Brand Watch: Can blockchain help carbon markets turn the tide on deforestation?

September 20 – The failure of efforts to curb global deforestation continues to frustrate forest advocates, brands and consumers alike. A recent study by Amazon Watch finds that the Amazon rainforest is at an inflection point, with a third of the Amazon rainforest (34%) in the process of turning into savannah, the latest dark chapter in an increasingly desperate tale.

Partly good news is the rapid growth of voluntary carbon markets amid corporate net-zero commitments. Forestry projects account for nearly two-fifths (38%) of all tradable carbon credits spent on reforestation and other forest-related projects that achieve emissions savings. According to a recent study by researchers from the University of Cambridge, such credits could save a total of around 41.5 million tonnes of carbon dioxide equivalent.

The not so good side of the carbon market is the lack of confidence in its real impact. Problems of double counting, volatility (forest projects lost to wildfires) and leakage (when measures to reduce emissions in one area result in emissions elsewhere) have long plagued the market.

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A number of technology-based solutions are now emerging that, if the marketing babble is to be believed, could provide the ideal corrective. They all have one thing in common: a rock-solid belief in the potential of blockchain technology.

Already a growing favorite with fintech companies in the financial sector, blockchain essentially functions as a digitized ledger. One of the main incentives for the forest protection industry and the brands that support it is that highly specific data – such as the number and location of newly planted trees or project-related emission savings – can be quickly collected, stored and shared. transparent and with almost zero chance of adulteration.

“With blockchain, we can create a system where the metering data is collected from local people on site, reported on-chain and persisted on-chain, and then validated on-chain, with the decision also being persistently recorded,” says Michael Kelly , co-founder of the Open Forest Protocol, a blockchain-based open source platform for measuring, verifying and funding forest projects worldwide.

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Wildfires affecting forestry programs linked to carbon credits can hurt market confidence. REUTERS/Fred Greaves

So not only do buyers have greater confidence that the loans they buy are directly related to local impacts, but the data embedded in those loans provides a compelling story to convey to consumers and other interested parties.

The same logic underpins the business proposition of a number of tech startups touting blockchain solutions for the voluntary carbon market.

A notable example is Veritree, which, like the Open Forest Protocol, provides a blockchain-based verification tool that provides real-time data collected on-site.

However, many of the emerging solution providers are moving beyond the monitoring phase and instead creating fungible (exchangeable) or non-fungible (unique) tokens with project impact data embedded.

Tokens generated by these forest-connected blockchain pioneers (which include Universal Carbon, Carbon Credit Token, ForestCoin) can then be sold to generate revenue for the conservation efforts they are connected to.

Another early innovator looking to join the ranks of the above is Veridium Labs, a tech startup that has worked with IBM and others to develop an upgradable token that can be integrated into enterprise supply chains.

Co-founder Todd Lemons likens a yet-to-be-launched tradable token called Verde to a rechargeable battery that can be continuously recharged with real-time impact information. The innovation aims to avoid the problem of credits expiring after they are first issued.

Forestry projects account for nearly two-fifths of all tradable carbon credits REUTERS/Adria Malcolm

Over time, he envisions companies doing business with their raw material suppliers in Verde, maintaining geolocated impact data through the final manufacturing process.

“We realized it gave us the opportunity to literally match very specific, highly verifiable environmental credits to specific raw materials and the underlying impacts they had,” he says.

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Imagine a candy bar maker, he adds. At best, it can assure consumers that it has purchased carbon credits to offset the carbon emissions of its products. However, the specific project to which these credits relate and the current status of that project remain unknown.

With a supply chain based on impact-oriented tokens, the communication offer is also completely different, he claims.

“A company might say, ‘Yeah, that candy bar had an impact that got offset, and you can look at those offsets and actually see where the money went — it went to protect the orangutans here and protect the gorillas down here – then start involving the consumer in the solution.”

The technology sounds revolutionary, but the road to mass adoption is fraught with challenges.

The most obvious is the high energy demand of the blockchain. As crypto providers increasingly transition to clean energy sources, the energy demands of mass adoption of blockchain solutions would likely contribute to the climate problems they were set up to address.

Other concerns center on the centralization of blockchain credit systems. In many initiatives created by developed-country companies for developed-country buyers, the involvement of forest communities—most of which are located in emerging or underdeveloped markets—remains questionable.

In the Cambridge University study, researchers observe that local communities without land rights are particularly vulnerable to being marginalized by blockchain solutions, even those that adopt a more decentralized model.

“Such a model … could also amplify existing power dynamics and risk locking out those without power from these systems, thereby compounding the challenges that have pressured these forests in the first place,” the study concludes.

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On a more positive note, widespread global adoption of cellphones is alleviating initial concerns that forest communities would not be able to engage with the digital technology underlying blockchain.

The researchers cite the example of villagers in the Democratic Republic of the Congo, who quickly adopted GPS-enabled tablets to map their ancestral lands.

For the same reason, the development of new, user-friendly protocols like NEAR makes it easier for non-specialist users to develop their own blockchain applications and reap direct financial benefits from them, says Kelly of the Open Forest Protocol.

Later this year, the Open Forest Protocol plans to use the NEAR protocol to allow forest communities to start generating their own non-fungible tokens. The tokens use project data assembled and verified by the protocol’s front-end tools.

“We put people before technology,” says Kelly, clarifying that the data validation is done manually and the financial benefits of the token sale go directly to the project owners: “The blockchain just sits quietly in the background doing its boring old job as a record holder.”

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias under the Trust Principles. Sustainable Business Review, part of Reuters Professional, is owned by Thomson Reuters and operates independently of Reuters News.

Oliver Balch

Oliver Balch is an independent journalist and author specializing in the role of business in society. He has been a regular contributor to The Ethical Corporation since 2004. He also writes for a range of UK and international media. Oliver holds a PhD in Anthropology/Latin American Studies from Cambridge University.

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