Reports said that nonfungible tokens (NFTs) as carbon credits or carbon offsets are a slow-rolling trend in the regenerative finance (ReFi) and decentralized finance (DeFi) markets.
It has been reported that most of this activity currently takes place on the Polygon blockchain, as it has already offset its entire carbon footprint. The way these digital assets work with carbon credits differs from other ventures in the space. Rather than a store of wealth or a piece of unique digital art, carbon credit NFTs serve as a repository of information related to a specific batch of carbon offsets.
However, this information could include, but is not limited to, the total number of offsets (i.e., how many metric tonnes), the vintage year of the removal, the project name, the geographical location, or the certification program utilized. Such NFTs are then fractionalized into Ethereum-based ERC-20 tokens, fungible with each other.
The report said that unlike the majority of NFTs available to consumers, a properly functioning carbon credit NFT comes with a catch. In order for it to serve its true purpose — verifying and standing in for carbon emission offsets — it must be burned. In off-chain settings in the carbon market, this is called “retirement.”
A core member of KlimaDAO, a decentralized organization using DeFi to fight climate change, explained:
“Retirement means that someone is essentially taking that carbon offset and claiming it for its environmental benefit, meaning that they’re basically offsetting their emissions. Then that carbon offset is permanently taken out of circulation and can no longer be traded or sold to anyone else.”
Likewise, when it comes to retiring these carbon offsets in an on-chain setting, one must burn the token once the retirement certificate is obtained. In other words, it must be removed from the database and no longer available for trades.
The announcement stated:
“It’s very important that if there is any type of environmental claim being made regarding the offset being embedded in an NFT, that NFT is actually burned in some respect and a specific entity or individual is named to claim that environmental incident.”
There are a large number of projects popping up in the space that claims to implement NFT technology for carbon offsets, including carbonABLE and MintCarbon. With a market value of over $850 billion, the carbon credit industry is not a small one. Like other profitable markets, it is susceptible to scams. As NFTs continue to rise in popularity, NFT scams become more prevalent.
KlimaDAO stressed that projects that claim NFTs as carbon credits should also carry accreditation from internationally recognized standards. Principally, an endorsement from the International Carbon Reduction and Offset Alliance. If not, projects with this claim should be carefully considered before investing under that pretext. Although the carbon credit market is valuable, the way it operates is still unknown to the masses.
Thus, these carbon offset NFTs could be really useful if fully disclosed because they would be doing what they promise. These offsets provide an injection of capital from some other source to maintain and develop a project. This could range from renewable energy generation to forest protection or reforestation.