On July 16, 2021, with the launch of China's national carbon market, the world's largest carbon market has been established. This is another major institutional innovation to use market mechanisms to control and reduce greenhouse gas emissions and promote green and low-carbon development after the 1997 Kyoto Protocol.
Carbon trading internalizes the negative externalities of carbon emissions through the "polluter pays principle”. At the same time, under the premise of total emissions control, enterprises with low emission reduction cost will try to reduce the maximum amount of emissions, while enterprises with high emission reduction cost will buy quotas in the carbon market. Enterprises can buy and sell quotas in the market, and the market determines the price to achieve optimal allocation of resources.
Furthermore, the emission reduction mechanism is set up to provide financial support for carbon sequestration and renewable energy projects, and promote the development of energy-saving and low-carbon industries. In addition, carbon trading attracts the awareness of enterprises, institutions and individuals, making it easier to form an atmosphere of emission reduction within society, contributing to the realization of the carbon neutral goal.
According to the Paris Agreement, the world must rapidly reduce carbon emissions to 25 billion tons of carbon dioxide equivalent by 2030, so the future global carbon emissions will need to fall by more than 3% a year to meet the 2030 target. At present, the global attention to carbon emissions and climate change is gradually increasing, and the world's major powers have proposed nearly 5-10 years of carbon emissions targets, driving the world to the direction of "carbon neutral". In the path of achieving global carbon neutrality, it is very important to establish a global carbon pricing mechanism and a carbon trading market in which all countries in the world can participate.
Article 6 of the Paris Agreement contains special arrangements for achieving emission reduction targets such as global carbon pricing and global market mechanisms. Some developed economies, such as the United States and Europe, have relatively high marginal abatement costs. With this mechanism, they can purchase quotas in countries with low marginal abatement costs through the carbon market to achieve emission reduction. For example, the EU can buy quotas from Cambodia, Vietnam, India, etc. The global price of carbon could then be levelled. Some developing countries also get a share of the income from selling quotas. However, in terms of technical implementation, it is difficult for China, the EU and the US to realize the link of carbon markets, and there are still many pain points. The main problems are as follows:
Thus, a true global carbon market is still a long way off.
ECO2 Ledger has been designed to explore the best solution to the carbon market's pain points with blockchain technology. ECO2 Ledger is a public blockchain system designed for the global carbon market, which realizes the whole process of global point-to-point carbon trading through a distributed recording, transfer, and storage of carbon assets. In this way, the carbon market can be open and transparent, improving efficiency, and ensuring the security of carbon assets.
The core of ECO2 Ledger is "zero carbon emissions". It is the first blockchain system in the world powered by carbon neutrality by adding a carbon neutral process to the consensus mechanism at the protocol level. ECO2 Ledger uses the same underlying Substrate architecture as Polkadot. The system has strong compatibility and interoperability. The ecosystem is no longer limited to its own system, but can link all systems and share all users in the ecosystem.
In addition, programmable carbon assets are a new form of economic interaction created by ECO2 Ledger through blockchain technology. With the help of a programmable carbon credits, any business, organization or individual can develop a DAPP that links to the ECO2 public blockchain, forming a diversified and sustainable global carbon finance ecosystem.
The ECO2 Ledger project is currently in its second round of public testing. Recently, the project received news that the Climate Chain Coalition (CCC) will join TSVCM. As a core member of the Climate Chain Coalition in Asia, ECO2 Ledger will assist the CCC in the advisory work of the TSVCM working group. The ECO2 Ledger project will contribute its expertise in the application of blockchain technology to international carbon finance, hoping to work with the TSVCM's new governance body to create a global and transparent carbon trading market. The project will be developed in line with the action plans of the UN Climate Chain Coalition and the TSVCM Working Group.
The Taskforce on Scaling Voluntary Carbon Markets (TSVCM) is an international organization that aims to expand effective and efficient voluntary carbon markets to help meet the goals of the Paris Agreement. The TSVCM working group was launched by Mark Carney, the UN Special Envoy for Climate Action and Finance, and is sponsored by the Institute of International Finance with consulting support from McKinsey & Company. The group is chaired by Bill Winters, Chief Executive of Standard Chartered, The Operations Chair of the Taskforce is Annette Nazareth, a former Commissioner of the Securities and Exchange Commission and now Senior Counsel at Davey & Co. The TSVCM working group is advised and guided by an advisory board comprised of 20 environmental NGOs, Investor Coalitions, academia and international organizations. The TSVCM Working Group has more than 250 members representing buyers and sellers of carbon markets, standard setters, the financial sector, market infrastructure providers, civil society organizations, international organizations and academia. The organization's unique value proposition is to bring all parts of the carbon market value chain closely together and to provide solutions to the pain points facing the international voluntary carbon market.
The TSVCM is now creating a new governance body to oversee the creation of a large, transparent market for carbon credits. TSVCM hopes the governance body will also speed up the credit verification process and improve the integrity of the credit supply through further development of project digitization. In addition, the working group recommended that the use of satellite imaging, digital sensors, artificial intelligence, open data markets and blockchain be further explored to further improve the speed, accuracy and integrity of carbon markets. Leveraging a wider network of organizations and forums to mobilize digital solutions for climate and sustainability, including the Climate Chain Coalition. The TSVCM suggests that these organizations can address a wider range of governance and social related issues involving certain types of digital technologies applied to the carbon market MRV (Monitoring, Recording and Verification) process.
On September 22, 2020, President Xi Jinping announced at the general debate of the 75th Session of the United Nations General Assembly that "China will increase its nationally determined contributions, adopt more robust policies and measures, and strive to peak its carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060." Achieving carbon peak and carbon neutrality is a solemn commitment China has made to the world. It is also a broad and profound economic and social transformation. However, while developed countries have a transition period of 60 to 70 years from carbon peak to carbon neutral, China has only about 30 years. This means that it will be much harder for China to cut greenhouse gas emissions than developed countries.
Similarly, to establish a global carbon market mechanism, the difficulty and strength of the path to implementation will face more challenges, the road will be difficult, and more time and effort must be put forth. It is the vision of the ECO2 Ledger project to build a global consensus for low carbon economies, and pool the strength of all parties to fight for the mitigation of climate change.