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Crypto Tokens: Traders are converting older, lower-quality offsets into virtual assets
Crypto Tokens: Traders are converting older, lower-quality offsets into virtual assets
For the Crypto traders, an interesting and useful article by Camilla Hodgson is published on ft.com
Crypto enthusiasts are rushing to bring the green revolution to the blockchain, but environmental experts fear the new boom in digitising carbon offsets may undermine efforts to tackle climate change.
Since October, almost 20mn carbon offsets — units that companies use to compensate for greenhouse gas emissions — have been converted into digital tokens. The tokens can be used to offset emissions or converted into a new cryptocurrency, Klima.
The frenzy of activity came amid a sharp uptick in the price of the underlying offsets, each of which is supposed to represent a tonne of carbon that has been avoided or removed from the atmosphere. So called ‘nature-based’ offsets, such as those generated from tree-planting schemes, soared from $4.65 per tonne to more than $14 between June 2021 and April this year, according to S&P Global Platts.
Eager to capitalise on rising prices and wider calls for a global transition to cleaner economies, crypto traders have scoured the carbon market for older, cheaper offsets to buy and tokenise — uniting the two unregulated markets of digital assets and carbon offsets.
‘Junk’ credits bulk-bought by crypto traders in recent months had previously languished for years, say carbon analysts. Potential buyers had been deterred by concerns that these old credits, many generated before 2010, may not genuinely represent the carbon savings they promised.
Yet beginning in late 2021 they were suddenly popular, as the crypto communities built on online messaging boards embarked on a shopping spree.
Such activity has worried climate experts. Gilles Dufrasne, policy officer at Carbon Market Watch, said he was concerned the new system would end up “laundering” poor quality offsets. Users who wanted to use tokenised credits to offset their emissions might forget, or not know, that the underlying units were “junk,” he said.
Proponents say tokenised credits are more uniform than traditional offsets, which can be generated from many different types of project and are difficult to compare. But critics stress that offset quality is the more pressing problem. Vaughan Lindsay, chief executive of offset seller Natural Capital Partners, said efforts to make credits fungible “remind me of collateralized debt instruments . . . If you keep rolling stuff up, you have no idea what you’re buying.”
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