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Indonesia weighs blockchain-powered carbon trading system • londonbusinessblog.com

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Indonesia wants to turn the blockchain craze towards 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 envisaged partnership revolves around IDX’s emissions trading system that is expected to launch in 2025, and MVGX’s job is to help IDX build a carbon registry and exchange using blockchain as an infrastructure layer.

Using blockchain in carbon trading solves the so-called 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 londonbusinessblog.com. Founded in 2018, MVGX is license by the Singapore Financial Authority to provide securities and custody services. The startup offers SaaS to commercialize carbon credits and targets “emerging markets that want to provide international access to their emissions reduction projects.”

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

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

“The Indonesian government has recognized the critical role financial services can play in strengthening the country’s sustainability commitments. IDX is currently preparing for the opportunity to become a carbon exchange in Indonesia and has engaged with several parties to deepen our knowledge,” said 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, otherwise they would have to buy from people with excess carbon credits 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 offsetting 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 a streamlined public record for carbon trading, it does not solve the incentive issues surrounding offsetting. Nor does it guarantee the quality of lenders’ emission reductions and whether these claims will hold up over the long term.

The reception of Crypto in the carbon trading world has not been particularly warm either. Startups committed to symbolizing carbon credits have become hugely popular in the past year, as they promise to entice more investors into the world of carbon exchange. One of the most high-profile projects is Toucan, which started late last year by bridging credits issued by Verra, the standard-bearer of the carbon trading industry, onto the blockchain and “retiring” the credits as tradable tokens. In May, Verra forbidden the conversion of retired credit into cryptocurrencies “on the basis that the act of retirement is commonly understood as referring to the consumption of the credit’s environmental benefit.”

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

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