JPMorgan Kinexys plans to launch a pilot for "carbon credit tokenization" to address three major chaos in the green energy market.

The international carbon market (International Carbon Market) has always been regarded as an important channel for funds from developed countries to flow into developing countries. However, in recent years, issues such as green energy fraud, inflated carbon credit data, and ineffective results have frequently occurred, leading to a significant decline in market trust. In response, JP Morgan ( intends to utilize its blockchain platform Kinexys to launch a pilot program for "carbon tokenization" in collaboration with carbon credit registration agencies, registering carbon credits on-chain throughout the entire trading process to enhance market transparency.

Promote the tokenization pilot of carbon rights to make the trading process transparent.

According to reports, JPMorgan's blockchain platform Kinexys will collaborate with the following three institutions to launch carbon rights tokenization testing:

S&P Global Commodity Insights

EcoRegistry

International Carbon Registry

These three companies currently have systems responsible for carbon rights registration and management. The goal of this collaboration is to tokenization the carbon rights in the existing registration system and to test whether the entire process from "carbon rights issuance to destruction" can be seamlessly tracked on the blockchain.

The three major chaos urgently need reform.

The carbon credit market was originally intended to channel funds from developed countries into developing countries, serving as an important avenue for investing in carbon reduction projects, thus achieving the dual goals of global carbon reduction and capital flow. However, with a series of scandals involving green energy fraud, inflated performance, and lack of transparency, the trust foundation of this system is gradually collapsing.

The issue of flooding is frequently reported, and carbon credits have not reduced emissions at all.

Many projects have been found to exaggerate carbon reduction effectiveness and even falsify data. For example:

China's Coal-Fired Power Plant Fraud: The Ministry of Ecology and Environment of China reported in 2022 that some power plants deliberately used coal samples with lower carbon emission factors to falsify carbon emission reports.

Tesla Overestimates Emission Reduction Data: Although the official claim states a reduction of 20 million tons of carbon dioxide in 2023, the carbon footprint management company Greenly analyzes that the actual reduction may only be between 10.2 million to 14.4 million tons, with the reduction amount overestimated by 28% to 49%.

There is no unified standard, and the quality of carbon rights varies.

The carbon market lacks globally consistent issuance standards and strong regulation, leading to doubts about the quality of many carbon credits:

VCS Forest Carbon Credit Fraud: An investigation by the UK Guardian points out that nearly 90% of VCS-certified forest carbon credits are fraudulent due to a lack of on-site verification, raising doubts about their effectiveness.

Insufficient Additionality of Australian Carbon Credits: Scholars from the Australian National University point out that as much as 80% of carbon credits have not actually resulted in additional carbon reduction benefits.

The information black box is opaque, and investors are afraid of buying fake emissions reductions.

The carbon credit trading process is not transparent, making it difficult for buyers to confirm whether the projects are genuinely reducing carbon emissions, and companies are easily criticized for "greenwashing," further undermining market confidence.

Germany exposes China's project fraud: The German Environment Agency pointed out that 45 emission reduction projects in China are suspected of fraud, involving 6 million tons of carbon emission certificates, with a market value of approximately 1.84 billion dollars.

High proportion of carbon credits cancelled: It is understood that by the end of 2024, the top 12 registration agencies worldwide will have issued a total of 305 million tons of carbon credits, of which 180 million tons have been cancelled, and quality concerns remain.

The above three major reasons limit the help of the carbon credit market to developing countries and may also increase local environmental pressure. As emerging technologies such as satellite monitoring and AI analysis mature, the market's demands for carbon credit verification methods are also growing higher, no longer accepting self-declaration alone. What everyone hopes for is a way to verify carbon reduction effectiveness through real-time, objective, and data-driven methods, truly rebuilding trust.

JPMorgan aims to be the preferred carbon bank, but infrastructure development still needs to be strengthened.

JPMorgan has previously invested in carbon credit projects and purchased carbon removal certificates. Now, it is stepping into technological applications, preparing to become the global carbon bank of choice. However, in a report released on the same day, JPMorgan pointed out that while the carbon credit market has considerable potential, the market infrastructure and innovation have not kept up, which may instead exacerbate market distrust and lead to a further decline in demand.

Be aware of the two major risks of carbon rights tokenization.

JPMorgan also reminds that there are still some risks to be aware of regarding carbon credit tokenization. They pointed out that in the past, some operators, when pushing carbon credit tokens, inadvertently raised market concerns about "integrity" due to mishandling, especially regarding:

Double-Counting ): The same carbon credit is used two times or more.

The carbon rights that have already been destroyed are still being traded.

If these problems are not thoroughly solved with technology, they will instead undermine market trust.

This article discusses how JPMorgan Kinexys plans to launch a pilot for "carbon rights tokenization" to address three major chaos in the green energy market, first appearing in Chain News ABMedia.