Carboncoin: Blockchain Tokenization of Carbon Emissions with ESG-based Reputation

Abstract

Recent blockchain-based carbon markets focus on permit-based trading requiring manual application processes to grant the right for carbon emission. A decentralized blockchain-based carbon market without relying on off-chain permits is yet to be explored. In this paper, we present a new design of blockchain-based carbon trading through the introduction of Carboncoin – a blockchain asset which tokenizes the right of energy producers to emit carbon. Instead of relying on off-chain and centralized permits, producers are allowed to freely exchange Carboncoin with each other for fiat currency. By using an on-chain asset, carbon production can be automatically expensed whenever a producer records new energy production which is certified on the blockchain. Moreover, the proposed design enables generic ESG (Environmental, Social and Governance) data to be used to provide a more holistic reputation score inclusive of ESG initiatives undertaken by market participants. We conclude that entirely blockchain-based carbon markets can be made more comprehensive using ESG data and on-chain assets, but at the cost of reduced performance.