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How Do Carbon Credit Marketplaces Revolutionize Sustainability Efforts through Web 3.0?

03 Feb 2023 updated
5 min

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Since the moment of signing the 1997 Kyoto Protocol on greenhouse gas emissions, the world’s states have turned the page of irresponsible pollution and manufacturing activity. A new era of controlled CO2 emission and regulation on global, regional, and local levels started, reflecting the global society’s desire to change its course toward sustainability and eco-friendliness. 

Numerous organizations emerged since then, including IETA – the International Emissions Trading Association – to set the cap on emissions volumes and give businesses tools for regulating their carbon footprint. The most popular tools in this sphere are carbon credits, which equal a ton of CO2 emissions (CO2e) tradable on various carbon credit marketplaces and give companies the ability to buy and sell the needed amount of CO2e to meet their legal obligations. 

Here we talk at length about the potential and prospects of carbon credit trading markets, the way they help states move toward sustainability, and the role that blockchain and Web 3.0 play in this sphere. 

Balancing your carbon emissions

What Is a Carbon Credit?

Let’s start with the basics, which is defining the concept of carbon credit. A carbon credit is a unit of CO2 emissions that has been tokenized, making it a tradable and fungible asset for exchange on trading platforms. This tool is a useful measure for the CO2 cap in a particular country, which the regulator sets for all businesses, as it allows redistributing the finite volume of permitted CO2 emissions among companies that need more or less CO2. This way, companies that reach a cap on their CO2 emissions and need more CO2 to execute their vital manufacturing activities can buy the needed volume of CO2 emissions from eco-friendlier businesses that have excess CO2 credits they don’t need.

Mandatory market vs. Voluntary market.

Types of Carbon Credit

The most important distinction between types of carbon credits is their voluntary or mandatory nature. The mandatory carbon credit market is the one where companies exceeding their norms on CO2 emission set by the regulating authority purchase those credits from companies spending fewer credits than they have. In these markets, the CO2 emissions level usually stays the same because the CO2 credits are reallocated among businesses, giving the company with low CO2 emissions a source of revenue and a company emitting much CO2 – a source of credits for avoiding huge fines instead of improving its production processes. 

Things work differently in the voluntary carbon credit market, where companies producing excess CO2 emissions can buy credits from companies that step toward CO2 reduction and transition to eco-friendlier production methods. This way, the total volume of CO2 emissions reduces as companies step on the path of CO2 minimization via sustainable practices, renewable energy use, reforestation, etc.

Another vital distinction is between carbon credits and carbon offsets. The former is actually a credit for the company giving it the right to produce more CO2 emissions than it is legally allowed to. This way, companies can cover their excessive carbon footprint by buying the credits from eco-friendlier companies that don’t need the whole amount of credits the state has given them. 

In the situation with a carbon offset, the traded asset is a negative CO2 credit in its essence. In other words, companies that engage in sustainable practices, such as zero-emission renewable energy use, reforestation, etc., receive bonuses for their sustainable activity. These offsets balance the CO2 emissions and allow companies to produce more CO2 because other companies have conducted ecologically compensated activities.

Carbon Offsets

Carbon Trading Market Trends for 2023

Though the carbon credit market is relatively new, many companies have already embraced the immense market potential of this concept and expressed heightened interest in it. According to EDF experts, the following trends will rule the sector in 2023.

#1 Growing Demand for Carbon Credits

International pressure for carbon footprint reduction is here to stay, and many large businesses have decided to ride the wave instead of resisting it. For instance, large market players in many sectors, like Unilever, Disney, Amazon, and Microsoft, have all recently announced investments in the carbon credit industry. These giants have embarked on carbon offsetting to show their solidarity with sustainability efforts and make carbon credits a steady share of their revenue streams.

#2 Net Zero Targets and Carbon Neutrality

Many corporations worldwide have set a target of achieving zero carbon emissions by 2050, which is an ambitious plan with vague roadmaps for its practical realization. If one measures the expected CO2 reduction by assessing the CO2 output of 54 Global Fortune 500 companies that have pledged to net zero targets by 2050, this results in 2.5 gigatons of CO2 that need to be reduced or offset within less than three decades. Therefore, large corporations focus in the coming years on the advent of clear-cut CO2 reduction strategies and tools. 

#3 Insetting

The trick of carbon credits is too obvious to ignore; companies with enough money to buy CO2 credits may remain without an incentive to improve the eco-friendliness of their manufacturing processes. Thus, following the Science-Based Targets Initiative (SBTI) requirements, manufacturing companies should attain sizable reductions in CO2 emissions without the use of carbon credits. 

In this regard, insetting practices come in handy, as companies with complex supply chains can produce carbon offsets and use them internally to achieve legally set goals.

#4 Carbon Removal Efforts

Besides reducing the volume of CO2 emitted to the atmosphere every year, companies are now embracing an opportunity to partake in carbon removal from the air. These initiatives are varied and diverse, ranging from the restoration of degraded ecosystems to direct carbon capture from the air and other cutting-edge technologies.

#5 Business-Regulator Partnerships

While governments act as the primary regulators of CO2 emission compliance, they often lack the resources and ability of private business actors to introduce reforms and state-of-the-art technologies in practice. That’s why private-public partnerships have gained momentum recently, giving governments better access to advanced technology and allowing new businesses quicker access to the carbon credit market.

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Carbon Credit Market Challenges

Regardless of the growing popularity of carbon credits, the industry is still rather young and requires fine-tuning to serve all market players’ interests well. For instance, newcomers to this market usually report the following challenges: 

  • Lack of transparency. Many early GreenFi projects closed or stagnated after heavy investment influx because their founders couldn’t find a practical implementation of their vision and strategy. After the initial failures, the GreenFi market met much skepticism and investor reluctance to invest in “dark horses.” 
  • Scaling limitations. Most GreenFi projects focus on a single initiative and cannot incorporate the market’s variability under one roof.
  • Market heterogeneity. The carbon credit market is fragmented and diverse, making it challenging to set up well-arranged payments and deals among the participants.

How Can Web 3.0 Help Solve Carbon Credit Market Challenges?

Given the market’s inherent challenges mentioned above, one may see that organizing a viable carbon credit project is far from easy. Here’s when blockchain comes to the rescue by offering the inherent benefits and functionality for the GreenFi niche. 

  • Public ledger’s transparency and traceability. The public ledger’s transparency is the major benefit of blockchain use in GreenFi. It allows tracing all on-chain transactions and complete monitoring of operations with carbon credits, thus removing the lack of visibility from the process. 
  • Carbon credit tokenization. With a blockchain-based project’s tokenization function, any company can set up a universal equivalent for the carbon credit, thus allowing participants to buy and sell credits in real time without confusion about currency rates and prices.
  • Infinite scaling and cross-chain interoperability. Blockchain has a scalable architecture, which allows adding new projects, connecting one ecosystem with others on the blockchain, thus ensuring a frictionless growth of the GreenFi universe. 

Top 5 Platforms for Carbon Credit Trading

Here are the top 5 platforms where industry players can buy or sell their carbon credits today. 

#1 Pledge 

This advanced platform provides user-friendly features of emissions measurement, analytics, and offsetting that allow companies to measure their carbon footprint more accurately and take the needed action for compliance. The company raised $4.5 million in 2021 in a seed round, becoming the first API product for automatic carbon offsetting among transportation and logistics companies.

#2 Aircarbon Exchange 

This company is a digital exchange that allows frictionless trading of securitized carbon credits in real time. It’s a member of IETA and Carbon Business Council, the winner of Voluntary Carbon Market Rankings 2022 and 2021. The entity raised $15 million in convertible notes from the Singapore-based investor TRIREC in early 2023 and gained increased attention from institutional and corporate entities in Asia.

#3 Toucan 

Toucan is an innovative project that allows businesses to tokenize their carbon credits and utilize them via the ecosystem’s carbon infrastructure. The company invests in the development of regenerative Web3 and offers a broad toolkit for Web3 builders, credit suppliers, and credit buyers. Toucan has already bridged 20+ million tons of CO2 credits, retired 50,000+ tons of CO2, and enjoys a daily trading volume of $4 billion. The number of climate projects represented in Toucan has exceeded 50.

#4 GreenPlaces  

This US-based project offers automation tools for sustainability data monitoring and carbon footprint reduction in the corporate space. The project secured $4 million in seed funding in October 2022 and currently develops to help companies manage their carbon emissions and improve sustainability.

#5 Nori 

Nori is a carbon removal marketplace that currently covers 18+ projects and boasts of removing 123,000+ tons of CO2 emissions. The total sum of payments to farmers investing their time and efforts into sustainable activities and carbon offsetting has already exceeded $1.8 million. The platform uses the NORI token for on-site transactions with carbon credits.

Are you looking to take your GreenFi project to the next level? 

 

We’ll explore project milestones, budget specifics, and technical requirements for GreenFi project development. Let’s collaborate to make your GreenFi initiatives more accessible and impactful.

Drawbacks of Current Players

The most significant drawback of most existing carbon credit market players is their private, isolated nature. Blockchain is still an exotic concept at the level of governmental regulation, so there’s much political inertia on both Web3 and carbon credit action. 

Besides, blockchain projects often have fuzzy roots, with founder names remaining anonymous and the organization’s credibility shrinking over time. That’s what happened, for instance, with Klima DAO, an organization that pooled investor funds and bought carbon credits. The organization’s approach to tokenizing “retired” carbon credits was questioned by the Verified Carbon Standard (Verra) organization, which refused to support Klima DAO’s certification further.

4IRE’s Ready-Made Carbon Credit Solution

Amid the rising interest in carbon credits and the expanding market for their trading, 4IRE has developed a one-of-a-kind solution for efficient connection of various carbon credit market players. The initial project we worked on was a platform that connects companies wishing to buy or sell carbon credits. We worked on the solution for 6 months and involved a team of 12 experts in end-to-end platform development. The resulting project included a trading platform, a function of carbon credit issuance and tokenization, two native tokens for the platform, a CarbCoin DEX, and a blockchain explorer for carbon credit search and review. 

Based on this solution, we developed a white-label carbon credit marketplace product that simplifies and speeds up our clients’ entry into the GreenFi sector. The core feature of our marketplace software is carbon credit differentiation by user type. We distinguish three user categories:

  • Companies that specialize in CO2 offsetting via forest planting, waste recycling, biodiversity efforts, etc. 
  • Companies that need to buy carbon credits to compensate for their excessive CO2 emissions. 
  • Traders who want to earn a profit by buying cheaper carbon credits and selling them at a higher price to interested parties.

All these participants get relevant categories on the platform and can conduct the operations of their interest after passing the required verification procedure, linking their crypto wallets, and purchasing the platform’s native token for on-site transactions. 

The platform is ready for use, flexible, rich in features specific to the carbon credit trading market, and easily customizable to the client’s brand identity and UI/UX preferences. This arrangement makes the carbon credit marketplace’s design quick and affordable, reducing the time to market to less than a month.

At the moment, the carbon credit trading process is long, costly, and not accessible to anyone, but the 4IRE white-label carbon credit marketplace resolves all these issues.

Why Build with 4IRE vs. In-House?

4IRE is a company with 12+ years of expertise in the FinTech, Blockchain, and GreenFi development sectors. The Ukrainian-Swedish collaborative has collected 250+ engineers with a rich tech stack under one roof, offering revolutionary GreenFi software for companies targeting this innovative financial sector. 

We keep pace with the latest GreenFi trends and combine state-of-the-art technologies when developing solutions for our clients. Working with 4IRE gives you access to a ready-made team of GreenFi and blockchain developers, an innovation-focused mindset, and a rich toolkit for bringing your project to life cheap and fast. Our pre-made carbon credit platform allows you to launch a project significantly faster and more efficiently saving you time and money.

Conclusions

A reality check shows that the carbon credit market is doomed to grow in the near future as the governments continue tightening the carbon caps for large manufacturing businesses and urge them to become more sustainable. Thus, carbon credit trading in a scalable and transparent manner becomes the pressing requirement of modern times and a good business opportunity for GreenFi startups. Using our white-label solution for a carbon credit marketplace, you get a ready-made, highly customizable Ethereum-based resource for entering the market quickly and receiving a tangible competitive advantage. Talk to our managers today and learn more about how you can enter the GreenFi market with a technically superior software solution. 

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