Our world is at a tipping point, and therefore new incentive mechanisms are needed to try and rebalance our economic activities to protect forests and reinforce behaviors that lead to the reduction of greenhouse gas emissions.

Some of the initiatives that can reduce greenhouse gases are carbon offsets and carbon insets. Carbon offsets are defined as activities to reduce or remove CO2 from the environment to compensate for CO2 made in industrial or human activities. While carbon insets on the other hand are activities that aim to reduce CO2 by taking action within an industrial activity. Both types of initiatives result in the creation of carbon credits that can be used to help us reach carbon neutrality.

In this article, we describe the difference between carbon offsets and carbon insets and will explain the role of Blockchain technology and how our NEXUS technology can be used to address this challenge of implementing such initiatives.

Carbon Offsets

An example of voluntary CO2 balancing to offset industrial emissions is forest tokenization. By tokenizing the amount of CO2 that a plot of forest land can absorb, investors and corporations can purchase these tokens to support foresters. These CO2 tokens can be used to offset carbon emissions while making it financially attractive for individuals or organizations to manage the protection and development of these forest areas.

How NEXUS enables the monetization of tokenized forest

To tokenize the amount of CO2 a forest can absorb, a forester will have to measure and prove how much CO2 can be absorbed by the land he is preserving. Once these calculations are done, an independent auditor checks and approve them.

The forester then submits those calculations to the authority that has the sole right to issue the CO2 tokens. Using our NEXUS system, the tokens are minted on the Algorand blockchain and then returned to the entity in charge of the land preservation efforts for future trading.
An example of such an initiative is Dein Hektar.

Additionally, through our stable coin service, customers that wish to equalize their carbon footprint can purchase these CO2 tokens by digitizing their money through our NEXUS portal. This process guarantees that the customer’s money is safe and that the transaction is secure, cheap, and auditable.

Asset tokenization

Our comprehensive asset tokenization solution enables you to open up investments to a much wider audience. It provides you with greater liquidity, while your investors get access to a wider range of assets at lower costs.

As soon as the digital money is in the customer’s wallet, he can then directly start purchasing CO2 tokens from whichever forest project he chooses to support. Holders of these tokens offset carbon emissions from urban activities, trade them if their value appreciates over time, or sell them back to the issuer.

Carbon insets

One of the most interesting new initiatives developed globally to reduce CO2 emissions is the concept of carbon insetting. Carbon insetting is a new accounting method that is being developed to directly monetize CO2-reducing activities such as purchasing electric vehicles or switching to biofuels.

As a practical example let us consider supply chain activities (transportation of goods) which are some of the biggest contributors to the CO2 in our environment. The trucks, ships, and planes that move our goods around the world still run on very pollutant fossil fuels. Even though the companies that operate those vehicles often have programs to reduce carbon emissions, replacing or refurbishing their entire fleets is expensive and economically unviable.

This is where carbon insetting projects directly in the supply chain industry come into play. Companies wishing to undertake initiatives to reduce CO2 emissions in their supply chain can subsidize their costs of switching to more green sources of energy directly from their customers, these customers would be willing to pay more in exchange for having a carbon-neutral supply chain.

A more detailed explanation of carbon insets.

How Nexus serves the tokenization of CO2 insetting activities

To tokenize CO2 savings from a carbon insetting activity, a company must first measure and calculate the CO2 reduction effects of the activity it wishes to subsidize. After an external auditor measures, and confirms the CO2 reduction calculation, the company then submits these calculations to a party authorized to issue (the issuer) the CO2 reduction tokens.
Using our Nexus system, the issuer then creates CO2 tokens on the Algorand blockchain, that are equivalent in value to the calculated CO2 savings and sends those tokens to the company. The company can then sell these tokens to its customers who can use them as carbon certificates and redeem them for carbon credit.

The benefit of having such a system done on blockchain technology is that all actions are publicly auditable and traceable since they are all recorded on an open ledger.