Concerns about the environment affect both the crypto industry and the rest of the world. But blockchain-based assets could help if they are used in the right way.
Using nonfungible tokens (NFTs) as carbon credits or carbon offsets shows how Web3 technology can be used to make the future greener.
In the markets for regenerative finance (ReFi) and decentralized finance (DeFi), the use of NFTs as carbon credits is a slow-moving trend. Most of this activity is happening on the Polygon blockchain right now since its entire carbon footprint has already been offset.
Integrating Carbon credits and digital assets
But these digital assets work with carbon credits in a different way than other projects in the same space.
Carbon credits are not a way to save money or a unique piece of digital art. NFTs are a place where information about a certain batch of carbon offsets is kept.
This information could include, but is not limited to, the total number of offsets (how many metric tonnes), the vintage year of the removal, the project name, the location, or the certification program that was used.
Then, these NFTs are broken up into ERC-20 tokens based on Ethereum that can be traded with each other.
But unlike most NFTs available to consumers, a carbon credit NFT that works properly has a catch.
It needs to be burned to do what it was made for, which is to check and stand in for carbon emission offsets. In the carbon market, this is called “retirement” when it happens off-chain.
A core member of KlimaDAO, a decentralized organization that uses DeFi to fight climate change, told Cointelegraph how this works both on-chain and off-chain:
“Retirement means that someone is essentially taking that carbon offset and claiming it for its environmental benefit, meaning that they’re basically offsetting their emissions. Then that carbon offset is permanently taken out of circulation and can no longer be traded or sold to anyone else.”
To retire these carbon offsets in an on-chain setting, however, you must burn the token after getting the retirement certificate. In other words, it needs to be taken out of the database and stopped being traded.
“It’s very important that if there is any type of environmental claim being made regarding the offset being embedded in an NFT, that NFT is actually burned in some respect and a specific entity or individual is named to claim that environmental incident.
CarbonABLE and MintCarbon are two projects that claim to use NFT technology to offset carbon emissions.
The market value of carbon credits
But the carbon credit market is not a small one. It is worth more than $850 billion. Scams can happen in it, just like in other profitable markets. As the number of people who use NFTs continues to grow, the number of NFT scams also grows.
KlimaDAO emphasized that projects that claim NFTs as carbon credits should also be certified by internationally recognized standards. The International Carbon Reduction and Offset Alliance mostly gave its approval.
If not, projects that make this claim should be carefully thought through before money is put into them. Even though the carbon credit market is useful, most people still don’t know how it works.
“The thing is, you’re combining Web3 with a market that isn’t very well known. So, unfortunately, you do have various actors that are taking advantage of people.”
Still, these carbon offset NFTs could be very useful if they were fully disclosed and did what they said they would do. These offsets bring in money from somewhere else to keep a project going and help it grow. This could be anything from making clean energy to protecting or replanting forests.