We are living in an era of technological and industrial innovation that comes with the additional responsibility towards the environment. As the use of infrastructure and resources increases, so does the emission of carbon. In recent years, climate change and GHG emissions have been the centre of talks for both the public and private sectors. These rising concerns towards the environment have led to various international-level initiatives like the Paris Agreement.
Public, private, and individual entities are also welcoming initiatives like carbon credits to support carbon neutrality and Net Zero. These initiatives aim to balance the traces of carbon and greenhouse gases in the atmosphere. Mass plantation, agriculture process, solar, wind, and fossil fuel usage, etc., are some of the processes to remove carbon footprints from the atmosphere.
Another important concept that helps maintain the balance of carbon emissions in the atmosphere is carbon credits.
Let’s discuss in detail carbon credit and how the latest technology is helping in its effective use and trade.
A carbon credits is a certificate issued by regulatory bodies to represent 1 Metric Ton of carbon prevented from being released into the atmosphere. It is used by organizations and industries to prove their support for global Carbon Neutrality. Organizations own carbon credits to trade in the traditional carbon credits market under the control of government and regulatory bodies.
Here is how it works—
An entity that holds carbon credits can sell them to other entities that exceed the threshold of carbon release set by the nation or regulatory body. By doing so, both parties choose to maintain a balance of carbon in the atmosphere.
Broadly, carbon markets are categorized into mandatory and voluntary markets. Let’s learn what this is–
Compliance Carbon Market (CCM): This market is governed under the national, regional, and international GHG emission reduction framework and is mandatory to be followed. It usually affects large corporations and bodies.
Participants under this category need to cap their carbon emissions as defined by the regulatory body. This allows them to analyze the sale or purchase of carbon credits.
Voluntary Carbon Market (VCM): This market has been operating for a long time. It operates independently, which allows individuals and organizations to create, buy, or sell carbon credits voluntarily.
This platform encourages social responsibility and support towards environmental conservation and a sustainable future.
Traditionally, the carbon credits are traded on carbon credits markets under the control of regulatory bodies and the government.
Before trading carbon credits, organizations need to undergo various processes and complete paperwork to create a carbon credits certificate. This is what draws attention to loopholes in the systems—
This is where the blockchain-enabled Tokenization concept comes into the picture.
Like every other digital asset, carbon credits can also be converted into a digital token by the Tokenization process. Each token represents the ownership rights of carbon credits visible on the blockchain. By doing so, all transactions of carbon credits are recorded on a public ledger and can be traced, verified, and audited.
This enhances the overall efficiency of the carbon credits trade market by reducing fraud and duplicate use of carbon credits.
An organization can easily convert carbon credits into a token using the blockchain platform. They can store it in a digital wallet and choose to sell it whenever required. Each time a transaction happens, a log is created to prove the authenticity of a single and unique use of Carbon Credit.
Storage, management, and trade of carbon credits become much easier by choosing a blockchain-enabled carbon credits platform.
Voluntary Carbon Markets (VCM) built on a blockchain environment have huge potential to help nations achieve their carbon neutrality targets. Strong support from organizations and individuals for carbon tokenization is needed to improve the efficiency and transparency of the carbon market.
Participants can scale, verify, and trade carbon credits effectively, and strongly support global sustainable environment goals
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Source : https://www.linkedin.com/pulse/tokenizing-carbon-credits-sustainable-future-primafelicitas-limited
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