Carbon Credit Fraud — and How Blockchain Can Be Part of the Solution
- Media Manager
- Aug 27, 2023
- 1 min read
Corporate Compliance Insights
Written By: Womble Bond Dickinson
Published: August 28, 2023
Decentralized nature of digital ledger technology ideal for curbing abuse of carbon credit market
The summer of 2023 is shaping up as one of the hottest recorded in many parts of the United States and the world, with scientists predicting that the warming trend will only continue — and even worsen. In light of this, ESG and energy transition are important touchstones in American boardrooms. Although most U.S. companies do not have mandatory restrictions placed on their carbon emissions (yet), public scrutiny and market pressures increasingly are pushing American companies to reduce their emissions to combat global warming.
Accordingly, U.S. companies looking for ways to reduce their carbon footprints — whether directly or indirectly — increasingly are buying, selling and trading carbon credits and offsets.
Carbon credits were created primarily to support cap-and-trade programs, which seek to use market-driven solutions to reduce greenhouse gas emissions. Under these programs, entities receive credits (or allowances) that authorize emissions up to a certain cap, which is periodically reduced. One carbon credit generally authorizes the emission of one ton of carbon dioxide or the equivalent in other greenhouse gases. Once a cap is established and allowances are awarded, entities may sell or trade their unused credits to other entities. This transactional component is intended to incentivize the reduction of greenhouse gas emissions in two ways:
Entities that reduce their emissions below their caps can generate revenue by selling their extra carbon credits.
Entities that do not reduce their emissions face increased operating costs because they must purchase extra carbon credits if their emissions exceed their caps.
