Regardless of futuristic forecasts, blockchain technology doesn’t seem to have that many real-world applications, especially at a large global scale. The green capital market, however, tends to stand out, as blockchain has already been tried and tested. It opens up ecological markets for enterprises by allowing emissions trading.
Emission Trading and What it Entails
Emission trading is a phenomenon which was initially brought forward by the Kyoto Protocol in 2005. It came into effect in order to reduce the harmful effects of CO2 emissions into the atmosphere, the issuers of which are mainly power plants using fossil fuels.
Emission quotas and carbon credits (these are the accountable emission reductions) are measured by carbon units, each one of which is equivalent to one ton of carbon dioxide which is emitted into the atmosphere. Now, since the quota emissions are limited and also subjected to a fine, carbon credits are respectively in demand and, hence, available for purchase on the exchange. This is a practice called cap and trade. There are other market models as well – such as credit-based, tax and trade, or transaction-based.
The point of this trading is to offset the damage done to the environment in the most cost-efficient way, while, at the same time, stimulating companies to reduce harmful emissions on their own and attract further investors.
Of course, as it is almost always the case, all of this sounds a lot better than it is in practice. The market is plotted with a range of issues such as disintegration, unpredictability, fraud, lack of transparency, high transaction costs, over-centralization, over-regulation, and so forth – the list goes on.
The world’s very first carbon units transaction through blockchain happened back in the spring of 2017. They were carried out in the DAO IPCI blockchain ecosystem.