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

A Guajajara Indian searches for illegal loggers in Maranhao state, Brazil - communities without land rights are vulnerable to being sidelined by blockchain solutions. REUTERS/Ueslei Marcelino

September 20 - The failure of efforts to curb global deforestation continues to frustrate forest conservationists, brands and consumers alike. A recent study from the Coordinating Body of Indigenous Organizations of the Amazon Basin (COICA) and Stand.earth finds the Amazon rainforest at a tipping point, with one-third of the Amazon rainforest (34%) in the process of transforming into a savannah, the latest dark chapter in an increasingly desperate story.

One partial good news story is the rapid growth in voluntary carbon markets amid corporate net-zero commitments. Forestry projects account for nearly two-fifths (38%) of all tradable carbon credits, which are issued for reforestation and other forest-linked projects that generate emissions savings. Collectively, such credits could potentially save around 41.5 million tonnes of carbon dioxide equivalent, according to a recent study by researchers at Cambridge University.

The less good side of the carbon market is the lack of confidence in their real-world impact. Problems of double-counting, impermanence (forest projects lost to wild fires) and leakage (when actions to reduce emissions in one area create emissions elsewhere) have long plagued the market.

An array of tech-based solutions are now cropping up with what, if the marketing spiel is to be believed, could provide the ideal corrective. All have one element in common: a cast-iron belief in the potential of blockchain technology.

Already a growing favourite with fintech firms in the financial sector, blockchain essentially works as a digitised accounting ledger. One of the main appeals to the forest conservation sector, and the brands that support them, is that highly specific data ‒ such as the number and location of newly planted trees or project-related emissions savings ‒ can be registered, stored and shared quickly, transparently and with almost zero chance of adulteration.

“With blockchain we can create a system whereby the measurement data is collected by the locals on the ground, reported on-chain and permanently kept on-chain, and then validated on-chain, with the decision also being permanently recorded,” says Michael Kelly, co-founder of the Open Forest Protocol, an open source blockchain-based platform designed to measure, verify and fund forest projects worldwide.

Wildfires affecting forestry schemes linked to carbon credits can dent confidence in the market. REUTERS/Fred Greaves

So not only do buyers have greater confidence that credits they purchase directly link to impacts on the ground, but the data embedded in those credits offers a compelling story to communicate to consumers and other interested parties.

The same logic underpins the business proposition of a suite 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 makes available real-time data, collected in situ.

Many of the emerging solution providers, however, go beyond the monitoring stage and instead create fungible (interchangeable) or non-fungible (unique) tokens that have project impact data embedded within them.

Tokens generated through these forest-linked blockchain pioneers (which include the likes of Universal Carbon, Carbon Credit Token, ForestCoin) can then be sold to raise revenues for the conservation efforts to which they are linked.

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

Co-founder Todd Lemons compares a yet-to-be-launched tradable token, christened Verde, to a rechargeable battery that can be continually topped up with real-time impact information. The innovation is designed to get around the problem of credits going out of date after their initial issuance.

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

In time, he envisions corporations transacting in Verde with their raw material suppliers and thus retaining geolocated impact data right through to the final manufacturing process.

“We realised that it gave us an opportunity (to) literally match very specific, highly auditable environmental impact credits with specific commodities and the underlying impacts that they had,” he says.

Imagine a chocolate bar manufacturer, he adds. At best, it can assure consumers that it has purchased carbon credits to offset the carbon impacts of its products. However, the specific project that these credits relate to, plus the current state of that project, remain unknown.

With a procurement chain grounded in impact-informed tokens, the communications proposition is also completely different, he maintains.

“A company could say, ‘Yes, this candy bar did have impacts, which were offset, and you can audit those offsets and actually see where the money went ‒ it went here to orangutan conservation and down here to gorilla conservation ‒ then you begin to incorporate the consumer into the solution.”

The technology sounds revolutionary, but the road to mass uptake is pitted with challenges.

Most obvious are blockchain’s high energy requirements. While crypto providers are increasingly shifting to clean power sources, the energy needs of a mass uptake of blockchain solutions would likely add to the climate problems they were set up to address.

Other concerns centre on the centralisation of blockchain credit schemes. With many initiatives created by developed-world firms for developed-world purchasers, the involvement of forest-based communities ‒ most of which are based in emerging or under-developed markets ‒ is held open to question.

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

“Such a model … could also reinforce existing power dynamics and risk locking those without power out of these systems, thereby exacerbating those challenges that created pressures on these forests in the first place,” the study concludes.

More positively, the widespread global adoption of mobile phones reduces initial concerns that forest communities would be unable to engage with the digital technology underlying blockchain.

The researchers cite the example of villagers in the Democratic Republic of Congo who rapidly adapted to GPS-enabled tablets in order to map their customary lands.

By the same token, the development of new, user-friendly protocols such as NEAR make it easier for non-specialist users to develop their own blockchain applications and derive direct financial benefits, says Kelly of the Open Forest Protocol.

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

“We put people before tech,” says Kelly, clarifying that the data verification is carried out manually and the financial benefits of token sales will go directly to project owners: “The blockchain is just sitting quietly in the background doing its boring old job as a record keeper.”

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

Oliver Balch is an independent journalist and writer, specialising on business’s role 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.