The Biggest Transition in Environmental Markets

TL:DR - Digitalisation is increasingly important to scaling environmental markets. Focus must be placed on the efficiency, user experience and customer engagement. Important areas of this digital revolution include the measurement, reporting and verification of carbon credits such as remote sensing and blockchain for digital ledgers.        

Digitalisation is the process of change required to respond to emerging needs and market developments. This digital revolution has been one of the defining paradigms since the second half of the 20th century. It has fundamentally changed how people and businesses operate. Yet, environmental markets have remained relatively static.

The user experience in carbon markets remains unfriendly and clunky. Carbon project developers are required to follow long-standing practices based on old, outdated methodologies. The carbon sequestration potential of a forest is modelled using tape measurements on a small sample of trees and their root-to-shoot ratios whilst sensing equipment such as LIDAR provides an opportunity to measure vast tracts of land.

On the other hand, buyers of carbon credits face opaque markets with vast information asymmetry. Questions arise over the validity of claims for offsets reducing trust and hindering the ability of environmental markets to play the critical role required in our transition to a regenerative, Nature Positive, climate stable economy.

To put it in perspective we are probably somewhere in the late 1990’s (or early 2000’s if we are generous) on the road to digital transformation in environmental markets. Perhaps we have our home desktop and figured out how to turn it on but we certainly don’t yet have our iPhone equivalent that’s going to put the world at our fingertips and help us value nature for all its true worth.

Thankfully, major carbon players now recognise the need for a digital-led transformation of these markets. Gold Standard, a leading registry, has?launched several working groups?to define how new technology can improve current standards. Verra has similarly opened?public consultation?on the topic of crypto instruments. Innovation is happening at lightening speed and there is a very real chance of current incumbents being displaced if they cannot provide the lead in digitalisation the market is after.

Other organisations, such as Australian bank ANZ, also recognise the opportunity for a digital revolution in environmental markets. As outlined in this?Carbon Pulse story, the chairman of ANZ, Paul O’Sullivan, sees a huge opportunity for tokenised carbon markets. This is a natural evolution. Anything that requires an immutable, transparent, traceable ledger should naturally use a Proof of Stake blockchain (or equivalent digital ledger technology). Most major players in environmental markets (carbon and others) realise that if we were building markets from scratch this would be the right approach. Of course, like any market, there are incumbents who are naturally resistant to change.

However, many of the benefits of a blockchain-enabled ledger with associated smart contracts are overlooked. Yes, a better digital ledger is a good first step. But the opportunity for automation and digitalisation of measurement and trading of credits are immense to truly scale a critically important market in addressing climate change and our loss of natural capital.

This is but one part of the digital revolution. Project management and development tools, the measurement of carbon potential, reporting requirements and submissions, the exchange and marketing of credits etc must all be digitalised.

We are taking the first steps towards acceptance that technology has a huge role to play in scaling climate solutions. It must also be done in a customer-focused fashion that helps to reduce the cost and complexity of creating, trading and retiring credits to ensure maximum impact and integrity. The digitalisation of environmental markets will take the existing cumbersome, expensive, manual, analog processes and improve them with user-friendly, self-serve interfaces.

At Katalyst we are focusing on automated impact verification technology using remote sensing, AI and digital ledgers to identify and deliver high integrity, emissions removal, nature positive credits whilst increasing consumer engagement.