Climate Action Data TrustĀ (CAD Trust) is a new initiative that uses blockchain to create a decentralized log ofĀ carbon creditsĀ to store data from multiple major carbon registries. It plans to launch and share details in December.
The independent Singapore-based entity was founded by the International Emissions Trading Association (IETA), theĀ World Bank, the Singapore government, other governments and public and private sector organizations.
CAD Trust is creating an open source metadata system and decentralizing the data using distributed ledger technology.
āCarbon markets can help countries to meet their climate goals but only if reductions are real and credible. Climate Action Data Trust is an important step towards solving the challenge of standardising and interconnecting carbon market registry systems,ā said Chandra Shekhar Sinha, Lead Financial Specialist at the World Bank.
Blockchain to tackle double counting
Ledger Insights covers numerous different business sectors, and there are parallels with CAD Trust objectives and other sectors, such as trade finance, that use blockchain to prevent double counting.Ā
A small number of companies looking to raise trade finance based on their invoices, shipments or warehouse goods will take the documents to several banks and fraudulently raise finance multiple times. Itās not the majority of firms, but it nonetheless happens often.
Likewise, as the number of carbon registries grows, a solar farm, forest preservation project or some otherĀ sustainabilityĀ initiative could seek to generate carbon credits with more than one registry. The solution is to aggregate data across registries.
One of the challenges with sustainability is it appeals to peopleās best intentions and hence can be a bit of a magnet to charlatans looking to exploit them. Hence the need to ensure trust, enabling funding to be funneled to projects that have a climate impact.
As the number of carbon registries grows, a single API connection to CAD Trust will allow organizations to check the status of carbon credits across multiple registries. That means they only need to access one API rather than several.
CAD Trust evolved out of the World BankāsĀ Climate Warehouse, an innovation project that researched, prototyped and developed digital infrastructures for carbon markets, with CAD Trust as one of those infrastructures.
Dirk Forrister, President and CEO, IETA, said the CAD solution was based on input from several of its members who participated in the Climate Warehouse. āThey helped us identify the governance functions of the Data Trust that could accelerate work on the common data specifications for future digital registry systems,ā said Forrister.Ā
āThe resulting Climate Action Data Trust will serve as a public good, providing an accessible, decentralised and secure digital infrastructure that can be used by all participants in carbon markets ā acting as an invaluable tool for market communication, trust and transparency.ā
Tokenizing carbon credits
This particular project is about sharing registry data rather than tokenization. Nonetheless, there is considerable momentum in using blockchain technology to tokenize, trade and settle carbon credits. Some of the initiatives are run by major enterprises such asĀ Carbonplace, backed by big banks, and Singaporeās Climate Impact Exchange (CIX). But there are also several by web3 startups and theyāve attracted considerable controversy.
In fact, one of the major registries, Verra, hasĀ suspended the tokenizationĀ of its carbon credits pending theĀ outcome of a consultation. Most of the web3 tokens are retired on the registry at the point of tokenization. However, retirement is meant to signify that the credit is consumed, but it invariably is not when tokenized. That means that Verraās registry still needs to be updated.
This is a topic where IETA was ahead of the game.Ā
In March, IETAĀ publishedĀ its thoughtsĀ on the topic. It sees benefits in using blockchain to monitor, report, and verify the climate benefits (MRV) and for credit tokenization.Ā
However, it voiced concerns about the speculative nature of some schemes. It made suggestions, including only retiring tokenized credits on the registry when the carbon credit tokens are burned, and the underlying credit is retired.
