An increasing number of initiatives are being launched to tokenise carbon and biodiversity offset credits.
However, carbon offsetting remains controversial, having been plagued with environmental integrity and social and human rights issues, and found to represent only a limited part of the solution to the environmental crises.
While more recent and less well known, biodiversity offsetting has been shown to have even worse environmental integrity issues.
We find that bringing carbon and biodiversity offsets on-chain will not significantly address their environmental integrity and social issues, while at the same time creating additional concerns, such as a potential worsening of land speculation and conflicts over land-use, and further entrenching the false narrative that rich countries do not need to change their lifestyle.
As a result, tokenised offsets will not be greener than their non-tokenised counterparts, and therefore cannot be a significant part of the solution to address climate change and critical loss of biodiversity.
The text of the Markets in Crypto Assets (MiCA) EU regulation resulting from inter-institutional negotiations unfortunately fails to include mandatory sustainability standards for crypto-assets and a ban on large scale use of proof-of-work mining. The final text however requires crypto-asset service providers and issuers to disclose the adverse impact that their consensus mechanism might have on the climate and the environment, based on sustainability indicators to be developed via regulatory technical standards by ESMA.
Disclosure alone is certainly not sufficient to address the problem of harmful crypto mining. Nevertheless, the review clause in the MiCA Regulation requires the Commission to present a first assessment in two years time on the need for additional measures to mitigate the adverse impact of crypto on climate and environment. It is therefore hoped that the methodology to be developed by ESMA will prepare the ground for stricter measures in the near future.