Tokenization for net zero: The opportunities and challenges of digitalizing voluntary carbon markets

The Global Digital Finance (GDF) Sustainability Working Group developed this report to explore the ways in which tokenisation and distributed ledger technology (DLT) can be employed to support a high-integrity, scalable, and interoperable voluntary carbon market (VCM).

The report (i) maps the current VCM landscape including existing standards in Part 2, (ii) identifies market inefficiencies and risks in Part 3, and (iii) explores how DLT and tokenization may address many of these challenges in Part 4.

Drawing on practical examples from market participants including case studies and pilot initiatives as set out in Part 5, the report considers the opportunities and limitations of DLT infrastructure in the VCM context.

Building on this analysis, the report offers a set of practical recommendations aimed at supporting the development of a high-integrity, scalable, and interoperable VCM:

1. Establish a unified and standardized market framework that supports technological innovation within VCM;
2. Utilize DLT to improve market transparency and price discovery;
3. Enhance trust and integrity through independent (direct access) verification and auditable digital records; and
4. Support regulatory and policy development for education and innovation in tokenized carbon.

Bryony Widdup, Partner and Co-head of Sustainable Finance & Investment, Hogan Lovells, notes: "digital infrastructure is already being used to revolutionise traditional financial markets at an increasing pace. Distributed ledger technology is also highly relevant to increasing efficiency, transparency and trust in the voluntary carbon markets. This report is intended to inform those working in the voluntary carbon markets and the digital space on working effectively together, to create dialogue and to advance the use of digital solutions in this area."

Hogan Lovells looks forward to the continued engagement of both the private and public sectors to support transition-economy goals and to advance the role of emerging technologies in enabling more transparent, efficient, and scalable climate solutions.

Click here to view the report.

Authored by Bryony Widdup and Emily Julier.