Carbon-Linked Crypto Tokens Alert Climate Experts

Crypto enthusiasts are racing to bring the green revolution to blockchain, but environmental experts fear the new boom in digitizing carbon offsets could undermine efforts to tackle climate change.

Since October, nearly 20 million carbon offsets — units companies use to offset greenhouse gas emissions — have been converted into digital tokens. The tokens can be used to offset emissions or converted into a new cryptocurrency, Klima.

The frenzy of activity came amid a sharp rise in the price of the underlying offsets, each of which is believed to represent a ton of carbon that has been avoided or removed from the atmosphere. So-called “nature-based” offsets, such as those generated by tree-planting programs, rose from $4.65 a ton to more than $14 between June 2021 and April this year, according to S&P Global Platts. .

Eager to capitalize on rising prices and broader calls for a global transition to cleaner economies, crypto traders have scoured the carbon market to find older offsets that are cheaper to buy and tokenize – uniting the two unregulated markets for digital assets and carbon offsets.

The “junk” credits bought in bulk by crypto traders in recent months had previously languished for years, according to carbon analysts. Potential buyers had been deterred by fears that these old credits, many of which were generated before 2010, did not truly represent the carbon savings they promised.

Yet, from the end of 2021, they were suddenly popular, as crypto communities built on online messaging forums went on a shopping spree.

Such activity has worried climate experts. Gilles Dufrasne, policy manager at Carbon Market Watch, said he fears the new system will end up “laundering” shoddy offsets. Users who wanted to use token credits to offset their emissions might forget, or be unaware, that the underlying units were “junk,” he said.

Proponents say token credits are more uniform than traditional offsets, which can be generated from many different types of projects and are difficult to compare. But critics point to the quality of compensation as the most pressing issue. Vaughan Lindsay, managing director of offset vendor Natural Capital Partners, said efforts to make credits fungible “remind me of secured debt instruments. . . If you keep rolling stuff, you have no idea what you’re buying.

Much of the recent hype has centered on the Klima digital currency, which traders mint by exchanging token compensation. The pitch from the founders of Klima claims that the crypto world can help solve the climate crisis by increasing the demand for offsets and, therefore, the price of carbon.

Klima’s price hit an all-time high of over $3,600 in October 2021, before dropping to around $20 this month. The price of token offsets fluctuated between $2 and $9 during this period.

How climate-crypto works

  • Klima tokens are in turn created – at a rate set by the organization behind the cryptocurrency, KlimaDAO – when tokenized offsets are deposited into the Klima “treasury”.

  • Minting cryptocurrencies such as bitcoin is often very energy intensive. Klima says it runs on the Polygon blockchain, which uses a less energy-intensive “proof-of-stake” system to mint coins, compared to the “proof-of-work” system which requires computers to use massive power to solve. complex puzzles.

Web discussions suggest that merchants’ motivations for buying the new digital assets vary. “I hope I can get rich from climate change,” one member wrote on a Klima-themed thread on the Discord chat app.

Elsewhere, YouTube presenter JCrypto explained to his 8,000 subscribers that “carbon credits are all of a sudden super important” because polluting companies “are frowned upon”. The token offsets were “very undervalued” and would “create millionaires,” he said, adding, “Just remember I’m a capitalist. . . I’m not like a big environmentalist.

Concerns have also been raised about the anonymity of Klima’s founders, who use pseudonyms such as “Archimedes” and “Dionysus”. The secrecy “allows us to focus on delivering a good product,” Archimedes said, declining to disclose his identity.

Archimedes said the group was “not really” concerned about traders’ understanding of the underlying market. “People engage regardless of their understanding and ask questions later,” he added.

Carbon market experts have struggled to decipher the impact tokens could have on the offsets market and its role in limiting global warming.

Some worry that the focus is on crypto first, climate second, and point to the energy intensity of parts of the crypto universe.

“It all screams light on the climate, heavy on the blockchain,” said Eli Mitchell-Larson, a researcher at Oxford Net Zero. The complexity of the systems, he said, “can obscure the key question [for anyone buying offsets]: Have you unequivocally removed or reduced a ton of carbon? »

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