Can Blockchain Networks and Carbon Offsets coexist? Investigates the cryptocurrency sector:
In conservation circles, cryptocurrency has become a boogeyman, yet a rising segment of the sector claims to offer a solution to the climate crisis: crypto carbon credits. Companies ranging from Procter & Gamble (PG) to Nestle (NSRGY) are committing to achieve “carbon-neutral” in the coming years, a feel-good term showing that they would avoid as much carbon from entering the atmosphere elsewhere as they emit.
These corporations intend to meet their emission targets in part by acquiring carbon credits, which are certificates signifying carbon dioxide. Some act of conservation or removal has kept that out of the atmosphere.
While some see carbon credits as a practical answer to the planet’s climate challenges, others argue they exacerbate the situation by allowing polluters to release more than they would otherwise. A fresh wave of cryptocurrency businesses is embracing carbon credits, with leaf-green logos and websites plastered with images of the lush Amazon rainforest. On-chain carbon credits, according to projects such as Toucan, Regen, and Moss, will promote transparency and accessibility to the carbon credit market.
KlimaDAO, another initiative, wants to raise the price of carbon credits by tapping into a corner of cryptocurrency where memes are sacred, Tesla (TSLA) CEO Elon Musk reigns supreme, and everyone is looking for sky-high profits. Klima’s pseudonymous founders pose a proposition to Discord-dwelling degens: What if you can preserve the environment by keeping crypto? From carbon industry veterans and environmental scientists to retail investors and accountants, a diverse group of voices has found their way into crypto’s regenerative finance, or ReFi, movement, with everyone expressing a different view on how – and to what extent – crypto can be leveraged to solve the defining crisis of our time.
There’s a lot to take in, from the sights to the atmosphere:
Today, it’s difficult to find an article on crypto and the environment that doesn’t include the two main blockchains, Bitcoin and Ethereum, and their exorbitant energy costs. To maintain themselves safe, both chains rely on energy-intensive proof-of-work (PoW) consensus procedures, in which a swarm of computers across the world compete to execute transactions in a process known as “mining.”
The mining analogy is accurate. Bitcoin mining requires 135 terawatt-hours of power every year, according to the Cambridge Bitcoin Electricity Consumption Index (CBECI), which is more than the entire country of Norway consumes in a year. According to the CBECI, bitcoin — crypto’s so-called “digital gold”–consumes more energy than the gold mining sector in the actual world.
While crypto’s energy consumption is significant, many in the sector warn basic comparisons like this are deceptive, especially when considering the percentage of mining energy that comes from renewable sources (though this, too, is debated).
How do carbon credits work and what are they?
ReFi’s plans for solving the climate catastrophe are diverse, but improvements to the global carbon credit market have received the most attention. Carbon credits, also known as carbon offsets, are operations that reduce carbon dioxide from the atmosphere, such as forest preservation, wind and solar farm construction, or methane gas capture. In general, one carbon credit equals one metric tonne of CO2 saved in the atmosphere.
It represents the buyer’s permission to emit the same amount of carbon without feeling guilty (and sometimes tax-free). The Kyoto Protocol, an international treaty that created carbon credits as a mechanism for nations to offset their emissions to meet the UN Framework Convention on Climate Change’s emissions limitations, launched a worldwide carbon market in 1997. (UNFCCC).
Since then, several international organizations have sprung up to oversee the registration and sale of carbon credits. In recent years, a “voluntary” carbon market has emerged to allow conscientious businesses–including some crypto mining operations–to offset their emissions beyond what any government requires.