JPMorgan unit developing blockchain-based platform to tokenize carbon credits

JPMorgan’s blockchain and digital asset unit Kinexys is developing a new blockchain-powered infrastructure for carbon credit tokenization, according to a Wednesday report.

A carbon credit represents one ton of CO2 removed or avoided, usually from forestry or renewable energy projects. Tokenized credits are digital carbon offsets recorded on a blockchain.

In partnership with three major carbon registries, including S&P Global Commodity Insights, EcoRegistry, and the International Carbon Registry, the team is launching a pilot to create digital tokens tied to credits listed in registry systems overseen by the three companies and trace their lifecycle end-to-end.

Alastair Northway, who oversees natural resources strategy at JPMorgan Payments, said in a statement that tokenization could create a global system that builds trust in infrastructure and improves transparency, boosting market liquidity.

JPMorgan stated that carbon markets face challenges including inefficiencies, lack of standardization, transparency, and market fragmentation. The bank suggests a single tokenized carbon ecosystem where credits are seamlessly portable between sellers and buyers could help address these issues.

JPMorgan’s recent report on digital assets and carbon markets states that carbon is an asset class ready to mature as infrastructure improves and innovation progresses. However, the bank cautioned that failure to do so could further erode trust and demand in a market that has contracted and stagnated over the past two years.

The bank also notes that past tokenization efforts have raised concerns about market integrity, particularly risks such as double-counting and trading retired credits.