JPMorgan Chase & Co. JPM is working on a blockchain-powered system to tokenize carbon credits as part of its efforts to improve tracking, transparency, and trading efficiency in the carbon markets.
What Happened: The U.S. bank’s blockchain division, Kinexys, is collaborating with S&P Global Commodity Insights, EcoRegistry, and the International Carbon Registry to launch a pilot project, Bloomberg reported.
The trial will test whether blockchain technology can help track carbon credits from issuance to retirement, potentially reducing market inefficiencies and enhancing traceability.
Tokenization is gaining momentum across financial markets, with major institutions such as BlackRock BLK and Deutsche Bank DB exploring ways to digitize real-world assets like stocks and Treasury bills to streamline trade settlement.
JPMorgan believes applying similar digital solutions to the voluntary carbon markets could address longstanding challenges, including fragmented systems, inconsistent standards, and limited transparency.
In a statement, the bank noted that a unified blockchain-based framework could enable carbon credits to move more easily between buyers and sellers.
“The voluntary carbon market is ripe for innovation,” said Alastair Northway, head of natural resource advisory at JPMorgan Payments.
He added that blockchain-based tokenization has the potential to create a globally compatible system that could improve trust, price visibility, and liquidity in the market.
Carbon credits typically represent one metric ton of carbon dioxide either removed from or prevented from entering the atmosphere, often through renewable energy or forestry projects.
Tokenizing these credits would create a digital version recorded on a blockchain, making them more easily verifiable and tradable.
Also Read: Bitcoin’s Halving Cycle Is ‘Over’, Standard Chartered Affirms: What That Means For You
Why It Matters: While carbon markets are seen as tools for supporting environmental projects and channeling investment to developing economies, they have faced criticism.
Allegations of greenwashing and instances where projects failed to achieve promised emissions reductions have raised concerns about the credibility of the sector.
Despite these issues, financial institutions and governments continue to show interest in advancing carbon markets.
JPMorgan, which has financed carbon projects and purchased carbon removal credits, aims to position itself as a leader in this space.
In a report released Wednesday, JPMorgan described carbon markets as an emerging asset class that could grow stronger with better infrastructure and continued innovation.
However, the bank cautioned that if these improvements do not materialize, the market could face further setbacks in credibility and demand.
JPMorgan also noted that earlier tokenization attempts by other market players raised concerns about double-counting and the potential misuse of retired credits.
Read Next:
Image: Shutterstock
