@IETA's task group for digital carbon markets released a statement via @CarbonPulse. There are big implications for #ReFi here. 👀
carbon-pulse.com/153786/
Here are the key takeaways taken from the article by the IETA Council Task Group on Digital Climate Markets 🧵🪡
1/n
"Over the past several weeks, the Task Group heard from data providers, exchanges, independent standards, project developers, and digital innovators on the use of digital tools in the carbon market."
carbon-pulse.com/153786/
2/n
"Our main conclusion is that digital innovation can improve the performance of carbon markets across the value chain" ✅
But...
"such innovation comes with significant risks across the three main use cases, which need to be carefully identified and managed." 🤔
3/n
💻 Digital MRV 📐
"Digital technologies in monitoring, reporting and verification (MRV) can create efficiency, accuracy, and transparency but these... need guardrails to ensure the technologies enhance robustness and accuracy and do not undermine integrity"
4/n
💿 Data Repositories 📚
Blockchain "can enable data repositories such as the World Bank’s proposed Climate Warehouse, which aspires to link all carbon credit issuing authorities and registries under one platform."
(Referencing @chia_project coindesk.com/business/2021/11/05/chia-network-to-develop-prototype-for-world-banks-climate-warehouse/)
5/n
"Such innovations can provide much needed transparency in a highly fragmented and dispersed market on the status and location of all carbon credits as well as help avoid double registration and double counting."
6/n
"As with digital MRV, these technologies should be supported by data standardisation and minimum system requirements to reach their full potential."
7/n
📃 Credit Tokenisation 🪙
"Credibly digitised credits can reduce market friction, increase access for both buyers and sellers, reduce transaction fees, and scale flows of capital to the carbon market." ✅
However...
8/n
"... digital climate assets raise many concerns including:
1. The seemingly speculative nature of tokenisation schemes
2. The loss of environmental integrity from tokenising retired carbon credits
9/n
"the lack of transparency in the governance of Decentralised Autonomous Organisations (DAOs) and lastly the uncertain regulatory treatment of tokenised carbon.
"All of these risks need to be carefully thought through and managed to protect the integrity of the market."
10/n
🚧 Initial Recommendations for Guiding Principles 🚧
Cover the following, unpacked in the thread below: 🧵🪡
1. Credible Standards
2. Registry Control
3. Tokens
4. Consumer Protection (KYC / AML)
carbon-pulse.com/153786/
11/n
"Where carbon credits are being used to issue digital tokens, these credits should come from projects that are validated, verified and registered under endorsed and conditionally endorsed standards by ICROA or government-approved carbon crediting schemes (the “Standards”)."
12/n
"The authority to decide whether or not to allow market participants to tokenise carbon credits and retire them should reside solely with the Standards."
13/n
"The Standards should have the infrastructure to record and track carbon credits that are being tokenised before allowing market participants to tokenise them."
(Read: Standards should leverage on-chain infrastructure)
14/n
"Tokens should be minted only for issued, ex-post verified carbon credits, not cancelled or retired credits."
(Read: tokenized states need to come to registries)
@toucanprotocol 👀
15/n
"The Standards should not allow token issuers to use expected forward streams of un-verified or un-issued emissions reductions and removals from projects."
(Read: tokenized pre-purchases and carbon futures in question)
@solidworlddao, @TheEdenDao 👀
16/n
"Token issuers should be subject to KYC and AML checks by the Standards. Customers should look for full transparency around KYC/AML in digital carbon trading markets. The infrastructure to manage the KYC/AML of the users should be explored."
17/n
"...token issuers and DAOs in particular should ensure that digital climate assets are suitable for customer’s goals, needs and risk tolerance and appropriate for their knowledge and experience, particularly when assets are marketed to retail investors."
18/n
"Any digital technology deployed must be truly sustainable. This means it must be inclusive, open, resilient and secure as well as have a low carbon footprint."
19/n
"Tokenised carbon credits should be issued ... and recorded or held in escrow in a publicly accessible registry linked to the Standard, and shall be reflected in the relevant data repositories to avoid double selling, duplicate claims and non-authorised tokens."
20/n
"The deployment of digital MRV tools needs to draw upon best practices to ensure integrity and that proper standards are followed."
21/n
"The increased use of digital MRV should be coupled with a rigorous and transparent process to control data and claims integrity, eliminate bad actors, and ensure auditability and data accuracy to appropriate levels of confidence for intended use."
22/n
Thanks to @W_Alasdair for his work in helping coordinate the effort across the #ReFi movement and ensure a fair representation of stakeholders.
I'm excited to see the voluntary market embrace the power of on-chain carbon for scaleable, transparent climate action with integrity.