Web3 and carbon credits

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While not as splashy as soup on Van Gogh’s “Sunflowers,” carbon credits and offsets are also hot topics in the climate conversation. Corporations from British Airways to Disney to Shell have employed them as part of their climate strategy. Offsets and credits are used interchangeably, but they’re not exactly the same thing, and the difference is important—especially to Web3 companies that want to capitalize on the growing market.

Carbon offsets “are used to address direct and indirect greenhouse gas emissions by verifying global emissions reductions at additional, external projects,” the Environmental Protection Agency told Morning Brew. These projects can include everything from designing more eco-friendly buildings, planting trees, preserving forests, or capturing existing carbon dioxide from the environment. The subsequent offsets are factored into an organization’s total emissions, meaning that offsets can be used to lower net emissions in annual reporting and disclosures.

A carbon credit, meanwhile, is a tradeable certificate created by a government when one ton of carbon dioxide has been reduced or removed from the environment. They are sometimes called “allowances,” because they usually allow the holder to emit one metric ton of carbon dioxide in exchange. Thanks to corporate aspirations to be more environmentally responsible, voluntary carbon markets, which allow corporations to purchase carbon credits, were worth nearly $2 billion last year.

Carbon offsets and credits have both supporters and detractors. The EPA said that offsets are just “one tool” to reduce emissions. But the agency made clear that offsets are truly effective only if an organization has reviewed and employed energy efficiency, switched to renewable energy, and “electrified any processes associated with the direct combustion of fuels which generate emissions.” In other words, offsets and credits on their own are not enough.

While committing to forest preservation and reducing net emissions is a valiant effort, carbon credits and offsets have been criticized by climate experts for being a “license to pollute” while redirecting funds that could be spent on more sustainable climate-protecting initiatives. As the arguments over offsets continue, Web3 companies have stepped in to capitalize.

There’s a clear opportunity: McKinsey predicts the carbon credit market could reach $50 billion by 2030. Toucan tokenizes carbon credits. Another company, AirCarbon Exchange, wants to make carbon credits more like commodities trading “using distributed ledger technology.” As the carbon market is introduced to the blockchain, it will become even more contested: Verra, an organization that creates standards for environmental efforts like the carbon market, recently completed a 60-day “public consultation,” which sought to learn “how to identify and implement anti-fraud measures” in the crypto-slash-carbon marketplace.

With the Web3 layer on top, it’s difficult to parse what’s real and what is just hot air when it comes to carbon offsets. It’s kind of like trying to interpret a painting covered in soup.