Carbon neutrality drives demand for carbon credits—why not create a carbon currency?
TechFlow Selected TechFlow Selected
Carbon neutrality drives demand for carbon credits—why not create a carbon currency?
Given that carbon credit trading is becoming increasingly standardized and related financial products are also becoming more standardized, it is entirely feasible to develop a blockchain-based distributed ledger tool on this foundation.
Navigating Web3 tides with focused insightsAuthor | Sun Mingchun, Council Member of China Chief Economists Forum and Chief Economist at Haitong International
As more and more institutions join the carbon neutrality movement, they need to purchase carbon credits to offset their emissions, increasing demand for such credits. Given that carbon credit trading is becoming increasingly standardized and related financial products are growing more uniform, it is entirely feasible to develop a blockchain-based distributed ledger tool on this foundation. In other words, why not create a "carbon coin"?
Recently, two topics have dominated market discussions: Bitcoin and carbon neutrality.
Bitcoin’s price has risen sixfold over the past year, driven in part by skepticism from the private sector toward the fiat monetary system led by central banks. In particular, the Federal Reserve's introduction of its "unlimited quantitative easing" policy last year triggered global liquidity flooding and broad-based asset price surges, reflecting public concerns about the U.S. dollar and the global fiat currency system.
Carbon neutrality has become a hot topic because many signatories of the Paris Agreement—including China—announced climate action plans last year. Most countries have pledged to achieve carbon neutrality around 2050. As the world’s largest greenhouse gas emitter, China has committed to reaching this goal before 2060. At the beginning of this year, President Biden introduced his "Green New Deal" and brought the United States back into the Paris Agreement, making energy conservation and emission reduction a global trend.
It is well known that one major criticism of Bitcoin is its enormous energy consumption during the "mining" process. Estimates suggest that Bitcoin consumes roughly as much electricity annually as Chile, with associated CO₂ emissions equivalent to those of New Zealand. Against the backdrop of global efforts toward carbon neutrality, this appears increasingly incongruous.
To accelerate global progress toward carbon neutrality, constrain corporate emissions, and incentivize institutions to actively develop energy-saving, emission-reduction, and carbon capture technologies, both Western economies and China have introduced tradable “carbon credits,” such as carbon allowances or verified emission reductions. Carbon trading markets have existed for years. Currently, the European Union Emissions Trading System (EU ETS) is the most mature, accounting for 80% of global trading volume. Related financial derivatives are also gaining investor interest—for example, futures prices for EU Allowances (EUA) have nearly doubled over the past year. There are numerous similar carbon trading platforms worldwide. While overall trading volumes remain limited, products are becoming increasingly standardized, suggesting significant potential for future growth.
For high-emission companies, carbon allowances or credits function like currency: if emissions exceed their quota, they must “pay” an equivalent amount in carbon credits. As more institutions commit to carbon neutrality, their need to buy carbon credits to offset emissions increases demand. With carbon credit trading becoming ever more regulated and financial products increasingly standardized, it is entirely possible to build upon this infrastructure a blockchain-based distributed ledger system. In short, why not launch a “carbon coin”?
Simply put, beyond being environmentally friendly, a carbon coin offers two additional advantages:
1. The potential supply of carbon coins lies between that of Bitcoin and fiat currencies, making it better suited to function as money.
The potential supply of fiat currency is unlimited, raising public concerns about inflation and currency devaluation—this was precisely the reason Bitcoin emerged in 2008. Bitcoin’s supply is absolutely capped, but this risks deflation, a phenomenon economists are familiar with from historical experiences under the gold standard. Therefore, Bitcoin is unsuitable as currency and functions only as an asset.
The annual supply of carbon coins would be tied to humanity’s annual reduction in CO₂ emissions, setting this reduction as the upper limit for issuance. As technology advances, total annual emission reductions will grow. This means the supply of carbon coins is neither absolutely fixed nor subject to arbitrary expansion. The quantity issued depends directly on humanity’s ability to reduce emissions. Since reducing emissions requires investment in labor, resources, and capital—and generates social welfare and value—it carries greater societal significance than Bitcoin’s simple Proof-of-Work (PoW) mechanism, while offering more discipline and constraint than fiat money. Thus, carbon coins could prevent inflation and maintain stable value, while avoiding deflation and supporting economic growth.
2. Regarding issuance mechanisms, fiat currencies are issued under the control of national central banks, whereas Bitcoin is issued by decentralized private actors around the world through competitive algorithms and computational power ("mining"), placing it outside central bank control—and thereby depriving central banks of the ability to adjust money supply and smooth economic cycles via monetary policy.
Carbon coin issuance lies between these two models. On one hand, since carbon emission reductions require verification by official or independent certification bodies worldwide, the issuance process is decentralized, jointly completed by public and private entities.
On the other hand, forests are a key channel for absorbing CO₂, and in most countries, forests are state-owned assets. If governments assign the "carbon sinks" generated by state-owned forests to central banks, the latter would hold a carbon sink reserve—similar to existing gold or foreign exchange reserves. Central banks could then use this reserve as a monetary policy tool: purchasing government bonds and issuing carbon coins when needed, or selling bonds and withdrawing carbon coins from circulation.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
