By Chris Lang
In October 2021, a crypto company called Toucan set up a process to “bridge” carbon offsets onto the blockchain as tokens called “Base Carbon Tonnes”. As part of the process, the carbon offsets were retired on the Verra registry. Since then, Toucan has tokenised about 22 million carbon offsets.
Last week, Verra announced that,
Verra will, effective immediately, prohibit the practice of creating instruments or tokens based on retired credits, , on the basis that the act of retirement is widely understood to refer to the consumption of the credit’s environmental benefit.
As a result of Verra’s announcement, the price of Toucan’s Base Carbon Tonnes fell rapidly:
The price of Base Carbon Tonnes (BCT) has fallen from a high of US$8.31 at the end of November 2021 to today’s price of US$2.14.
Toucan’s system has mainly be used to create new tokens called KlimaDAO. The price of KlimaDAO also fell after Verra’s announcement. The price of KlimaDAO has collapsed from a high of US$3,681 at the end of October 2021, down to today’s price of US$4.89.
“It’s mind frying”
According to an S&P Global article about Verra’s announcement,
The decision, which was made by Verra’s board of directors in April, is an attempt to eliminate confusion in the voluntary carbon marketplace. Verra wants to ensure that the retirement of a carbon credit has a singular meaning: that a credit’s environmental benefit has been exhausted after being used to offset a company’s emissions. The emergence of Toucan, however, distorts that meaning by giving life to a digital ghost of that credit in the form of a BCT that is then traded as a digital commodity.
Robin Rix, Verra’s chief legal, policy and markets officer, sums up the situation very well in a comment to S&P Global:
“It’s mind frying. Carbon credits themselves are abstract intangible things based on counterfactuals of things that you can’t actually see – emissions. And then crypto is another layer of abstraction on top of that.”
Rix told S&P Global that Verra will look at each request to retire offsets to check whether this is an attempt to tokenise the offset. Exactly how Verra will do this, Rix does not explain.
Don’t say “retiring”. Do say “immobilizing”
Verra gets most of its money from the fees it charges on sales of carbon offsets from its registry. In 2019, Verra had a revenue of US$13.9 million. Of this, Verra raised US$11.8m million from fees on carbon offsets and related services.
Obviously, Verra doesn’t want to shut down the income stream from fees on carbon offsets. So Verra has come up with a new concept. Welcome to “immobilized” carbon offsets:
Verra intends to explore the possibility of “immobilizing” credits in accounts in the Verra Registry so that they can be tokenized with the transparency and traceability that market participants demand, provided that this can be done in a way that prevents fraud and upholds environmental integrity.
Verra is starting a public consultation focussing on the following:
- What enabling measures should be implemented to responsibly associate Verra instruments with crypto instruments or tokens, such as custody or keyholder arrangements;
- What know-your-customer (KYC) checks should be conducted on issuers and/or holders of crypto instruments or tokens;
- What fee schedule, if any, is appropriate for Verra to charge in relation to crypto instruments and tokens.
Rix told the Wall Street Journal that, “When the Verra registry was created . . . no one was thinking tokens, no one was thinking crypto. This presents a big risk in the market.”
Toucan welcomes Verra’s announcement
In a blog post about the announcement, Toucan’s Rob and johnx25bd write that:
Toucan welcomes this announcement from Verra, which comes after a lengthy dialogue and close contact between Verra, multiple other carbon market stakeholders and us.
Obviously, if Toucan said anything else, that would create “FUD” or fear, uncertainty, and doubt. That’s what crypto proponents describe anything that highlights the problems with crypto. And dismissing genuine problems as FUD is about the only thing keeping crypto afloat.
Apparently Toucan previously referred to Verra’s “immobilized” state for offsets that are to be bridged onto the blockchain as a “tokenized” state. Toucan seems determined to turn up the heat on all of our frying minds:
Introducing this designation for credits held on the Verra registry would allow for these credits to be safely transferred to another registry (like Toucan’s) without risks of double counting. Even better, connecting our registries in this way opens the door to a process where tokenized credits could be transferred back from a blockchain onto their source registry.
This approach would enable all voluntary carbon credits to gain the benefits of tokenization on a public blockchain, including immediate global settlement, double spend protection, transparent traceability, enhanced market access and connections to decentralized finance (DeFi) applications.
Of course, none of this bridging, tokenisation, blockchain, and general cryptoclownery does anything to address the problems with carbon offsets. The reality remains that carbon offsets are a dangerous distraction from real solutions to the climate crisis.
Carbon trading (or as Verra’s Robin Rix puts it, trading “abstract intangible things based on counterfactuals of things that you can’t actually see”) whether on or off the blockchain, will do nothing to help find ways of leaving fossil fuels in the ground. On the contrary, it is a way of allowing Big Polluters to continue business as usual.
PHOTO Credit: Fabian Jones on Unsplash.