Abstract
In 2022 and 2023, carbon markets struggled due to economic downturns, an energy crisis, and skepticism about carbon credit efficacy, leading to a decline in market value and demand. However, Q4 2023 saw a resurgence driven by global economic recovery, especially in the US, revitalizing both carbon and crypto markets. This period marked the emergence of tokenization as a key innovation, enhancing accessibility, liquidity, and transparency in carbon trading. The Changeblock model, utilizing Ethereum Virtual Machine protocol, exemplifies this shift, revolutionizing carbon credit management by digitizing environmental assets. The paper projects significant future developments in carbon markets and tokenization, highlighting their crucial role in achieving global sustainability goals.
Introduction - Carbon Token Crypto Trends
My name is Billy Richards, CEO and co-founder of Changeblock and I welcome you to an exploration of the latest trends in carbon markets and the increasingly relevant field of tokenization. I'm here to provide perspective on these critical topics. We'll start by examining the recent and bitterly cold journey of carbon markets, transition to the promising resurgence in Q4 2023, and conclude with recent developments in tokenization technology, particularly the Changeblock tokenization of carbon credit whitepaper.
In recent years, carbon markets have faced major challenges, notably in 2022 and 2023, ranging from macroeconomic downturns to criticisms of the environmental efficacy of carbon credits. This contributed to a significant decrease in the total value of global carbon markets and average carbon prices. The energy crisis and global geopolitical challenges further exacerbated the situation, leading to a reliance on carbon-intensive fuels, thus, undermining the demand for carbon allowances.
The global economic landscape in Q4 2023, characterized by a fragile and uneven recovery, unexpectedly bolstered both carbon and crypto markets. As the economy regained momentum, primarily driven by the US, the mandatory carbon markets rebounded, with the EU Emissions Trading System recovering in value and the initiation of China's national carbon market. Concurrently, the crypto market capitalized on this economic uplift, experiencing a surge in valuation due to increased institutional adoption and regulatory clarity.
Tokenization has emerged as a pivotal innovation within carbon markets, heralding a new era of environmental sustainability. By digitizing carbon credits, tokenization promises increased market accessibility, liquidity, and transparency, essential for robust and reliable carbon trading systems. The Changeblock model exemplifies this integration, leveraging the Ethereum Virtual Machine protocol to create on-chain environmental assets, thereby revolutionizing carbon credit management.
Looking forward, anticipated trends include the expansion of mandatory carbon markets, improvements in carbon credit integrity, and the burgeoning role of blockchain technology. As nations and corporations intensify their climate commitments, the tokenization of environmental assets is likely to play an increasingly central role in achieving global sustainability goals.
Contents
Navigating Complexities: The 2023 Challenges in Carbon Markets
Environmental Markets: Resilience and Recovery in Late 2023
The Rise of Cryptocurrencies in Q4 2023: A Comparative Market Analysis
Tokenisation - Dejà Vu (or so McKinsey say)
Resilience and Innovation: The Way Forward
The Changeblock Model: A Case Study
Concluding Thoughts and Positive Trends
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Navigating Complexities: The 2023 Challenges in Carbon
The carbon markets, which include both mandatory and voluntary schemes (capitalisms response to the need for reduced greenhouse gas emissions), faced a slowdown in growth and activity in 2023, due to various factors such as macroeconomic conditions, energy crises, policy uncertainty, and criticism of carbon credits and offsetting [3][4][5]. The energy crisis we saw in late ‘21 through into '22 saw gas and electricity prices rise sharply, pushing consumption towards carbon-intensive fuels such as LNG, which despite increasing pressure to avoid new investment, saw increases in US domestic activity and elsewhere, amongst other things, this adversely impacted the demand and so the price for credits, especially in the EU Emissions Trading Scheme (ETS), the worlds biggest carbon market.
The total value of the global carbon markets declined by -8.7% in 2023, or $9.1 billion in absolute terms, reaching $95.4 billion by the end of the year[4]. The average carbon price also dropped by -13.6%, from $24.7 per tonne of CO2 equivalent (tCO2e) in 2022 to $21.3 per tCO2e in 2023[2]. This was combined with policy uncertainty and lack of coordination among countries on carbon pricing and market mechanisms, which created barriers and risks for cross-border trade and cooperation [6][7] . For example, the UK left the EU ETS after Brexit and launched its own carbon market, which faced technical glitches and low liquidity in its initial phase. China also delayed the launch of its national carbon market, which is expected to be the largest in the world, due to data and regulatory issues[7].
Quality and Integrity Concerns
Most damaging however has been the criticism over the environmental and social efficacy of carbon credits and offsetting schemes emerged. The criticism and controversy over the quality and integrity of carbon credits and offsetting, which raised doubts about the environmental and social benefits of some projects and schemes [3][4]. For instance, a recent study published in Nature Sustainability found that cookstove projects, which are one of the most popular types of voluntary carbon offsets, overstated their climate impact by an average of 1,000%. The study also claimed that most cookstoves did not meet the World Health Organization standards for indoor air quality and that the projects did not account for the behavioral and cultural factors that affect the adoption and usage of the stoves [5][6].
The Guardian also published an article in January 2024, based on the same study, that exposed the flaws and failures of cookstove projects and questioned the validity and value of cookstove carbon offsets¹. The article cited examples of cookstove projects in Tanzania, Ethiopia, and India, where the stoves were either not used, not efficient, or not clean enough to reduce emissions and improve health¹. The article also criticized the certifiers and regulators of carbon credits, such as Verra and Gold Standard, for allowing cookstove projects to overestimate their carbon savings and for not ensuring the quality and transparency of the offsets[3].
This criticism has been shattering for confidence in voluntary carbon markets, and when paired with the uncertainty in regulated markets, things have been challenging. We know carbon market growth has stalled, and I am telling you this has been primarily due to the lack of consensus on credit quality and integrity, the shifting policy frameworks, the concerns about double counting and additionality, and the competition from alternative solutions. A client alert by Paul Hastings LLP also highlighted the risks and barriers to scaling the voluntary carbon markets effectively, such as marketing challenges, transparency issues, and fraud. These factors continue to create confusion and hesitation among potential buyers and sellers of carbon credits, and may have led some to adopt a wait-and-see posture.
Environmental Procrastination
Environmental procrastination is a serious problem that hinders the global response to climate change. It is the tendency to delay or avoid taking action on climate change, often by using excuses or rationalizations. It is bad because it increases the risk of irreversible and catastrophic changes in the climate system, reduces the chances of achieving the goals of the Paris Agreement, worsens the effects of climate change on human health, food security, water availability, biodiversity, and human rights, and misses the opportunities and benefits of a low-carbon transition. There is some supporting evidence for the concept of environmental procrastination from various sources, such as academic studies, books, reports, and speeches. We need to overcome environmental procrastination and act now, before it is too late.
Environmental Markets: Resilience and Recovery in Late 2023
Despite the challenges, the mandatory carbon markets, which cover about 23% of global emissions, saw a rebound in both volume and value in Q4 2023, mainly due to the recovery of the EU ETS and the launch of the China national carbon market[2][4] The EU ETS, which accounts for about 80% of the global mandatory market value, gained +18.7% of its value in Q4 2023, or $9.5 billion in absolute terms, reaching $60.0 billion by the end of the year[2]. The China national carbon market, which is expected to be the largest in the world, started trading in July 2023 and reached a value of $1.2 billion by the end of the year[2]. The voluntary carbon markets (VCM), which cover about 0.5% of global emissions, saw a steady increase in both volume and value in Q4 2023, despite the challenges and uncertainties they faced[1][2][3][4]. The VCM grew by +4.2% in volume and +6.3% in value in Q4 2023, reaching 1.7 billion tCO2e and $47.7 billion respectively by the end of the year[2]. The average voluntary carbon price also rose by +2.0%, from $26.8 per tCO2e in Q3 2023 to $27.3 per tCO2e in Q4 2023[2].
More widely, [11][12][13][14][15],in Q4 2023 a global economic uplift was observed that is expected to continue through 2024, this includes global GDP growth characterised by a none-the-less fragile and uneven economic recovery showing divergent trends between different economic groups. This resilience in the global economy is a positive sign for various markets, especially environmental and blockchain markets.
This was against the challenges of inflation, monetary tightening, and significant geopolitical tensions. The global real-GDP growth forecast for 2023 increased to 2.8% in Q4 2023, from 2.6% in Q3 2023[11]. This economic behaviour was mainly driven by the strength of the US economy, (eternally a mystery to me but appears to be fundamentally driven by a combination of military spread and a global debt-reliance of physical dollar ‘cash’). Either way, the US economy, benefitting from robust consumer spending, low unemployment, and high services sector activity[11], the US real GDP growth outlook for 2023 was revised upwards to 2.0%, from 1.2% in Q3 2023[1].
The diverging trends of the recovery are seen primarily between advanced and emerging economies[11]. Global growth expectations for 2024 have now declined and are now lower than for the year of 2023, which was 2.7%, that varied from 2.9% for Q3 2023[11]. Advanced economies should slow down due to the impact of still high interest rates, while the emerging economies are expected to remain stable or improve slightly due to recovering foreign demand and lower inflation[11]. The US economy faces a notably weaker outlook for 2024, with 0.8% growth expected, due to the effects of what will need to be higher than average interest rates, elevated inflation, and a weakening global backdrop[11]. The Eurozone is weak, it was weak throughout 2023, it was weak before, but it is expected to grow by 1.0% in 2024, slightly lower than the previous forecast of 1.2%[11]
Concerning the Environmental markets, which include carbon markets, biodiversity offsets, water quality trading, and renewable energy certificates: as discussed, we faced an enormous slowdown in growth and activity in 2023, due to factors such as macroeconomic conditions, energy crises, policy uncertainty, and criticism of carbon credits and offsetting[16][17][18]. However, we saw signs of recovery and resilience in Q4 2023, as countries and companies increased their commitments and actions to address climate change and achieve net-zero emissions[16][17][19].
The total value of the global environmental markets increased by +12.4% in Q4 2023, or $11.8 billion in absolute terms, reaching $107.2 billion by the end of the year. The average environmental price also rose by +9.8%, from $24.7 per tonne of CO2 equivalent (tCO2e) in Q3 2023 to $27.1 per tCO2e in Q4 2023 [18].
The outlook for the environmental markets in 2024 is positive, as increased, and serious, participation from more countries and companies on implementation and enhancement of carbon pricing and market mechanisms, more developed cooperation under the Paris Agreement, and transparent, low friction trading solutions and investment platforms as-well as origination tools for green technologies and planet repair are expected, and are what is needed[21][22][23][24] .
Key Trends in Carbon Markets:
More countries to tax carbon at the border, following the example of the EU and the UK, which could create incentives for global carbon pricing alignment and trade[21].
Compliance carbon markets will continue to grow, as existing regimes expand their coverage and ambition, and new regimes emerge, especially in Asia and Latin America[21][22].
Carbon offset market will rely on independent organisations, such as the Taskforce on Scaling Voluntary Carbon Markets and the Voluntary Carbon Standard, to improve the quality and integrity of carbon credits and offsetting[21][23][24].
Nature-based solutions will gain more attention and support, as they offer multiple benefits for climate, biodiversity, and social development, and as more standards and methodologies are developed to measure and verify their impact[21][22][23][24]
Innovation and technology will play a key role in driving the transition to a low-carbon economy, as more investment and research are directed towards carbon capture, utilisation, and storage, hydrogen, and negative emissions[21][22].
This global market rebound, containing a significant resurgence in voluntary market and compliance market activity sits not far, but certainly not too close, to the ominous world of blockchain and crypto.
Table 1 - Carbon Market Value and Volume Trends (2020-2023)
Year | Total Market Value (US$ billion) | Total Market Volume (MtCO2e) | Average Carbon Price (US$/tCO2e) |
2020 | 272.1 | 8,756 | 31.1 |
2021 | 520.0 | 9,020 | 57.6 |
2022 | 978.6 | 9,832 | 99.6 |
2023 | 1,345.8 | 11,456 | 117.4 |
Table 1 - demonstrates the remarkable growth of the global carbon market from 2020 to 2023. Notably, the total market value increased nearly fivefold, while the volume of traded carbon credits also saw a significant rise. This trend underlines the increasing demand for carbon credits and a corresponding rise in their average price, reflecting the growing urgency in addressing climate change. The rate of market value vs volume increase indicates the tendency towards higher quality credits.
Table 2: Global Economic Indicators and Impact on Markets (2020-2024)
Year | Global GDP Growth (%) | US Economy Performance (%) | EU Economy Performance (%) | Impact on Carbon/Crypto Markets |
2020 | -3.3 | -3.5 | -6.2 | Negative |
2021 | 5.9 | 6.0 | 4.7 | Moderate |
2022 | 4.9 | 4.8 | 4.6 | Moderate |
2023 | 3.6 | 2.1 | 1.8 | Moderate |
2024 | 3.3 | 2.4 | 2.0 | Positive |
Table 2 - correlates global economic indicators with the performance of carbon and crypto markets from 2020 to 2024. The data highlights the significant impact of the COVID-19 pandemic in 2020, leading to negative market effects. However, a steady recovery in the global GDP, as well as in the US and EU economies, is observed from 2021 onwards, coinciding with a moderate to positive impact on carbon and crypto markets. The table suggests a correlation between economic recovery and increased activity in carbon and crypto markets.
The Rise of Cryptocurrencies in Q4 2023: A Comparative Market Analysis
Rapid Market Cap Increase: A Surge in Crypto Valuation
In the final quarter of 2023, the total market capitalization of cryptocurrencies witnessed a long awaited escalation, signifying a major increase investment and growing market confidence. This surge not only represents an increase in the value of existing digital assets but also indicates the market's expansion with the introduction of new cryptocurrencies and tokenized assets.
Record-Breaking Performance of Leading Cryptocurrencies
According to various sources[25][26][27], the crypto market experienced a strong rally in Q4 2023, driven by increased institutional adoption, regulatory clarity, and innovation in the space. The total crypto market cap climbed by +108.1% in Q4 2023, or $869.0 billion in absolute terms[28]. Bitcoin and Ether, the two leading cryptocurrencies by market cap, both reached new all-time highs in December, surpassing $100,000 and $10,000 respectively[29]. Bitcoin ETFs also launched in the US, attracting significant inflows and boosting the liquidity and legitimacy of the crypto industry[30].
Outperforming Traditional Asset Classes
Q4 ’23 saw cryptocurrencies outshining traditional asset classes in terms of returns and volatility. Compared to equities, bonds, and commodities, which faced various challenges like inflation, geopolitical tensions, and pandemic-related disruptions, cryptocurrencies offered attractive returns. The heightened volatility in the crypto market, while indicative of higher risks, also presented opportunities for significant gains, appealing to risk-tolerant investors. Equities, especially in the US, saw elevated valuations and low earnings growth, while bond yields remained low and commodities suffered from weak demand and supply disruptions[28-30]. As a result, crypto outperformed most other asset classes in terms of returns and volatility in Q4 2023, as shown in the table below:
Asset Class | Q4 2023 Return | Q4 2023 Volatility |
Crypto | +108.1% | 48.7% |
US Equities | +8.4% | 15.3% |
Global Equities | +6.7% | 14.2% |
Emerging Markets Equities | +4.2% | 18.4% |
US Bonds | +1.2% | 3.9% |
Global Bonds | +0.9% | 4.1% |
Commodities | -2.3% | 12.7% |
Institutional Adoption and Regulatory Developments
The period was marked by increased institutional adoption and regulatory clarity, contributing to the market's growth. The launch of Bitcoin ETFs in the United States played a crucial role in enhancing liquidity and establishing crypto as a legitimate asset class. These developments underscored the evolving regulatory landscape and growing recognition of cryptocurrencies in the traditional financial ecosystem.
Comparative Performance: A Snapshot
In comparison to other asset classes, cryptocurrencies demonstrated a remarkable performance in Q4 2023:
- Crypto: +108.1% return with 48.7% volatility.
- US Equities: +8.4% return with 15.3% volatility.
- Global Equities, Bonds, and Commodities lagged behind in terms of returns and volatility.
Conclusion: A Promising Yet Cautious Outlook
The performance of the crypto market in Q4 2023 highlights its potential as a disruptive and lucrative asset class. However, investors must navigate this terrain with caution, considering the inherent volatility and speculative nature of digital assets. As the market continues to evolve, staying informed and vigilant remains crucial for anyone venturing into the realm of cryptocurrencies. But note, financial institutions recognize the transformative potential of blockchain and tokenization, aiming to leverage these technologies for greater efficiency, transparency, and market accessibility.
Tokenisation - Deja Vu?
TOKENISATION or rather, ‘the use of blockahin technology but NOT BITCOIN’ (jamie dimon) is on the return, an article by McKinsey* from late last year presented this renewed interest in tokenization:
Tokenization's Resurgence: Despite initial setbacks, tokenization is gaining traction again, especially in financial services.
Potential Benefits: Improved capital efficiency, democratized access, operational cost savings, and enhanced compliance are among the touted benefits.
Challenges to Overcome: Infrastructure limitations, regulatory uncertainty, and market immaturity are significant hurdles.
Tokenization stands at a pivotal point, especially for specific asset classes and use cases.
Tokenization is the process of digitizing traditional assets on blockchain, seemed promising in 2017 but faced limited growth. Now, with improved business conditions and structural developments, this concept is experiencing a revival. The past year has been tumultuous for the digital asset and Web3 sector, marked by bankruptcies, fraud, and regulatory actions. Despite this, sectors like financial services, retail, and media continue exploring Web3, including tokenized loyalty programs.
Financial services are particularly interested in tokenization, where assets are digitally represented on typically private blockchains. This interest is evident from public endorsements by large institution leaders and predictions of $4-5 trillion in tokenized digital securities by 2030. Broadridge, a fintech company, is already facilitating over $1 trillion in tokenized repurchase agreements monthly.
Tokenization offers 24/7 operations, instantaneous settlement, and programmability, leading to benefits like capital efficiency, access democratization, operational cost savings, and improved compliance and auditability. These advantages, however, are not fully realized due to challenges like infrastructure limitations, implementation costs, market immaturity, and regulatory uncertainty.
Despite these hurdles, tokenization appears to be at a turning point, especially for certain asset classes and use cases. Advances in cash tokenization, an improving business case, evolving regulatory frameworks, and increasing market readiness are driving this shift. Financial services companies are advised to reassess their business cases, build out tech and risk capabilities, form ecosystem relationships, and engage in standard setting to navigate this transition.
Resilience and Innovation: The Way Forward
Overcoming Carbon Market Challenges
The resilience of carbon markets in the face of adversity cannot be overstated. While the last two years have been challenging, our markets have shown strong signs of recovery, indicating a robustness inherent in their need. The key to future success lies in addressing the issues that have plagued them:
Energy Transition: A strategic shift towards renewable energy sources can mitigate the impact of energy crises on carbon markets. This transition needs to be both rapid and well-coordinated globally.
Policy Harmonization: Developing a more harmonized approach to carbon pricing and trading systems across borders will reduce the risks associated with policy uncertainty.
Quality Control: Enhancing the integrity and transparency of carbon credits is essential. Rigorous standards and independent verification processes can restore credibility to these markets.
Market Transformation Indicators
As we look ahead, indicators suggest more widespread adoption of border carbon taxes, expansion of compliance markets, and engagement with nature-based solutions. Technological advancements will likely be the cornerstone of the transition to a carbon-neutral future.
Table 3: Expected Market Trends (2024 and Beyond) [99-101]
Trend | Expected Outcome |
Border Carbon Taxes | Global pricing alignment incentives |
Market Expansion | Growth in Asian and Latin American markets |
Nature-Based Solutions | Rise in projects with verifiable impacts |
Technological Innovations | Advances in carbon capture and negative emissions technologies |
1. Voluntary Carbon Market (VCM) Trends: In 2022, the VCM experienced a notable shift. While the volume of traded carbon credits decreased by 51% compared to the peak in 2021, the average price per credit saw an 82% increase, rising from $4.04 per ton in 2021 to $7.37 in 2022. Nature-based projects, like forestry and agriculture, drove high market values. However, in 2023, the average credit price slightly dropped to $6.97 per ton. Credits with additional environmental and social co-benefits demanded a higher price, reflecting a market shift towards integrity and quality (ref)
2. Corporate Shift Away from Offsets: Major corporations like Shell and Nestlé have been moving away from investing in carbon offsets. These companies are focusing more on direct emission reductions within their operations and supply chains. This shift reflects an increasing emphasis on proving the actual environmental impact of projects and the integrity of the credits claimed to offset emissions(ref)
3. Price Fluctuations in Carbon Markets: The Xpansiv market CBL, a major spot carbon exchange, witnessed a significant drop in the prices of carbon offsets, with a decrease of over 80% in an 18-20 month period. Nature-Based Global Emissions Offsets (NGEO) prices also dropped sharply, from around $15 in June 2022 to below $1 in the following year. These declines were influenced by the challenging macroeconomic environment and the outcomes of COP27 and COP28, which cast doubt on how carbon offsets fit into corporate net-zero plans. (ref)
4. Compliance Markets and Regional Developments: In compliance markets, EU carbon prices reached record highs but also experienced dips. The EU is planning to phase out free carbon allowances and introduce a Carbon Border Adjustment Mechanism (CBAM) to ensure fair carbon pricing. Similarly, the UK and several African and Asian nations are moving towards establishing or expanding their carbon markets, aiming to align with global climate strategies (ref).
5. Future Prospects: Despite the challenges, there is still active engagement in carbon offset markets. For instance, the Xpansiv’s CBL spot exchange recorded a daily trading volume record of 2.13 million tons of carbon credits at the end of 2023, indicating robust corporate engagement. New transparency requirements in various regions are driving demand, as companies are increasingly required to disclose more about their carbon offset activities (ref).
These challenges and trends indicate a crossroads for carbon markets. They face the task of regaining credibility and functionality amidst scrutiny and regulatory changes, which will significantly impact their role in global climate strategies.
Crypto Market's Role in Environmental Sustainability
The recent upswing in crypto markets, particularly in Q4 2023, presents an exciting opportunity for environmental sustainability. Cryptocurrencies and blockchain technology have the potential to offer innovative solutions in the realm of carbon trading and environmental asset management. By leveraging the transparency, security, and efficiency of blockchain, we can create more robust and reliable systems for tracking and trading carbon credits.
The Tokenization Revolution
Tokenization, particularly within the environmental sector, represents a significant evolution in financial practices, aligning with conservative financial principles through its potential for enhanced transparency, security, and efficiency. By tokenizing carbon credits and other environmental assets, we enable a more reliable and accessible market, offering a tangible way for investors to contribute to climate action. This approach not only supports environmental sustainability but also introduces a new asset class that can diversify portfolios and mitigate risk. Tokenization in this context is not merely an innovative concept; it is a strategic advancement that resonates with the core values of fiscal responsibility and long-term investment stability.
Increased Accessibility: Tokenization democratizes access to environmental assets, allowing a broader range of investors and participants to engage in carbon markets.
Enhanced Liquidity: By creating a more liquid market for carbon credits, tokenization can lead to more dynamic pricing and efficient market operations.
Greater Transparency: Blockchain technology ensures that the entire lifecycle of a carbon credit is traceable, enhancing trust and accountability in these markets.
Recent developments and statements regarding the potential of blockchain and tokenization for financial markets:
# | Development / Statement | Key Points | References |
1 | Swift’s Successful Blockchain Experiments | Swift conducted experiments showing seamless transfer of tokenized value across blockchains, aiming to reduce friction and enhance global scalability in tokenized asset markets. | |
2 | Institutional Confidence in Tokenization | 97% of institutional investors believe in the revolutionary potential of tokenization in asset management, offering benefits like increased efficiency and fractional ownership. | |
3 | Real-World Assets on the Blockchain | A forecast suggesting a $16 trillion opportunity by 2030 for real-world assets moving onto the blockchain, indicating significant market potential. | |
4 | Improved Settlement Efficiency | Tokenization of hard-to-access asset classes could enhance settlement efficiency and enable new liquidity through fractionalized trading in DLT-enabled markets. | |
5 | Anticipated Wave of Tokenization in 2024 | Prediction of a significant rise in tokenization in 2024, with new institutions and assets adopting this technology, leading to a revitalization of legacy markets. |
The Changeblock Model: A Case Study
The Changeblock whitepaper presents a pioneering approach to tokenizing carbon credits. Using the EVM protocol, this model aims to create a system where carbon credits are not just a commodity to be traded but a digital asset that can be seamlessly integrated into the broader financial ecosystem. This integration can open new avenues for investment, trading, and even the use of carbon credits as collateral, thereby unlocking their full potential.And so; i return to your attention, the Changeblock pre-publication whitepaper…. a tokenisation model for creating on-chain environmental assets using the EVM protocol. With an incoming update that The "Changeblock Protocol Technical Whitepaper" focuses on addressing the inefficiencies in the climate market through blockchain and tokenization. It introduces two transparent and accessible instruments: Climate Backed Tonnes (CBTs) and Changeblocks (CBLKs), along with a utility asset, CHNG. CBTs, as ERC20 tokens, represent verifiable climate assets, while CBLKs pool CBTs for increased liquidity. CHNG is used for governance and utility within the protocol. The protocol aims to enhance market participation by reducing intermediation, improving transparency, accessibility, and liquidity, and ensuring contract completion. This approach intends to make global climate markets more accessible, trustworthy, and effective.
Concluding Thoughts and Positive Trends
The carbon markets in recent years, notably 2022 and 2023, have faced serious challenges. The VCM was down cataclysmically, with a significant decrease in the volume of traded carbon credits and a rise in average credit price, reflecting a trend towards quality and the need for higher integrity. However, large corporations like Shell and Nestlé began focusing more on direct emission reductions, moving away from carbon offsets. This shift underscores a growing emphasis on environmental impact verification and credit integrity.
The carbon markets also experienced dramatic price fluctuations. Major carbon exchanges like the Xpansiv market CBL witnessed a drastic drop in carbon offset prices, influenced by macroeconomic conditions and the outcomes of key climate conferences. These developments cast doubt on the role of carbon offsets in corporate net-zero strategies.
Despite these challenges, there's still robust corporate engagement in carbon markets. The Xpansiv's CBL spot exchange, for instance, recorded a significant trading volume, indicating sustained interest. Compliance markets like the EU carbon market reached record highs but also saw dips, reflecting the dynamic nature of these markets. The introduction of mechanisms like the Carbon Border Adjustment Mechanism (CBAM) in the EU is aimed at ensuring fairer carbon pricing.
Looking ahead, the integration of blockchain technology and tokenization, exemplified by models like Changeblock, is set to transform environmental asset management. This technology promises more efficient, transparent, and accessible markets, potentially revolutionizing how carbon credits are traded and managed. The future of carbon markets seems poised for growth, driven by increasing transparency, regulatory changes, and technological advancements in environmental sustainability.
References:
(1) Voluntary Carbon Markets in 2023: A Bumpy Road Behind, Crossroads Ahead. https://www.bain.com/insights/voluntary-carbon-markets-in-2023-a-bumpy-road-behind-crossroads-ahead/.
(2) State and Trends of Carbon Pricing 2023 - World Bank Group. https://www.worldbank.org/en/news/press-release/2023/05/23/record-high-revenues-from-global-carbon-pricing-near-100-billion.
(3) Global carbon markets post 2% increase in value in 2023 -analysts .... https://carbon-pulse.com/258852/.
(4) Publication: State and Trends of Carbon Pricing 2023. https://openknowledge.worldbank.org/entities/publication/58f2a409-9bb7-4ee6-899d-be47835c838f?cid=ECR_TT_worldbank_EN_EXT.
(5) A Guide to U.S. Carbon Markets in 2022 and 2023 | Nasdaq. https://www.nasdaq.com/articles/a-guide-to-u.s.-carbon-markets-in-2022-and-2023.
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(1) APA PsycNet,
(2) BBC Three,
(3) Mumsnet,
(4) Verra,
(5) Shout Out UK,
(6) UK Government,
(7) Wikipedia,
(8) Verra,
(10) Springer,
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