Blockchain-based voluntary carbon credit trading solutions that are integrated into a wider asset servicing platform, similar to that launched recently by Northern Trust, have the potential to revolutionize the development of the currently fragmented carbon credit trading market. However, a lot of work still needs to be done for that to happen.
Although there are similar blockchain-based solutions for voluntary carbon trading that are already available in the market, integrating such solutions into a wider asset servicing platform is quite significant because it allows institutional buyers to digitally access carbon credits from project developers, thus ensuring more efficient and transparent transactions.
A key challenge in the carbon trading market at present is the lack of standardization, double counting of credits, and fraud. Transactions are also done on a bilateral basis, which is relatively opaque, and lack third-party oversight.
In an interview with The Asset, Justin Chapman, global head of digital assets and financial markets at Northern Trust, says the main difference in its new blockchain-based carbon credit trading solution, called Northern Trust Carbon Ecosystem, from similar solutions that are already in the market is that it is integrated into its larger digital management platform, known as Matrix Zenith, which is part of its larger asset servicing ecosystem, thus leveraging the company's deep experience with blockchain technology.
“Allowing institutional buyers to digitally access carbon credits from developers, through a blockchain-based solution, ensures such transactions are secure and transparent,” Chapman shares. “The seamless and secure settlement experience is designed to give project developers and institutional buyers confidence in their carbon credit transactions.
“It supports key digital asset lifecycle events, from asset creation, trading, pricing and custody to reporting, leveraging blockchain technology, and integrates with our core traditional asset servicing infrastructure to support digital and traditional assets side by side.”
Launched on September 12, there are already live transactions on the platform. Northern Trust is working with a number of project developers, including the Water Recovery Systems IP, a water purification and membrane technology company based in the UK, and CUT Carbon Distributed Technologies, a carbon credit proponent company based in Liechtenstein.
“Each project developer completed transactions on the platform,” Chapman notes, “with CUT Carbon Distributed Technologies selling digital carbon credits to Adapt Global, a global telecommunications company that empowers circular and sustainable technology solutions.”
One potential benefit of using blockchain-based carbon trading solutions would be to address issues on transparency and accountability since blockchain technology ensures that every transaction is recorded permanently and cannot be altered, providing transparency in the carbon credit lifecycle. It will also reduce fraud since the decentralized nature of blockchain makes it harder to manipulate or forge carbon credit records, reducing the risk of fraudulent activities.
Another benefit would be to enhance efficiency and speed since transactions can be completed in real-time, reducing the time it takes to verify and transfer carbon credits compared with traditional systems.
In the case of Northern Trust, its digital voluntary carbon credits platform offers institutional buyers access to tokenized carbon credits from project developers, streamlining transactions using blockchain technology. The platform also uses smart contracts, to automate legal agreements and settlement, ensuring smooth and secure transactions.
“This digital system enhances transparency and efficiency throughout the carbon credit lifecycle, allowing users to track, manage and retire credits directly through a private ledger,” Chapman points out. “The initiative also fosters trust and integrity in the market, which has often faced challenges around transparency and verification. Northern Trust has partnered with key sustainability project developers, including Go Balance and ReGen III, making it easier for organizations to purchase and offset carbon emissions.
“The platform’s success could revolutionize how carbon credits are traded and managed, especially as global interest in climate action increases. With future developments planned, Northern Trust’s solution is poised to further advance the digitalization of environmental markets.”