Businesses worldwide are facing high energy costs, a global recession, and a climate crisis. As a result, it is an exceptionally hard time to stay profitable and remain environmentally friendly. But companies increasingly have no choice - reducing greenhouse gas (GHG) emissions is now essential if they want to remain operational and competitive.
There are several reasons for this. From a moral standpoint, protecting current and future generations from the dangers of a warming planet is obvious. From a business point of view, a recent global survey has shown that 85% of consumers have been 'greener' in purchases over recent years, a trend set to continue. In addition, with over 190 countries pledging to become carbon neutral by 2050, new regulations are constantly being introduced worldwide in nearly every market.
So, if companies want to stay in business, they need to decrease GHG emissions and embrace sustainability. There are several ways this can be done, such as improving efficiency, sustainable energy, leveraging technology, or offsetting the carbon footprint through credits. But only some of these options can be implemented now and still allow businesses to stay competitive. The most popular of these is carbon trading.
Carbon trading brings immediate benefits for companies and the climate - but there's a problem
Carbon trading has numerous advantages over alternatives, which could take years to implement. For example, a recent report by McKinsey noted that carbon credits could let companies immediately start accelerating their transition to a low-carbon future. Additionally, the money raised from trading helps finance carbon-removal projects in the future. These advantages can make carbon neutrality, and even negative emissions, a reality much sooner.
The benefits are well-known and have led to vast carbon markets opening in places like China last year. In addition, the EU has established its Emissions Trading System, which is currently the world's largest, worth around US$769 billion.
The market-based approach is proving popular. Carbon pricing instruments are proliferating worldwide - in 2021, there were 64 of them - and the numbers continue to grow. Unfortunately, while these markets are helping reduce emissions, several problems remain.
Billy B. Richards, the CEO and founder of a company called Changeblock, is all too aware of the problems. He says, "Carbon and ESG credits are one of the best solutions to lower greenhouse emissions, and they are already having an effect. Quantifying emissions and carbon outputs to trade on a marketplace benefits all stakeholders and is effective in lowering GHGs. The proliferation and adoption of this market-based approach by governments and organizations is proof of that."
However, there is a problem with how the sector is developing. Richards explains, "Unfortunately, the current markets are unreliable, inefficient, and lack transparency. For example, companies are frequently sold carbon offsets from turbines that haven't yet been built or trees that are yet to be planted. In addition, there are issues such as double-counting offsets and fragmentation."
"These problems can lead to a lack of trust, with companies struggling to trade credits or being reluctant to get involved despite the benefits. What is needed is a truly efficient marketplace that is transparent, secure, and separate from traditional financial institutions. This is why we created Changeblock - to solve these issues."
Blockchain and distributed ledger technology (DLT) can transform the market
Richards started tackling the issue while he was still at Oxford University. There, he met John Palmisano, the 'grandfather' of emissions trading and a member of the team behind the U.S. Clean Air Act of 1977 and the first carbon credit.
"John and I realized that we could leverage technologies like blockchain and DLT to create a platform that would be trusted and efficient. Changeblock uses decentralized finance solutions, smart contracts, artificial intelligence, machine learning, and a host of other developments to create a truly efficient marketplace," Richards explains.
The benefits of using blockchain and DLT are substantial, including increased processing speeds, more control, traceability, and security. Users know that when transactions are recorded on the blockchain, they can't be altered, and everything is transparent and decentralized.
Richards continues, "It was while we were exploring the possibilities of this tech and its applications that we became involved with a group of successful entrepreneurs called Carbon 12. They were looking for ways to bring ESG innovations to the market. Our two companies were aligned in mission, so we teamed up. Now we are in a strong position to meet the challenges of the carbon market."
"Businesses and organizations of all sizes can reduce their carbon footprints right now by using carbon credits. Green credentials will attract customers and keep them ahead of growing governmental regulations."
"For example, at Changeblock, we ensure the credibility and transparency relating to all aspects of carbon trading. We also engage with all stakeholders, including governments, environmental groups, and businesses, to ensure all needs are decentralized and open. Using a market-based approach works if the market is trustworthy, which is the advantage of blockchain."
Making Economic Sense
With exchanges such as Blockchain enabling the trading of carbon and other environmental assets (Changeblock just announced the launch of the world's first end-of-life plastics credit), cleantech companies and carbon sink project developers have a route to monetize their innovations and projects.
The advantage of this approach is that companies looking to offset their footprint simply buy credits without having to take delivery of the underlying asset - such as trees grown for carbon sequestration - or having to implement and operate new technologies. This mechanism means that cleantech companies and project developers now have a much larger addressable audience. Additionally, companies looking to offset their footprint can do so without having to invest in technology infrastructure or plant millions of trees themselves.
Most current marketplaces trade 'by appointment' and pricing is set, but as the Changeblock platform allows for true price discovery, companies can transact at levels that work for both parties. In other words, this mechanism has the potential to enable both sides of the equation, credit creators and credit consumers, to operate viably while providing cleantech innovators and operators with much needed access to capital.
Pressures on businesses are building on multiple fronts, and it can be hard to stay afloat while being environmentally responsible. However, innovative solutions like trading carbon credits on the blockchain show there are answers to the problems that can be implemented now. Companies that use these developments are the ones who will thrive.
