Is Crypto Effort to Offset Carbon Credits a Hype?

Is crypto effort to offset carbon credits a hype? So, you have been hearing a lot about the environmental impacts caused by crypto and especially about carbon credits surrounding it.

Just like all other people, you too may wonder whether all these are just hype or is there any real substance behind it.

Showing their concern for the well-being of the Earth, Save Planet Earth, which is a cryptocurrency venture based in the UK, has been trying hard to convince the investors that it can fix the climate crisis and also make them rich.

Though organizations like the Save Planet Earth have been quite successful in it, their tree-planting mission still has to go a long way to be a reality.

However, the concern about the world and the impact of crypto carbon on it is growing, so much that a carbon credit NFT or Non Fungible Token of a single ton of CO2 sold for a staggering $70,000 at an auction.

This left the carbon market experts dazed. This credit was created from the Rimba Raya reserve in Indonesia.

It is considered to be one of the biggest initiatives to put off carbon emissions into the atmosphere by preserving the hot and humid peat swamp forests.

There are millions of credits trading on the market from the same project for prices ranging from $20 each to $4.73/t on an average.

Now the question is: why would people be interested to shell out such an enormous premium?

To find the answers to it as well as other questions, this is an article that will prove to be very useful for you. Therefore, read on.

Is Crypto Effort to Offset the Carbon Credits a Hype?

Is Crypto Effort to Offset Carbon Credits a Hype
Credit: Richard Hurd

The crypto community of investors and traders appreciate the efforts of organizations like Save Planet Earth to reduce the carbon credits of crypto mining and transactions.

They believe that moves like this will increase awareness among the crypto users.

As said earlier, organizations like Save Planet Earth sell carbon credits as NFTs and till now they have sold more than a thousand of these limited editions of NFT carbon credits.

The main objective behind such an effort is to raise funds for planting trees that will change the landscape of the Earth.

It will also protect the environment from the harmful effects of carbon emissions by storing carbon which can be sold later as carbon credits.

However, several investigations are made into the investment case of Save Planet Earth that claims to have signed contracts with the government to plant more than a billion trees in Sri Lanka, Pakistan, and the Maldives.

It was found that most of their claims are highly inflated and, till date, it is far from a closed deal.

However, there are lots of companies like Save Planet Earth that have become a part of the recent boom in crypto initiatives to revamp carbon trading.

The process involves taking carbon credits out of the current market and locking them on a blockchain.

These carbon credits can be bought with crypto from the blockchain just like trading any standard crypto coin.

This means that the traders are allowed to speculate on the price of carbon credits, which is a ton of carbon dioxide.

Of late, there has been a growing demand for these carbon credits, which the market experts think will push up their prices.

This will eventually create a clean and an easily accessible market for people to obtain carbon credits.

The popularity and growing demand for carbon credits among people is however thought to be due to its relation with cryptocurrencies.

This has facilitated in raising awareness about it in the investors as well as funding these carbon saving projects.

Even the mining and fossil fuel companies are now showing their interests in using these carbon credit projects to make up for their emissions.

A carbon credit project funded by offsets can support building a renewable energy plant and avoid burning extra coal which will reduce the harm caused to the climate.

However, market critics and crypto experts think that most of the crypto efforts to put an end to carbon offsets are backfiring.

They feel that organizations like Save Planet Earth actually did not help in any way to get rid of the cheap carbon credits of low quality.

On the contrary, it has actually helped in producing more of them.

Users often resort to lesser known and inadequately verified crypto platforms to purchase carbon credits.

This results in unanticipated consequences that seem to be not going as planned.

Ideally, the crypto users are not known to be the top or frequent buyers of carbon credits.

In fact, it is the banks, airlines, and oil companies along with other commercial polluters that are keener to load up on offsets in order to recompense for their emissions.

The crypto users typically do not care much for the offsets as an effective means to counter the enormous emissions through crypto mining activities.

More than contributing to the climate fight, they were driven by the idea that they will now get a more opaque trading environment and a rapidly expanding market practically with no oversight.

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However, things were not intended to happen this way.

Initially it was believed that using crypto and its underlying blockchain technology in carbon credits will help a lot in maintaining a clear and transparent public record of accounts for every transaction related to carbon offsets.

It was also thought that while the buyers will remain anonymous, the prices paid by them for each carbon offset will be available publicly.

This will not only help in cleaning the environment but also the messy market, all with the use of crypto.

This will ward away the worst offenders and buyers will have to pay higher prices for particular offsets that are derivatives of a more rigorous project.

This will help in organizing the market where investors can buy cheaper carbon credit but also avoid those low quality projects.

This entire process was rightfully termed by the crypto community as ‘sweeping the floor.’

However, this will not sweep the floor cleanly and effectively if it is not supported by the major players, investors, the crypto community, and even the governments.

Backing of the International Community

The efforts of these companies trying to fix the climate issues are backed by the international community of investors.

They share a lot of memes and messages on Telegram and other social media channels. This eventually creates hype around these companies.

Some of these accounts even share a to-do list for investors.

This keeps such movements trending on social media as well as on crypto currency trading platforms. Some of these tasks include:

  • Visiting the websites of these companies to boost their search ranking on Google
  • Voting comments on forums such as Reddit and others.

Sometimes ecstatic voice messages are also shared by some active investors to maintain a ‘positive vibe’ as required by the administrators.

Most of the messages on these channels are shared with the backers and investors to keep them in the loop.

Therefore, people think that a lot is happening out there and the potential is mind blowing while, in fact, the projects may be still stuck in their fundamentals standpoint.

Solving Climate Crisis

The crypto world is considered to be extremely greedy and has little knowledge about the carbon market.

But the investors still invest in such projects just to convey that they are doing their bit to resolve the climate crisis and offset their carbon footprints.

Most of these investors have invested in crypto previously but do not have any idea how exactly the carbon credits are generated and how it may increase in value allowing them to make more money.

For a major part of the crypto investors, saving the planet from the climate crisis came second in their list of priorities.

This is because they invest in crypto primarily to make some additional cash and then, if at all, to support climate action.

They do not think of it as any mandatory thing which is why the carbon price has not reached where it should be by now.

Therefore, with such an attitude of the crypto investors, it will be hard to solve the climate crisis at hand.

According to an OECD report, the price of carbon credit should be about $147 a ton by 2030 in order to reduce carbon emission on a global scale to net zero by 2050.

On the other hand, others like Bloomberg New Energy Finance think that nothing of that sort will happen within the given timeframe because the carbon price will not reach more than $11/t by 2030 unless the quality is improved and tightly controlled.

Yet, things are not happening as it should be even though this market is growing quite significantly and is expected to be worth trillions of dollars by the end of the next decade.

Therefore, in practice, carbon credits and its pricing have not been successful to prove to be an essential and effective tool to deal with the climate policy.

Therefore, as of now, it is just hype.

The Ambition

Still, these companies do not seem to be perturbed and their ambition simply is not limited to carbon credits only.

The companies also aim to be self-sufficient in nature and are in their way to develop their owned blockchain powered by renewable energy.

When it is done, it is expected that it will help them to monitor every project and even the carbon credit exchanges where credits can be bought only with their own cryptocurrency.

However, a very few of these companies have the necessary qualifications, transparency and leadership to achieve such a feat and make it a success.

Most of these companies advertise on different social media channels about their team.

They put in names of several MBAs, PhDs, and professional carbon fund managers just to show that they have one of the best, most efficient, and qualified climate science teams with sea of experience in crypto and the environmental sector backing them up.

However, the truth is that most of these people named and advertised as the members of the core team have nothing to do with the development hands-on.

They simply perform as contractors or advisors of the company having little or no hand in the day to day operations of the company.

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A deep research will reveal that several project managers complain that they could be in touch with the ‘core’ team only once in a while and they couldn’t get adequate information regarding the projects or even the structure of the companies.

Ideally, most of these companies are run by volunteers, with some of them acting as the developers.

They simply have a passion about the environment and just want to do something to protect it from the harms of carbon emissions. That’s all.

A few other companies also go a step ahead and come with a disclaimer stating that they have a proper team that consists of carbon, crypto, forestry, technology, and renewable energy experts but the structure of the company is ‘highly confidential.’

However, there are a few companies that are doing really well and have even contributed immensely to fix the climate crisis notably within a very short time.

They are also known to be launching supplementary environmental projects from time to time.

All these suggest that something must be going right out there, but that does not take away the hype created around carbon credits.

Reality of Selling Carbon Credits

In reality, things are completely different and are taking place at an exceptionally slow rate.

Moreover, things are also not being done in a proper way.

For example, Save Planet Earth has gone ahead with their tree planting venture in the Maldives by signing an MoU with the Maldives Integrated Tourism Development Corporation or MITDC, a government-owned endeavor focused basically on the growth of the tourism industry.

However, the environmental industry did not have any knowledge about or involvement in it.

Moreover, the contract did not have any specific provision for producing carbon credits.

Moreover, the project itself is quite dicey because planting a million trees in a small island state that is 99% ocean is a ‘big deal.’

Availability of land for planting so many trees is a huge and seemingly unachievable target.

Involvement of credible people to do credible things in this respect seems to be lacking which is why such projects are considered to be hype, if not a scam.

For example, the initiative of Save Planet Earth in Sri Lanka is also doubtful.

Though they had a contact with the Central Environmental Authority but it was severed later on.

In Sri Lanka, the organization intended to plant fruit trees but their choice of trees raised the eyebrows of some of the experts in agroforestry.

For example, plants like jackfruit, mango, avocado, and durian may be good for communities but are not the best option to store carbon.

Moreover, these plants need intensive care and management.

Therefore, it can be said that the project itself lacked environmental integrity and was simply not ‘grounded to reality’ according to the IUCN.

Therefore, companies like these often mislead the investors and therefore a lot of research should be done about their integrity and credibility before considering them to be serious environmental outfits.

One should be extremely careful while striking any agreement.

Therefore, looking beyond the flurry of such crypto ventures that claim to be doing the best for carbon credits tied to digital crypto tokens is necessary.

These companies should be more transparent in the approach and verifiable.

They must also be easier to access for companies as well as individuals.

In reality, companies that seek to offset carbon emissions by trading carbon credits in a legal and traditional manner need to have an account with an authentic registry.

This will however put it out of the reach of the small buyers.

The real picture as of now is that these companies may be open to ideas and principle but are quite skeptical in practice.

This is quite a serious concern leading to chances of proliferation of digital carbon credits of very low quality in the market.

One of the most serious concerns apart from the integrity of the projects is putting these credits on the blockchain.

This actually makes them free from the power of the carbon standard that issued them in the first place.

This increases the chances of possible misuse.

However, reliable companies distance themselves from the popular trend of tokenizing carbon credits because they think that once they do, they will no longer be able to guarantee environmental benefits.

Controversies Regarding Use of Carbon Credits

In addition to the above, the trend of using carbon credits to counterbalance carbon emissions resulting from burning fossil fuels is quite controversial irrespective of the ways in which these are carried out.

For example, the forest carbon projects are typically known for not delivering the climate benefits as promised.

There are flaws that cannot be addressed easily.

And, using blockchain and crypto tokens for trading carbon credits does not make it any better either.

It is the same thing but is simply re-packaged which results in poor quality credits.

It is a useful way to make the most out of the crypto bubble rather than using this innovative technology to do any good.

And, this seems to be a good opportunity missed.

Trivial Offering

Focusing on carbon offsets, it seems that these cannot remove carbon dioxide actually from the atmosphere.

In fact, less than 5% of carbon is offset by these projects.

Therefore, a vast majority of projects that are designed to do good, mostly are not able to deal with the scientific problems and eventually cannot live up to environmental expectations.

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This is making the situation worse.

As it is, the blockchain technology is perfect for ensuring transparency and security but locking carbon credit on it to prevent it from being used seems to be unhelpful in most of the cases.

Ideally, the concept of carbon offsetting is based on green activities and renewable energy.

However, this will not happen without additional financial support. Moreover, the cost of clean energy also falls quite rapidly.

Old to Qualify

Moreover, there is another significant aspect that makes these projects less credible.

If a specific project does not issue any credit for several years, it will not be clear as to whether or not it needs offsetting in the first place.

And, even if it does, the real question is how significant the income will be.

There are several projects available out there that have a very low standard because these are more than a decade old.

As a result, there is a high possibility that these projects will not be eligible to be traded in established markets or commodities exchanges.

Also, the older projects are designed on a flawed assumption.

The primary assumption was to increase the quality as well as the price of the carbon credits.

It was also assumed that there is a limited pool of bad offsets that can be purchased or locked away.

This, it was assumed, will better the price of the good projects. However, things backfired since the assumption was flawed.

Now, things have become even worse because demand for cheap credits has triggered the creation of bad offsets.

As a result, a lot of project developers started selling credits once again though they have not issued any new credits in years.

Therefore, it is needless to say, most of these projects fail to take off mainly because these zombie projects lacked environmental integrity.

The offsets market seems to be doing very little to stop these bad offsets inundating the market citing that it is not their responsibility.

True they are and they also have all the good reasons to abstain from doing so.

There have been a lot of incidents when several attempts made to change the offsets market have resulted in significant issues in terms of quality control.

This is because it is basically very difficult to determine which particular project is truly beneficial for the planet.

Typically, such attempts backfired even after multilayer efforts because the people who were supposed to bring in the reform did not have any proper agreement on how exactly they should or could distinguish between projects of high quality and low quality.

Profit Opportunity

Finally, consider the opportunity to make profit from these projects.

It is true that the use of crypto in carbon credits could not successfully manage to improve the market but that does not mean it did not offer the opportunity to make profits.

The prices of the crypto underlying the carbon credits may have fallen but it surely did allow the users to make money.

Even if the projects were sweeping the floor, it made quite a lot of dust while doing so.

When a carbon credit is converted into a crypto token the buyers can do anything with it according to their wish such as:

  • They can trade it with someone else
  • They can use it to ‘retire’ the credit or offset a ton of carbon dioxide
  • They can even change it into other carbon tokens and
  • They can turn it into a carbon-backed currency.

Out of these, the last one is supposed to be the most popular option. This gives the users a much better chance to make a quick buck.

Therefore, after considering all the bad and good sides of using crypto to offset carbon credits, though it may seem much hyped, it can be said that it surely benefits the users as well as the planet.

The good thing about locking carbon credits on a blockchain is that it minimizes the chances of market failures with a proper balance between the demand and supply side.

However, every step should be taken extremely cautiously because it gives a great chance to make huge profits to some people from asymmetric information and on the other hand it also locks out the normal people.

Ideally, the experts say that it is needed to determine what exactly motivates the investors towards the projects.

Conclusion

It is the decentralized nature of crypto that makes the transactions more transparent and anonymous while dealing with carbon credits on blockchain.

However, it is very important to decide whether the users are really concerned about saving the planet or just to make profits, or both.