instead of creating entirely new

39
systems from scratch. Given that current registries have existed for decades, they have

established a governance process and reputation that many stakeholders have come to trust. By

working in conjunction with web3 companies, registries can reap the benefits provided from the

blockchain while maintaining credibility. This harmonization will help drive innovation and

foster a seamless transition towards a more efficient and effective carbon market.

While collaboration between registries and blockchain carbon companies is essential,

there are some fundamental aspects that both parties must agree upon and uphold. It is

imperative that the companies bridging credits on-chain prioritize security and conduct regular

audits to identify and address any vulnerabilities in smart contracts. Additionally, for users to

join these platforms and interact with tokenized carbon credits, companies should mandate that

customers go through KYC and AML to prevent bad actors from disrupting the market. This will

ensure that credits can be tokenized at scale with the appropriate safeguards to ensure market

integrity, regulatory compliance, and consumer protection.

Additionally, the data traced and made available to stakeholders via blockchain’s digital

ledger needs to be detailed yet standardized, organized into a human-readable format, and crafted

with a non-technical interface. It is critical that the web3 space continues to increase its user

interface and experience. In order for this technology to be adopted and used by the masses, it

needs to function seamlessly enough that users can benefit from its capabilities without knowing

that the blockchain is powering the backend.

Despite an enhanced user interface serving as a partial solution, it should be noted that

the use of crypto involves a steep learning curve. Therefore, there is a pressing need for

education and regulatory reform in both the web3 space and the voluntary carbon market.

Considering that the carbon market has existed for nearly two decades, it is recommended that

40
stakeholders rely on experienced working groups to further its development. A few groups

working to improve the VCM include the Voluntary Carbon Markets Integrity Initiative (VCMI),

the Taskforce on Scaling Voluntary Carbon Markets (TSVCM), and the Integrity Council for

Voluntary Carbon Markets (ICVCM), among a host of others. On the web3 side, groups like the

Crypto Sustainability Coalition, the Climate Collective, and the Crypto Impact & Sustainability

Accelerator (CISA) will also be critical in bridging the educational and technological gaps.

In addition, it is imperative that stricter regulations and oversight mechanisms are

continually assessed and implemented by government bodies. This is exemplified by Article 6 of

the Paris Agreement and the guidelines established by CORSIA, which both serve to enforce the

inclusion of high-quality credits in the carbon market. Providing comprehensive education and

establishing supportive regulation can help minimize the difficulties associated with

implementing the blockchain while facilitating the growth of the VCM in a safe manner.

Lastly, although certain modern centralized applications may be useful in addressing

some of the present challenges, it is clear that they do not offer the same comprehensive benefits

as applications built on the blockchain. For example, joining the Carbon Trade eXchange is a

tedious process and comes with high membership fees and restrictions in the types of credits and

payment options. The GEO futures market utilizes an antiquated application process and restricts

non-wholesale clients from joining. VROD's database, on the other hand, is simply a

downloadable Excel sheet with outdated data that is updated to a new file version every few

months.

While there will undoubtedly be challenges and limitations with the voluntary carbon

market moving forward, a multifaceted strategy is essential to maximize its environmental

impact. Incorporating advanced technology for dMRV, promoting collaboration among existing

41
carbon registries and blockchain companies, and prioritizing continuous education and

regulatory reforms are all vital components of this approach.

Conclusion

In conclusion, the blockchain's integration into the voluntary carbon market provides a

promising avenue to enhance ReFi and amplify the VCM’s impact on the environment. By

leveraging blockchain's unique features such as immutability, interoperability, and traceability,

we can create a more trusted, connected, and transparent VCM that aligns economic incentives

with activities that support regeneration. However, it is essential to acknowledge that the

voluntary carbon market is only one part of a larger movement to fight climate change. We must

continue to explore and implement innovative solutions, while also addressing systemic issues

such as overconsumption and environmental degradation. By working together and committing

to a sustainable future, we can create a world where economic prosperity and environmental

sustainability go hand in hand.

Stopping climate change is crucial to ensure a sustainable future for our planet and all the

people, animals, and living organisms that inhabit it. The consequences of inaction are dire, and

we are already seeing the effects of climate change today, including rising sea levels, more

frequent and intense natural disasters, and irreversible damage to ecosystems. If we continue on

this path, we risk catastrophic consequences that will impact not only our generation but

generations to come. This requires a global collective effort from all sectors, including

governments, businesses, and individuals, to implement innovative solutions and reduce our

carbon footprint. Ultimately, the goal is not only to stop climate change but also to create a world

that is more resilient, equitable, and prosperous for all.

42
Appendix:

Appendix A: Atmospheric CO₂ by Year

Appendix B: Voluntary Carbon Market - Carbon Credit Lifecycle

Appendix C: Issues with the Voluntary Carbon Market

Appendix D: Blockchain Key Properties

43
Appendix E: Toucan Digital Asset Creation

Appendix F: KlimaDAO Digital Asset Creation

44
Appendix G: Open Forest Protocol Validation Process

Appendix H: Carbon Avoidance & Reduction vs Carbon Removal

45
Appendix I: Thallo’s Dynamic Pooling

Appendix J: Blockchain Triangle Digital Asset Creation

Appendix K: Flowcarbon Digital Asset Creation

Appendix L: KLIMA All-Time Token Price

46
Appendix M: Carbon Issuance vs Retirement

47
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