JPMorgan announced that its blockchain business unit, Kinexys, is currently developing and testing a new blockchain application to tokenize global carbon credits, in a bid to resolve key standardization and transparency challenges holding back the voluntary carbon market (VCM).
The company said that it is partnering with S&P Global Commodity Insights, EcoRegistry and the International Carbon Registry (ICR) to test the carbon credit tokenization on their own registries.
The new initiative comes as demand for carbon offset projects and related credits is expected to increase significantly over the next several years, as companies utilize credits as a bridge to their absolute emissions reduction efforts, or to balance difficult to avoid emissions. The largely unregulated and rapidly growing market faces a series of challenges, including however, a lack of standardization, transparency and market fragmentation.
According to JPMorgan, however, a single, tokenized carbon ecosystem would help to address these challenges, by providing a system in which credits can be easily transferred between buyers and sellers, with blockchain technology facilitating asset record keeping and payments, allowing users to access and act on registry data.
Alastair Northway, Head of Natural Resource Advisory at J.P. Morgan Payments, said:
“The voluntary carbon market is ripe for innovation. Tokenization could support development of a globally interoperable system that adds confidence into the integrity of the underlying infrastructure. This technology could support greater information and price transparency, which could ultimately lead to greater liquidity in the market.”
Under the collaboration with the three companies, each will initially test the viability of carbon credit tokenization using the application under development by Kinexys, with the testing focused on aspects including account, project and credit lifecycle management, with specific objectives around technical connectivity, data model compatibility and complete functionality.
JPMorgan said that EcoRegistry and the International Carbon Registry have successfully completed testing on their respective registry solutions, while S&P will start exploratory testing with its environmental solution Environmental Registry, with testing potentially also including S&P’s Meta Registry, which connects environmental registries around the world with carbon markets and their participants.
Keerthi Moudgal, Head of Product at Kinexys Digital Assets, said:
“We are excited to continue engaging with carbon market participants to build and implement new blockchain-based technology for this ecosystem, as ongoing engagement is central to our product development. We look forward to seeing the promise of tokenization come to fruition and the transformation of the voluntary carbon market from the ground-up.”
