The Case for a Carbon Credit Cryptocurrency

What do farmers in Iowa and banks in New York have in common? Carbon.

This fall, I was on a road trip with my Dad and commented on how different the 🌽 fields in Iowa looked. Instead of being empty and brown, like usual after harvest, they were green with new plants sprouting up! What changed? More farmers are starting to grow cover crops than ever before. Cover crops are planted after the normal crop is harvested in the fall. They are not harvested but provide a variety of benefits, including helping contain soil from water run-off and wind, increasing organic matter in the soil, and the focus of this article — being able to absorb carbon into the ground.

One thousand miles away from the cornfields of Iowa, there are banks in New York (and all over the globe) trying to solve one of the biggest challenges of this decade — How are they going to reach a state of net-zero carbon emissions? A bank can go card less, power their branches with solar, etc., but eventually, they will have to go outside of their own four walls to address the remaining emissions they create as a part of doing business.

Banks need ways to offset their carbon emissions and farmers have the ability to capture carbon and provide them with those offsets, except it can be very expensive for farmers.

So, what is the solution? Carbon Credits.

Farmers can sell the carbon they capture to banks through carbon credits, and banks can balance their carbon emissions with these credits to reach a balance of net-zero emissions.

The idea of carbon credits has been around for a long time but demand is projected to spike over the next few decades as more companies make it a priority to reach a state of net-zero. There are 3 major issues that need to be solved in the current carbon credit model:

1. Transparency — Carbon credits are very susceptible to fraud. Companies have been selling “carbon credit certificates” on the internet for 20+ years with no evidence that any carbon was actually captured or offset.
2. Inefficiency/Lack of Consistency — It’s currently far from profitable for farmers to plant cover crops because it’s hard to determine what the fair value of a carbon credit is. It’s also very difficult to gain global consensus on the definition of a carbon credit.
3. Limited Access/Centralized Control — The farming industry already struggles from monopolies and limited control over their operations. Also, who would control the market? Do we trust each country to govern its own carbon compliance markets fairly? Is there a chance some governments might fake the numbers to save money and not actually help solve the climate crisis?

Why a Cryptocurrency?

Thankfully, Distributed Ledger Technologies (DLTs) or Blockchains provide us with all of the solutions needed to solve the major hurdles that remain in making the carbon credit market feasible. By creating a Carbon Credit Cryptocurrency on top of blockchain technology we can solve the major 3 issues:

1. Transparency — How do you prevent fraud? Blockchains provide complete transparency as all transactions can be viewed and they can’t be erased or changed. This means when a bank in New York buys a carbon credit cryptocurrency token they can view the previous transactions of that token and trace it to the source. A farmer may have received that carbon credit token as a result of planting cover crops on 100 acres of land. 3rd party groups, known as oracles, can prove the farmer planted those crops by using outside information feeds like IoT devices that sit in the field and measure carbon levels in the soil or daily satellite images of the fields which show the growth of the cover crop. This level of transparency is critical if we are to reach the necessary climate goals.
2. Inefficiency/Lack of Consistency — What is a carbon credit worth? Blockchains allow for open and free markets. Farmers can hold on to their credit carbon tokens for as long as they would like and as demand for carbon credits goes up banks or other organizations who need to offset their carbon will drive the price up. This open and free market will determine a fair price for carbon credits.
3. Limited Access/Centralized Control — Who should manage the selling and buying of carbon credits? Blockchains allow us to create a decentralized system with no single government or organization in control. This decentralization means many governments and organizations can all be stakeholders and vote on decisions that would be best for the goal of the overall project without the risk of introducing corruption into the system.

What’s next?

The technology to create a Carbon Credit Cryptocurrency is all currently available and easily accessible. The main challenges will be creating a process for onboarding carbon capturers (like farmers) onto the system, determining how to distribute carbon credit tokens, setting up a network of oracles to provide proof of carbon captured, and building an easily accessible marketplace to buy and sell tokens. Thankfully, many other cryptocurrency projects have led the way and I believe it is just a matter of time until we see a carbon credit cryptocurrency released!

Coming from a family of farmers in Iowa and having a passion for DLTs, I look forward to continuing to contribute to the development of a fair carbon credit solution. Please reach out if you are interested in hearing more or want to get involved!

-Charles