The United Arab Emirates (UAE) has announced the launch of a blockchain-powered carbon credits system that aims to reduce greenhouse gas emissions and promote sustainable development. The system, which is the first of its kind in the Middle East, will enable companies and individuals to buy and sell verified carbon credits that represent reductions or removals of carbon dioxide from the atmosphere.
Carbon credits are a type of environmental asset that represent a reduction of greenhouse gas emissions. They can be traded in the market or used for compliance purposes by entities that have emission reduction targets. However, the current carbon credit system faces several challenges, such as lack of transparency, high transaction costs, and risk of fraud.
Blockchain technology can offer a solution to these problems by creating a decentralized, secure, and verifiable platform for carbon credit issuance, trading, and verification. Blockchain is a distributed ledger that records transactions in a peer-to-peer network, without the need for intermediaries or central authorities. Blockchain can ensure the integrity, traceability, and immutability of carbon credit data, as well as facilitate the automation and standardization of processes.
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Some of the potential benefits of blockchain powered carbon credits system are:
Enhanced transparency and trust: Blockchain can provide a public and immutable record of carbon credit transactions, as well as the underlying emission reduction activities and verification results. This can increase the confidence and credibility of the carbon market, as well as reduce information asymmetry and corruption.
Reduced transaction costs and complexity: Blockchain can enable faster and cheaper transactions, as well as eliminate intermediaries and intermediation fees. Blockchain can also enable smart contracts, which are self-executing agreements that can automate the execution and enforcement of contractual terms, such as payment and delivery.
Increased market access and liquidity: Blockchain can create a global and open platform for carbon credit trading, where anyone can participate and access the market. Blockchain can also enable peer-to-peer transactions, where buyers and sellers can directly interact and exchange carbon credits without intermediaries. This can increase the market efficiency and liquidity, as well as foster innovation and competition.
The UAE’s Ministry of Climate Change and Environment (MOCCAE) partnered with the Dubai Carbon Centre of Excellence (DCCE) and the International Digital Asset Exchange Association (IDAXA) to develop the system, which is based on the Hyperledger Fabric blockchain platform. The system will use smart contracts to automate the verification, issuance, and transfer of carbon credits, ensuring transparency, security, and efficiency.
The system will also integrate with the UAE’s national greenhouse gas inventory and reporting system, which tracks the country’s emissions and mitigation actions. The system will support the UAE’s efforts to achieve its national and international climate targets, such as reducing its greenhouse gas emissions by 23.5% by 2030 and achieving net-zero emissions by 2050.
The system will offer two types of carbon credits: certified emission reductions (CERs) and voluntary emission reductions (VERs). CERs are issued by the United Nations Framework Convention on Climate Change (UNFCCC) for projects that reduce emissions under the Clean Development Mechanism (CDM). VERs are issued by independent standards for projects that reduce emissions outside the CDM framework. Both types of credits can be traded on the blockchain platform, creating a new market for low-carbon solutions.
The system will also enable the creation of carbon-neutral products and services, such as green electricity, green hydrogen, green mobility, and green tourism. These products and services will carry a label that indicates their carbon footprint and the amount of carbon credits used to offset it. This will help consumers make informed choices and support the transition to a circular economy.
The UAE’s blockchain-powered carbon credits system is expected to launch in early 2024, after a pilot phase that will test its functionality and scalability. The system will be open to all stakeholders in the UAE and beyond, including government entities, private sector companies, civil society organizations, and individuals. The system will also be compatible with other regional and global carbon markets, facilitating cross-border cooperation and innovation.