Indonesia weighs blockchain-based carbon trading system • TechCrunch

Indonesia wants to steer blockchain craze to greener use. The Indonesia Stock Exchange (IDX) has signed a memorandum of understanding with Metaverse Green Exchange (MVGX), a Singaporean startup specializing in digital exchange technology. The intended collaboration centers around IDX’s emissions trading system that is set to launch in 2025, and MVGX’s job is to help IDX build a carbon ledger and exchange with blockchain as an infrastructure layer.

Using blockchain in carbon trading solves what’s called the double-counting problem where two entities, or an entity and a country, claim the same climate action, Bo Bai, executive chairman and co-founder of MVGX, tells TechCrunch. Founded in 2018, MVGX is licensed by the Financial Conduct Authority of Singapore to provide securities and custody services. By offering SaaS for the commercialization of carbon credits, the startup is focusing on “emerging markets seeking to provide access to their emissions reduction projects internationally.”

“The infrastructure also provides an immutable record of the creation and ownership of the credit, as well as an irrefutable record of the performance of the green project to which the carbon credit is linked, to date,” Bai explains.

Indonesia has joined a number of countries strengthening their environmental responsibility with a financial mechanism. As of July, 46 countries are pricing emissions through carbon taxes or emissions trading systems (ETS), according to the International Monetary Fund.

“The Indonesian government has recognized the vital role the financial services industry can play in strengthening the country’s sustainability commitments. IDX is currently preparing for the possibility of a coal swap in Indonesia and has started discussions with several parties to deepen our knowledge,” says Jeffrey Hendrik, director of business development at IDX, in a statement.

Carbon trading is not a panacea for climate change. The mechanism incentivizes carbon emitters to be less polluting or they will need to buy from those with excess carbon molecules to offset their carbon footprint. The capital generated from the sale of carbon credits can then be used to fund conservation efforts, at least in theory. But one of the biggest criticisms of the mechanism is that the offset allows entities to claim carbon neutrality without making a significant effort to reduce emissions in the first place.

While blockchain is believed to help create an improved public record for carbon trading, it does not address the incentive issues surrounding offsets. Nor does it ensure the quality of emission reductions by credit issuers or whether these claims are sustained over the long term.

Crypto’s reception in the world of carbon trading is also not particularly warm. Startups working to generate carbon credits have grown in popularity over the past year as they promise to attract more investors to the world of carbon trading. One of the buzziest projects is Toucan, which launched late last year by bridging credits issued by Verra, the key player in the carbon trading industry, to the blockchain and “retiring” the credits as tradable tokens. In May, Verra banned the conversion of pension credits into cryptocurrencies “on the basis that the act of retirement is widely understood to refer to the consumption of the environmental benefit of the credit.”

Toucan’s backlash hasn’t stopped countries from embracing blockchain carbon trading. In addition to the potential partnership with Indonesia, MVGX has also partnered with carbon trading initiatives in China, including the Guizhou Green Finance and Emissions Exchange, and is in advanced talks with relevant authorities in Malaysia and Taiwan to collaborate on infrastructure projects. according to Bai.

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