Bringing Technological Transparency to Tenebrous Markets: The Case for Using Blockchain to Validate Carbon Credit Trading Markets

Carbon reductions have become a priority as companies and other entities emitting greenhouse gases seek to comply with regulatory requirements and commit to voluntary goals that are consistent with their sustainability pledges. These carbon reductions are accounted for by carbon credits, which are tradeable units of carbon reduction that can be used to comply with regulatory or voluntary carbon reduction credits. Many companies are making such carbon reduction promises, and are frequently relying on credits generated by non-traditional mitigation sources such as agriculture or forestry to achieve those reductions and credits. However, the credibility and reliance on such carbon credit markets is seriously undermined by the reality and perception of double counting, lack of transparency, and greenwashing.

Blockchains and smart contracts can address many of the monitoring and transparency shortcomings of current carbon credit markets, and hence provide greater trust and veracity to carbon reduction claims to meet regulatory or voluntary commitments. This article describes the growing role of carbon credit markets, their current shortcomings, and describes existing and proposed mechanisms for using blockchain and smart contracts to overcome those existing problems.