Six months from now, world leaders will gather to evaluate whether they can make good on their promises to reduce their greenhouse gas emissions.
Following the Glasgow Climate Change Conference (COP26), the UN’s Intergovernmental Panel on Climate Change (IPCC) released a report in February, asking businesses and regulators alike to act now or limit global heating to 1.5 degrees celsius will soon be both unattainable and impossible.
While politicians delay existing ways to solve the current crisis, the situation worsens. However, from the private sector, a new tool in the armoury could revolutionise the way we conceptualise, track, and mitigate carbon emissions across the globe.
Through blockchain technology, we have an opportunity to bring integrity to the carbon markets, align incentives across industries and countries, and enable unified action.
The (unequal) race to zero
Achieving meaningful emissions reductions has been painfully slow and difficult, necessitating a significant overhaul in the energy sector. The transition to renewables is a focus for many countries but far from straightforward.
Singapore’s Energy Market Authority points out that we have “no hydro resources, our wind speeds and mean tidal range are low, and geothermal energy is not economically viable”.
While solar energy is the most viable option, as the city-state sees an average annual solar irradiance of 1,580 kWh/m2/year, it still isn’t commercially viable for widespread use.
To mitigate this, Singapore has introduced a carbon taxation scheme to target high emitters and incentivise reduction, making it the first in Southeast Asia.
This year’s budget also noted that the tax would be progressively increased to hit SG$45 per tonne by 2026 to enable Singapore to reach its net-zero target by or around 2050.
Beyond renewables, what other solutions can such economies turn to? Carbon credits, of course. That being said, carbon credits are far from perfect, with criticisms arising around their viability and enablers for bad behaviour.
What mechanisms can be introduced to ensure their integrity while encouraging verifiably real climate action to challenge these claims?
From NFTs to NFDTs
Ask the average person on the street what a non-fungible token (NFT) is, and today, they’ll probably be able to define it. An NFT is a unique, hence non-fungible, digital certificate stored on a blockchain to produce an immutable, digital record of its ownership and provenance.
Think about how NFTs are being used in the traditional art world. NFTs can add a layer of certainty in proving the authenticity of a painting, that it belonged to a specific collector and was painted by a specific artist.
As a digital representation, this also introduces further opportunities for tokenisation, effectively enabling investors to take ownership of an asset, no matter how big or small.
Also Read: Why the Carbon tax is just a step forward and not a solution
How does this relate to carbon credits?
One type of carbon credit is Voluntary Emission Reduction (VER) which can be tied to sustainable or climate action projects and is sold on the voluntary carbon market (VCM). As of November 2021, the value of the VCM stood at US$1 billion, pointing to a growing appetite from businesses as they strengthen their ESG commitments.
By diverting capital to such initiatives, VERs can also drive greater optimisation and innovation, eventually lowering the costs of climate technologies. As you can imagine, an NFT tied to a VER would effectively assure a buyer or an investor that their VER is tied to a legitimate project.
At the same time, tokenisation could make investing in these projects much more accessible for even a retail audience interested in green finance opportunities.
However, as a technology, NFTs are fundamentally limited critically: They’re dead.
NFTs can only represent “non-living” assets. Let’s take the example of a building equipped with smart technologies to ensure its energy efficiency.
Throughout a given day, the amount of electricity that the building expends may differ depending on the internal temperature, the intensity of sunlight, and foot traffic. These can impact the amount of energy and, thus, carbon that a building has expended.
For a business, having a real-time, continuously updated representation of such an asset is critical to measuring its energy expenditure over time. Therefore, when used to represent the carbon credits produced by green projects (which are ever-changing over time), NFTs fall short.
Hence, we at Metaverse Green Exchange had to develop a patent-pending technology known as the Non-Fungible Digital Twin (NFDT). NFDTs combines the transparency, provenance, and auditability allowed for by NFTs with digital twin technologies.
Supported by the Internet of Things (IoT) sensors, a digital twin is a virtual model that reflects a real-world physical object or process and changes within that system over time. When combined with NFTs, you can see how this addresses key challenges in today’s voluntary carbon credit market.
Why carbon has a ‘nationality’
When the Paris Agreement came into force in 2016, Nationally-Determined Contributions (NDCs) were at the cornerstone of the accord. Each signatory pledged to reduce its national carbon footprint to limit global warming to preferably 1.5 degrees Celsius compared to pre-industrial levels.
This emphasis on nationality effectively makes it such that the carbon liability belongs to the country it originated. Countries are faced with a dilemma: open up their sustainable projects and, by extension, the corresponding carbon credits, to foreign or external investors, or create barriers to protect accurate reporting and reduce the threat of double-counting?
When taken in aggregate, what MVGX offers is its Green Earth MetaVerse. This digital world holds digital representations of carbon assets and liabilities, effectively bridging the real world to the metaverse.
Backed by its proprietary, patent-pending NFDTTM technology, each digital representation comes in the form of our Carbon Neutrality Token (CNTTM), which is then listed on our digital asset exchange.
Through MVGX’s licence from the Monetary Authority of Singapore (MAS), these digital assets have integrity both in the metaverse and within existing carbon markets. These tokens are thus asset-backed securities regulated by MAS, which institutional and accredited investors can buy into.
Each CNTTM is tied to an avatar backed by our NFDTTM technology which assures the provenance, traceability, and quality of the associated VER.
In taking this approach, our carbon registry is designed first to represent the real-world carbon assets in the metaverse, as an NFDT or avatar, before the carbon credit or the VER is even issued. By listing this token on our licenced exchange, buyers are assured that the integrity of the asset is safeguarded, all the while being backed by a regulated entity.
Also Read: What COVID-19 taught us about sustainable choices and climate change
In the end, what you have is a system that bridges real-world carbon exchanges with virtual ones, and MVGX can ensure that businesses and governments ultimately gain a robust and universal understanding of how carbon is being emitted and mitigated in a transparent, verifiable way.
Making greener gains
Last year, Asia was the fastest-growing market for ESG debt issuance, tripling to US$346.5 billion compared to the year before.
Climate-aligned investing is growing in popularity. After all, the financial risks are significantly more pronounced in a region set to bear the brunt of a worsening climate. With this in mind, having the right technologies to ensure the integrity of such investments is key.
As the race to reach net-zero intensifies, traditional financial players have a key role in levelling the financial playing field for projects striving to do good.
With NFTs and blockchain now so firmly entrenched in mainstream consciousness, it’s clear that the technologies to enable meaningful, verifiable climate action at scale are already here. We all need to take the first step.
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