Cooperative Control with a Hybrid Carbon Infrastructure: Balancing National Interests with Global Progress

By Bo Bai, Executive Chairman and Michael Sheren, President of MVGX

It is clearer than ever that the fight against climate change is a collective one, requiring us all to contribute to the betterment of everyone. This fight is rooted in reducing our emissions and regaining a sustainable global equilibrium between humankind and the planet. However, as pressures mount on individual countries to meet sustainability commitments, a misalignment of interests is stalling progress. 

The Paris Agreement signified the need for a multi-pronged approach to emissions reductions and encouraged governments to seek opportunities for cross-border collaboration. Carbon markets have been an important element of this drive, creating the economic impetus to reduce emissions and drive sustainable economic development in emerging markets.

While there is a collective agreement about the desired outcome of a functional and high-integrity carbon market, there has been less alignment on the path and standards that will get us there. At a macro level, how should the voluntary carbon market be organised to ensure fluid and transparent cross-border trading while maintaining a level of national sovereignty? With competing central registries now battling for dominance over voluntary carbon markets and countries initiating their own national registries, the collective ethos will falter if the fast-growing number of public and private registries are not interoperable. 

While governments and international organisations must lead the policy charge on targets and standards, more partners are needed to develop the infrastructure on which a successful system runs. Uninvested and unbiased, technology has the potential to bridge this gap between national sovereignty and global collectivism in the carbon credit market. We believe a hybrid solution that empowers the creation of national registries that can interoperate within a global distributed ledger will bring us back to the collective goal.

Why meta registries are missing the mark

Double-counting is symptomatic of the inadequacies of the existing global carbon markets. This is when two parties claim credit for the same climate action — be it carbon removal or some other form of emission reduction. Governments are under pressure to keep carbon removal credits within their borders to ensure they do not exceed emissions thresholds as determined by their nationally determined contributions (NDCs). At the same time, the producers of the credits want to sell these valuable assets on the global market. This grey area results in situations where a carbon credit can be contributing to Country A’s NDCs, while simultaneously offsetting carbon emissions for a company in Country B.

In a bid to solve this problem, a disparate network of so-called central or meta registries operated by third-party providers, such as those being offered by Verra or Gold Standard registries, has emerged. These registries are designed to facilitate ‘voluntary cooperation’ between countries by tracking offset projects and issuing the corresponding credits for every unit of emission reduction or removal that is verified and certified — all of which are being offered voluntarily from different green projects in different countries.

Several meta-registries have been launched over the years, such as one that debuted in the market in October 2021 to connect “disparate environmental markets” across eight programmes and initiatives from 127 countries and territories. The registry was launched in partnership with governments, non-profit organisations, sub-national programmes, as well as domestic voluntary programmes, and includes data from over 6,800 projects.

In theory, these registries should ensure a carbon credit can function as a trustworthy offset commodity. These systems are responsible for recording the ownership of credits. But what happens when central registries don’t “talk” to one another and lack a shared record of transactions and ownership? What happens when these registries fail to accurately account for and reflect whether a credit has already been used toward one country’s NDCs? Double-counting and distrust.

As a ‘national’ resource, many countries would argue carbon is a ‘sovereign asset’. This has led to some countries, such as India, proposing the banning of the export of its carbon credits to ensure credits generated by domestic companies only benefit domestic players. Simply put, existing meta registries, in the eyes of some countries, violate their right to manage their national resources. Last July, the environmental minister of Gabon — the world’s second most-forested country — expressed concerns over launching a private sector offsetting project that “didn’t have the rights” to set up domestically. The private and public sectors are at loggerheads.

Today’s systems are not fit for purpose. Rather than building around these disconnections, we need to advocate for something better. At MVGX, we have a completely different vision of global carbon markets — one that preserves national sovereignty for countries while encouraging greater collaboration.

Principles for a truly interconnected global carbon market

Firstly, countries need the tools to control and manage their decarbonisation journey. Estimates state the trade of carbon credits could reduce the costs of implementing NDCs by US$250 billion — half the current costs — by 2030. For emerging markets, these costs are high, and it thus comes as no surprise that many are now in the process of developing their own national registries — from Jordan to Vanuatu. However, they currently lack structural alignment which will only lead to further market fragmentation and inequality.

At MVGX, we believe that creating structurally-sound national carbon registries are central to solving the problem. These registries must retain the sovereignty of their national resources within the global market, allowing governments to oversee projects, integrate them into their jurisdictional baseline data, and ensure they can harness — with integrity — the opportunities generated by carbon removal credits. While third-party registry providers have led the way up until now, it is essential for sovereign registries to be the first port of call for all credits generated domestically so they can have the ability to determine if the credits could be best used within the home economy or to be sold internationally. This provides every government with control of its own destiny.

Secondly, carbon credits within national registries must abide by stringent local and international carbon standards as they may need to be applied to their NDCs.  Further, if the country generating credits would like to raise funds in the international market, they will need to be certified by internationally-recognised certification agencies to ensure the best pricing. The domestic and international incentives to oversee all credits on a national registry at the highest level will build confidence in the credits with investors and across the wider system.

Finally, at a structural level, these national registries, across the globe, need to be able to communicate with one another. They need to be built with interoperability and transparency in mind to facilitate both cross-border trade and data linkages with the corresponding adjustment mechanism in line with the Paris Agreement. They must also be able to communicate and interoperate with existing global registries such as those operated by Verra and Gold Standard to manage and account for historically-registered carbon credits.

Technology has the potential to deliver transparency and interoperability at scale, however, until now, it has not been fully utilised. At MVGX, we want to enable all nations to implement a blockchain-based carbon auditing functionality. This will ensure every trade, transaction, and record of ownership exists in an immutable ledger, viewable by all relevant parties.

In this hybrid system, countries retain authority within their registries, but function within a shared, democratic system of other registries governed by other nations. This system is underpinned by distributed ledger technology where each country serves as a “node manager” alongside other commercial companies to govern how offsets are traded, by whom, and for which projects. Borrowing from blockchain’s core tenets, this ‘decentralised’ global system of national registries ensures that each country is treated equally and is afforded the same rights — no matter how big or small and advanced or where it might be in its journey of meeting its climate commitments.

A just transition underpinned by just principles

Throughout COP27, much was said about a “just transition” — one that no longer solely concentrated on the needs of developed nations, but equally accounted for the damage wreaked across emerging economies disproportionately at risk of global warming’s greatest effects. Whether in the context of mitigation or adaptation policies, such efforts need to treat the needs of all countries equally, rather than being grounded in a veil of protectionism that only breeds greater climate inequality.

A hybrid registry system as outlined above would enable the Global South to work effectively towards their own climate goals on an equal footing with their counterparts in the North. It would allow for the mobilisation of much-needed financial resources into these countries to fund green projects and initiatives, without running the risk of displacing government bodies — all the while reducing underlying costs associated with the low-carbon transition.

Now is the time for new innovative systems using future-facing technology: systems that facilitate global cooperation and collaboration while maintaining sovereign dignity and power, systems that do not pit markets against each other or motivate the creation of sub-standard credits, and systems that encourage the highest integrity and transparency while also enabling countries to fully realise the economic potential of carbon markets.

The battle against climate change is a collective one — one that must ultimately begin with well-designed policies and even better-designed technological infrastructures to address systemic flaws in today’s existing systems. Ultimately, at MVGX, we hope to be a part of the catalyst for this change — the Genesis Node, so to speak — as we pioneer a new model for carbon registry infrastructure design that ensures national sovereignty but greater opportunities for transparent, global cooperation on equal footing.

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