Digital marketplace technology implementation brings transparency to the voluntary carbon market

techUK Guest blog by Paul MacGregor, Head of Sales and Marketing, NovaFori.

How can digital marketplace technology implementation help bring transparency to the voluntary carbon market?

Both corporate entities and private individuals have historically taken a sceptical attitude to nature-based carbon offset schemes. The three primary accusations levelled at voluntary carbon markets are questions of veracity, quality, and risk. These doubts have been amplified by both historical factors and more contemporary trends. The voluntary carbon market has previously been seen as a realm of specialist brokers and consultants, contributing to the impression of ‘opacity’ and charges of ‘greenwashing’. Furthermore, the recent increased interest in ESG based “investment, ESG Funds’ and even ‘ESG Futures’ has only increased scrutiny. Here at NovaFori, however, we believe that digital marketplace and auction technology can bring transparency to the carbon offset process and assuage some of the doubts currently surrounding the sector.

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What are some of the challenges facing Voluntary Carbon Markets?

Concerns around veracity, quality, and risk in regards to the carbon offsets have typically manifested themselves in three practical questions:

• How to ensure the permanence of nature-based carbon offsets?
• How to monitor and verify the issuance of offsets?
• How to ensure offsets are properly accounted for and only claimed once.

Firstly, for carbon offsets to have a meaningful impact on the climate they must play a lasting role in removing carbon from the atmosphere. However, the status of nature-based carbon offsets is inherently unpredictable. Taking a forest as an example, trees can be lost due to forest fires, disease, illicit land use, or government intervention. If the forest is degraded in this way the carbon retained in its biomass will be released, negating any offset.  Secondly, purchasing carbon offsets is only meaningful if they are measurable and verifiable. But the process behind data collection and analysis for nature-based projects can be complex, costly, and manual. There can be bottlenecks in the supply of qualified experts available to start and complete the process of creating measurable and verifiable carbon offsets. Finally, unless carbon offsets are properly accounted for, they run the risk of being counted more than once. Thus, the need for detailed, accurate and accessible data to underpin each offset is imperative.

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How can digital marketplace and auction technology help to alleviate these issues?

Historically, the process of to easily and permanently linking carbon offsets to verified data sources, associated with specific locations and time, has been a manual and disparate process. However, a singular, over-arching marketplace structure can integrate with 3rd part verifiers. Housing all the requisite data within a single interface facilitates the path to purchase for potential purchasers. Individual phases of the verification process can be centrally orchestrated, leveraging information from the whole chain to provide better transparency and efficiency.

This transparent marketplace, interconnected through real-time data, could help to address the veracity, quality and risk-based concerns that are barriers to Voluntary Carbon Market adoption. Connecting the entire verification process will be vital to ensure that all touchpoints work transparently and prevent the system breaking down. With accurate datapoints relating to the condition, location and availability of offsets will allow trading models, such as capacity auctions, to be developed that can assist purchaser with mitigating risk.

NovaFori’s work with Climate Impact X (CIX) provides an example of how digital marketplace and auction technology can augment the process of establishing a Voluntary Carbon Markets. CIX, founded by Temasek, DBS, Standard Chartered and SGX, approached NovaFori in early 2021 to create a platform that allowed carbon credit suppliers to list their projects with sufficiently detailed information from a range of data sources. As well as allow CIX to supplement and compliment this data with relevant commentary and imagery. The resulting digital marketplace facilitated transparency regarding key project details such as the total tonnage of emissions reduction over project lifetime.

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Working to in this facilitate the adoption of Voluntary Carbon Markets is of utmost importance in overcoming the challenges posed by climate change. The nature base assets than underwrite carbon offsets are capable of delivering one third of the cost-effective emissions reductions required to y 2030 emissions targets, reducing up to 10Gt per year. Increasing the levels of finance available to these nature-based solutions will be required to ensure that these assets are adequately safeguarded, and Voluntary Carbon Markets are an ideal conduit to do so. The size of the voluntary carbon market has already quadrupled since 2020, with over $2 billion in assets traded across 2022. Highly scalable infrastructure is needed to ensure that this space has the capacity to grow further still, as is required. Digital marketplaces will therefore need to play a central role in smoothing the way for Voluntary Carbon Market’s continued expansion.

Organisations across all sectors face increasing pressures to decarbonise. It is imperative that the UK and indeed the world aim commit wholeheartedly to meeting net zero targets. Customers now expect businesses to have firm carbon reduction targets and clear strategies to get there. Investors are also now choosing to put their money into businesses with strong environmental credentials, and regulation is making businesses disclose their credentials.

Thanks to the marketplace and auction technology such as the one provided by NovaFori it’s possible to bring transparency to an ESG offering. The market for Carbon Credits has previously been opaque and controversial. Our platform can help improve transparency by providing independently assured veracity and ratings on the carbon credits offered.

Whilst the advice for organisations looking to meet sustainability goals must foremostly be to look, to reduce emissions directly before considering carbon offsets. Those looking to enter Voluntary Carbon Markets should, however, consider how a digital marketplace centred approach can help address their needs.

NovaFori’s work with Climate Impact X (CIX) provides an example of how digital marketplace and auction technology can augment the process of establishing a Voluntary Carbon Markets. CIX, founded by Temasek, DBS, Standard Chartered and SGX, approached NovaFori in early 2021 to create a platform that allowed carbon credit suppliers to list their projects with sufficiently detailed information from a range of data sources. As well as allow CIX to supplement and compliment this data with relevant commentary and imagery.  The resulting digital marketplace facilitated transparency regarding key project details such as the total tonnage of emissions reduction over project lifetime. It was fully integrated with the  Verra registry, who will de-list if a project is bought and retired. As well as integrated with Sylvera, to provide independent ratings, co-benefits, and satellite view of offset projects. Furthermore, the capacity auction model central to the marketplace was designed to maximise distribution and spread purchaser risk. Bidders were able to enter multiple orders at different price levels. With multiple projects and vintages offered in a single auction, bidders were able to spread risk across a portfolio of verified offsets.

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