How Technologies Solve Double-Counting Problems in Carbon Markets: Key Takeaways from COP29 Azerbaijan panel

Double-counting is one of the most significant hurdles in carbon markets, challenging the credibility and effectiveness of carbon credits. With multiple stakeholders and inconsistent tracking systems, the risk of carbon reduction claims being counted more than once persists. This issue can artificially inflate environmental benefits, undermine the market’s trustworthiness, and deter potential participants from engaging. A recent COP29 panel hosted by Biosphere3 explored how advanced technologies, particularly blockchain and artificial intelligence (AI), provide innovative solutions to this challenge. 

Why Double-Counting is a Problem

Chris Zhang, General Manager of Biosphere3 Trading Platform, began the discussion by outlining the risks of double-counting. “Actually, double-counting brings in multiple challenges, including misrepresentation of reductions that will forcefully inflate the environmental benefits, undermining the true impacts of climate initiatives,” he stated. 

He further emphasized that double-counting compromises the credibility of carbon credits, causing investors and buyers to lose confidence. “Buyers and investors hesitate to participate… without our system,” Chris added, highlighting the importance of a reliable data management system. 

Chris also outlined the potential of large language models (LLMs) to mitigate these issues. He explained that LLMs excel at analyzing diverse, often problematic data sources, including publicly available data, registry reports, and news articles. “Large language models can detect the likelihood of double-counting,” he said. By automating the analysis and cross-checking of information, LLMs make data management more transparent and efficient, fostering greater trust in the carbon market.

The Promise of Blockchain Technology

Federico Di Credico, Chief Sustainability Officer at ACT Group, discussed the potential of blockchain technology. He introduced the Climate Action Data Trust (CAD Trust), a blockchain-based initiative co-developed with the World Bank’s Climate Warehouse, the International Emissions Trading Association (IETA), and the Singapore government. 

“Climate Action Data Trust… is a spin-off of a broader ecosystem called Climate Warehouse of the World Bank,” Federico explained. He emphasized that CAD Trust uses blockchain to ensure data transparency and integrity, providing a tamper-proof record of transactions.

Federico described the approach as creating “a minimum common denominator, like a common language across all the different carbon market initiatives,” rather than centralizing everything. This shared taxonomy allows different carbon markets to communicate effectively while preserving their unique structures. He also explained the choice of blockchain: “You want to have an immutable ledger and distribute the ledger… because you don’t really want anybody to own the data.” This decentralized system addresses concerns over data ownership and potential bias, ensuring a neutral, reliable source of information.

Carbonmark’s Blockchain Integration

Andrew Bonneau, Managing Director of Carbonmark, elaborated on how Carbonmark’s platform leverages blockchain technology. Carbonmark turns carbon credits into programmable digital assets, allowing for automated transactions such as issuing, trading, and retiring credits. “When you make an asset programmable, you can start to automate different processes around its usage,” Andrew explained.

He stressed that real-time data insights are one of blockchain’s key advantages. “When you have these assets being traded and facilitated on the blockchain system, you really do have real-time data insights,” Andrew said. By integrating with registries through APIs, Carbonmark can display up-to-date project data, making carbon credit information more transparent and traceable. He also discussed how automation through Digital Monitoring, Reporting, and Verification (dMRV) systems could streamline the issuance of credits. “The data is automatically streamed into our blockchain-based system,” he noted, reducing manual validation efforts and increasing the overall efficiency of carbon markets.

The Developer’s Perspective on Technology

Gordon Hilbun, Chief Executive Officer of One Earth Fund, provided insights from a project developer’s perspective, emphasizing the need for verifiable and transparent processes. “If there’s no trust in the market, then the value of the market erodes rapidly,” he said. Gordon described how his organization uses biological waste diversion methods, like composting and black soldier fly cultivation, to generate carbon credits. He outlined how technologies like RFID tagging ensure that waste batches remain traceable throughout the process, adding, “It’s critical to maintain that data integrity.”

Gordon also highlighted how blockchain reduces the costs of verification, which have traditionally been a barrier for developers. “The ability to… more rapidly move through the verification and validation process… reduces the amount of physical auditing,” he explained. This technological integration saves time and makes projects more economically viable, especially in developing regions. “With the improvements, with blockchain and also with large models that can validate datasets, the methodologies have only been reinforced,” he added, emphasizing the strengthened credibility of carbon credits in the market.

The Road Ahead: Addressing Cost and Connectivity

During the Q&A session, panelists addressed questions about cost efficiency and the challenges of connecting various data sources. Federico di Credico was asked about CAD Trust’s funding model and impact on project developers. “Everything has been done through philanthropy,” he said. “The idea is… to be as lean as possible and focus on value creation.” He explained that CAD Trust is focused on building a robust governance structure and creating meaningful use cases before addressing cost optimization.

Andrew Bonneau from Carbonmark responded to a question about motivating registries and DMRV providers to connect their data to blockchain systems. He proposed using incentives like automated royalty payments: “When you have trading of credits, you can actually send a royalty back to the original project developer themselves,” he explained. This approach could simplify the market, making blockchain integration more attractive to various stakeholders. “This isn’t just a futuristic idea; it’s something we’re actively developing,” he emphasized.

Final Thoughts: A New Era for Carbon Markets

The integration of AI and blockchain represents a major step forward in the evolution of carbon markets. These technologies not only improve efficiency but also enhance transparency and trust. As Andrew Bonneau from Carbonmark concluded, “We believe there is merit to a more tech-enabled carbon market… making it secure, transparent, and ultimately scalable.” Federico di Credico also highlighted the importance of governance, stating, “Taxonomy in the carbon market is a constant evolution… and governance must adapt accordingly.”

The conversation made it clear that solving double-counting isn’t just about technology but also about wise governance and collaboration. As the market evolves, these advancements could unlock greater investment and participation, making climate action more effective on a global scale.

For more on this discussion and upcoming events, visit Biosphere3 and stay tuned for further insights from COP29.