Crypto’s attempt to fix offsets backfires

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Users of a little-known crypto platform called Toucan <> now account for purchases of more than a quarter of all carbon credits by the world’s largest verifier of offsets. This newest crossover between crypto and the climate is having unexpected consequences that appear to be backfiring.
Crypto enthusiasts aren’t usually among the top buyers of carbon offsets <…>. Airlines, banks, oil companies and other corporate polluters load up on offsets as a way to compensate for creating emissions. A project funded through offsets could, for example, support the building of a renewable energy plant on the logic that the carbon dioxide avoided by burning of extra coal will help cancel out a company’s climate harm.
In this case, crypto users didn’t move into offsets as a way to counteract the enormous emissions associated <…> with mining cryptocurrencies. What brought them in was the idea that offsets will be important in the climate fight, a fast-expanding market that some have projected to reach $100 billion in sales <…> by 2030, and an opaque trading environment with virtually no oversight.
Blockchain technology underpinning cryptocurrency can be used to keep a public record of accounts involved in transactions for carbon offsets, even while buyers remain anonymous. Prices paid for individual offsets would become publicly available for the first time. Crypto could help clean up a messy market <…> .
Some sought to go further. By organizing an effort to purchase the cheapest carbon credits, crypto users could rid the market of low-quality projects. An oil company would have to pay higher prices for offsets derived from more rigorous projects once Toucan’s users helped clear away the worst offenders. The crypto community even came up with a term for this method: “sweeping the floor.”
This do-gooder mission attempts to address the scientific problems with the vast majority of projects behind carbon credits, which don’t live up <…> to environmental promises <…>, by locking them away from being used. But now the crypto purchases aimed at ridding the world of bad offsets seem to be making the problem worse.
“You can see blockchain technology actually having a really important role because it’s a way in which you can create more security and transparency,” said Hugh Salway, head of environmental markets at Gold Standard, a major carbon offset registry. “But the way that this has been done in some examples is unhelpful.”
Take a look at the Dayingjiang-3 hydropower dam in China’s Yunnan province. In December, the dam’s developers sold <> their first credit endorsed by Verra <…>, the largest offsets verifier. The buyers were anonymous entities via Toucan <> .
Since then, more than 2 million credits from Dayingjiang-3 have been converted into what’s called a Base Carbon Tonne (BCT) on Toucan’s platform, each representing a ton of CO₂ <> supposedly avoided by not burning fossil fuels. Those BCTs make up more than 99% of the credits Dayingjiang-3 has sold, according to CarbonPlan <>, a nonprofit group that analyzes climate solutions.
Credits from existing dams don’t do much to help the environment. Given Dayingjiang-3 has been running since 2006, it doesn’t need additional funding to operate and displace more fossil fuel. This is a bedrock concept of carbon offsetting called “additionality” — a worthy credit will only come from green activities that wouldn’t have happened without the extra money. In fact, most of Toucan’s BCTs are based on renewable energy projects that would likely have happened without extra financial support, especially given how quickly the cost of clean energy has fallen in recent years.
“If a project hasn’t issued credits for years, there’s a real question as to whether it needed offsets and how important that income was,” said Barbara Haya <>, a research fellow at the University of California at Berkeley.
Many of the credits on Toucan’s platform are from projects that are more than a decade old, when standards were much lower. Almost all are linked to initiatives that started before 2016, CarbonPlan found. They wouldn’t be eligible for trading in established markets such as Corsia, a program run by the airline industry, or on some commodities exchanges which offer carbon offsets contracts, according to Grayson Badgley, a research scientist at CarbonPlan.
If the intention was to raise the quality and price of carbon credits, things are moving backwards. The assumption was that there’s a finite pool of bad offsets, which could be bought and locked away, allowing good projects to be priced better. But the assumption was flawed.
Spiking demand for cheap Verra credits triggered by Toucan and its allies has created new reasons to generate the bad offsets. According to an analysis <> by CarbonPlan, dozens of project developers who haven’t issued credits in years have suddenly started selling again — even though they don’t need the money to keep operating, much less get off the ground.
“The problem we are seeing is that Toucan is creating incentives to bring zombie projects to life that have no environmental integrity,” said Danny Cullenward, policy director at CarbonPlan.
Over the last six months alone, Toucan’s platform has been used to scoop up more than 21 million credits verified by Verra. That activity accounts for more than one in four credits bought over that span available via Verra. Toucan says crypto wallets on its platform hold credits worth more than $100 million, with related trading volume exceeding $2 billion.
Toucan says it’s not their responsibility to judge the quality of a carbon credit. “We’re not trying to be the standards body that’s creating the criteria by which we measure climate impact,” said John Hoopes, who works on the company’s strategy and ecosystem. Toucan is aware of the problem of zombie projects, he added, and is working on ways to filter out older credits.
Verra, meanwhile, said in a statement that it takes no responsibility for any trading that happens via Toucan or elsewhere in the crypto world and also defended its certification of old projects.
Other attempts to reform the offsets market have run into issues of quality control because it is fundamentally difficult to decide which projects are truly benefiting the planet. Last month, a task force <…> of hundreds of companies and sustainability experts led by finance heavyweights Mark Carney and Bill Winters acknowledged that their multiyear effort to improve carbon offsets trading had to be scaled back because they hadn’t yet agreed <…> on exactly how to define a high-quality project.
If crypto’s entry into offsets hasn’t so far managed to improve the market, that doesn’t mean it hasn’t been an opportunity for profit.
Once a carbon credit from Verra is turned into a BCT token, buyers can do as they please: trade it to someone else, use it to offset a ton of CO₂ (thereby “retiring” the credit), or convert it into other carbon tokens <>. One popular move is to turn BCT into a “carbon-backed currency” managed by KlimaDAO <>. The group is the most high-profile proponent of eliminating low-quality offsets. KlimaDAO and Toucan aren’t officially in partnership, but the two organizations dominate carbon-related crypto trading.
Because Toucan accepts almost all Verra credits, which can sell for less than $2 each, it’s created an easy opportunity for users to make a quick buck, according to Cullenward. Here’s how it works:

A user buys a $2 credit from Verra and converts it into BCT on Toucan –
BCTs on Toucan currently trade at about $3 each –
Those BCTs can also be used to earn KlimaDAO’s currency, which stands at $21 today
It’s impossible to determine what motivates the users investing in Toucan and Klima. While crypto’s decentralized nature makes transactions more transparent, to some extent, it also disguises buyers’ true identities — are they trying to save the planet or make a profit, or both?
“They might be sweeping the floor,” Cullenward said, “but they are making dust while doing so.”
*Written with Natasha White. Akshat Rathi writes the Net Zero newsletter, which examines the world’s race to cut emissions through the lens of business, science, and technology. You can email him <> with feedback.*
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