JPMorgan Chase & Co. is developing a new service to tokenize carbon credits and is partnering with a trio of carbon companies for an initial trial.
Kinexys, the US bank’s blockchain unit, is teaming up with S&P Global Commodity Insights, EcoRegistry and the International Carbon Registry to test a new application that will tokenize credits listed in registry systems overseen by the three companies, according to a statement on Wednesday. The companies will explore whether blockchain technology can be applied to regular activities such as tracking ownership of credits from issuance to retirement.
Tokenization has become a growing trend on Wall Street as bankers and money managers from BlackRock Inc. to Deutsche Bank AG seek more efficient ways to process and settle trades. Digital tokens that represent ownership of real-world assets, including stocks and Treasury bills, or, in this case, carbon credits, can be easily identified and traded.
Applying tokenization techniques in carbon markets should reap benefits since they “face challenges, including inefficiencies and a lack of standardization, transparency and market fragmentation,” JPMorgan said in the statement. A single tokenized carbon ecosystem “in which credits are seamlessly portable between sellers and buyers” may contribute to addressing these challenges, the bank said.
“The voluntary carbon market is ripe for innovation,” said Alastair Northway, head of natural resource advisory at JPMorgan Payments. “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.”
A carbon credit represents one ton of CO2 emissions that have been removed from — or not added to — the atmosphere, typically generated from forestry or renewable energy projects. A tokenized credit would be a digital version of a carbon offset that’s issued on a blockchain.
