Carbon credit transparency is fundamental to the voluntary carbon market (VCM). It brings credibility, security and liquidity to environmental assets. The use of technologies like the blockchain and platforms like eumostro help deliver a better perception of transparency to the market. Understand the basics about this market and how we can help you.
The types of carbon market
First of all, it is good to clarify that there are two types of carbon market, the regulated and the voluntary. The regulated market is that used by companies and governments that, by law, must account for their greenhouse gas (GHG) emissions. Actors need to comply with established limits or pay taxes on emissions. There is not much to do here, as it is a matter of obeying the law.
t is important to remember that in Brazil, at this time, there is still no regulated carbon emissions market. Studies and bills have already been carried out, but nothing has been approved. Thus, in Brazil, we only consider a voluntary carbon market.
What is the voluntary carbon market?
The voluntary carbon market (VCM) allows private investors, governments, non-governmental organizations (NGOs) and companies to voluntarily purchase carbon credits. They do this to offset their greenhouse gas (GHG) emissions, or otherwise known as their “carbon footprint”. They do this voluntarily (there is no mandatory law), but they do it for purposes of purpose or even to seek market differentiation (marketing).
Brazil recently regulated CPR Verde, which is nothing more than voluntary carbon credit. This market mechanism is very important, as with it companies can buy and report in the accounts.
Remembering that greenhouse gas emissions are accounted for in “CO2e” (carbon dioxide equivalent) and a carbon credit is equivalent to 1 tCO2e (one ton of carbon dioxide equivalent). The equivalent comes as a standardization, where the other greenhouse gases (CH4, methane, for example, is equivalent to 21 CO2e).
How are the carbon credits created?
Carbon credits can be generated in several ways. Projects are developed (temporary efforts) that account, in a given period of time, for the reduction, capture or avoidance of carbon being emitted into the atmosphere, contributing to climate action. See some examples:
- Avoided carbon emission projects: aim to prevent carbon from being released into the atmosphere, such as actions to prevent deforestation;
- Carbon reduction projects: seek to reduce the carbon footprint of processes, such as improving process efficiency, switching to a “dirty” energy matrix (using oil and coal) to a clean one (solar, wind, etc.);
- Carbon capture projects: seek to remove carbon present from the atmosphere, storing it in materials (graphite, for example).
All projects need to show, in some way, assurances that they actually contribute to climate action in the amount they say they do. That’s why many buyers demand a third-party verification to audit the project. This is because there are many projects of low quality and “questionable” effectiveness, which is bad for the entire market.
A carbon offset, then, is nothing more than a company or individual reducing or buying carbon credits on the market, as a way of “offsetting” its carbon footprint. When this is done, the carbon credit is “retired”, that is, it cannot be traded again (repurchase), as it “has fulfilled its function”.
The transparency of carbon credit
From the text above, you’ve already noticed that the subject is a little complex, right? There are different actors, objectives and interests involved. This is where carbon credit transparency is important. For example, companies that say they are “zero carbon”, where do they actually show their carbon footprint and the credits purchased in the market to offset them? And who sells the carbon credit, how can you ensure that it doesn’t sell the same credit to two or more companies to offset their emissions? (this is called double counting)
Being transparent means ensuring that carbon offsets are supported by real actions to reduce greenhouse gas (GHG) emissions.
Blockchain is a technology that helps deliver transparency and has great application for carbon credit. By guaranteeing the immutability of information and also by having the option of using NFT (non-fungible token) and “tokenization”, it is possible to deliver the traceability of credits sold, as well as when they are retired (“destroying” the token).
eumostro, in addition to using the blockchain to help in the traceability of assets and associated services, helps to show the social impact in the communities where the projects are being implemented. It delivers the transparency of the evolution of the community in terms of applied financial resources, what is being done in terms of actions that prevent deforestation, etc. Our partner, HDOM Consultoria, has all the technical knowledge to work on these issues “in loco”.
Commitments to stop deforestation
On the second day of COP26 – the UN climate talks in Glasgow – the world celebrated an announcement made by leaders from 124 countries. In the Leaders’ Declaration on Forests and Land Use, world leaders pledged “to halt and reverse forest loss and land degradation by 2030, while delivering sustainable development”. Brazil is one of the signatory countries, but will we be able to deliver this goal, given that we have large portions of the Amazon forest and the Cerrado ecosystem?
There is a need for genuine partnerships. Producer partnerships must include governments, industry, farmers, communities and civil society at large. We will only find solutions if we put people at the center of these proposals. If the smallest producers are excluded, the market will be even more segmented and the poorest will be discriminated against. This will be catastrophic not only for these producers, but also in the fight against climate change.
eumostro is a partner against deforestation and we are committed to contributing, with technology and transparency, to combating climate change. In addition, we contribute so that the social impact of projects is considered an important factor in the valuation of environmental assets.