Kinexys by J.P. Morgan, the bank’s blockchain business unit, is developing an innovative application to help tokenize global carbon credits at the registry layer. Exploratory testing is being done with S&P Global Commodity Insights, EcoRegistry, and the International Carbon Registry ( ICR ).
EcoRegistry and ICR have successfully completed testing on their respective registry solutions. S&P Global Commodity Insights will start exploratory testing with its environmental solution, Environmental Registry, a customizable registry-as-a-service platform to facilitate better full-lifecycle tracking and management of carbon credits. Testing could also eventually include its Meta Registry.
According to Kinexys, global carbon markets face challenges including inefficiencies, lack of standardization and transparency, and market fragmentation. A single, tokenized carbon ecosystem, in which credits are portable between sellers and buyers supporting seamless means of settlement, could contribute to addressing these barriers.
Alastair Northway, head of natural resource advisory at J.P. Morgan Payments, says: “The voluntary carbon market ( VCM ) is ripe for innovation. Tokenization could support the 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.”
All three companies will initially test the viability of carbon credit tokenization using the application under development on Kinexys Digital Assets, J.P. Morgan’s multi-asset tokenization platform, with the aim of enabling external stakeholders to read and act on registry data more easily.
The testing will focus on account, project, and credit lifecycle management, with specific objectives around technical connectivity, data model compatibility, and complete functionality.
Kinexys by J.P. Morgan recently published a research paper exploring opportunities in the VCM. Key highlights of the report include:
- Building trust and confidence in the VCM. The transparency, traceability, and immutability of blockchain technology, alongside the security of bank-grade infrastructure, can contribute to much-needed trust across the VCM.
- Tokenization can act as a catalyst for standardization. To apply tokenization to this market, an asset standard must be developed and agreed upon, which can then be used across the ecosystem at scale.
- Broader opportunities must be realized for the VCM to scale. Tokenization is not a fix-all solution and other factors such as digital monitoring, reporting, and verification technology are required to improve project quality tracking and transparency. Connectivity to carbon market service providers, including ratings agencies and insurance providers, is also imperative.
“We are excited to continue engaging with carbon market participants to build and implement new blockchain-based technology for this ecosystem, as ongoing engagement is central to our product development,” says Keerthi Moudgal, head of product at Kinexys Digital Assets.
