This paper provides an in-depth analysis of the Voluntary Carbon Market VCM , highlighting its critical role and inherent challenges. The VCM, vital in climate change mitigation, faces issues of complexity, fragmentation, and greenwashing, accentuated by inconsistencies in the carbon credits process, from project design, monitoring, and reporting, to verification and auditing. The author explores the transformative potential of new technologies, in resolving these challenges. Blockchain's transparency and efficiency are essential, although concerns about its limitations are noted. Digital, Monitoring, Reporting, and Verification (dMRV systems are identified as key to ensuring qualitative data throughout the duration of all projects.

However, the use of technology is far from being enough. The urgency of establishing a robust carbon policy framework is emphasized, with a spotlight on developing frameworks of carbon accounting in financial documents to facilitate mass adoption, and the introduction of a meta-registry for avoiding double claiming and double counting. Overall, the integration of advanced technologies and policy refinement is projected as essential in enhancing the VCM's effectiveness. The paper underscores the urgency of these frameworks, essential for maximizing the VCM's impact in the future.

Glossary CORSIA Carbon Offsetting and Reduction Scheme for International Aviation

ETS Emissions Trading Scheme

IASB "The International Accounting Standards Board is an independent group of experts with an appropriate mix of recent practical experience in setting accounting standards, in preparing, auditing, or using financial reports, and in accounting education."

IETA International Emissions Trading Association

4.Introduction

This report will focus on the resolutions of some of the problems of the VCM to enhance mass adoption and the regeneration of ecosystems, thanks to technology and to the evolution of the regulatory framework.

Reaching Net Zero globally is essential to maintain a sustainable environment all around the world for the coming decades. Contribution then arrives at the last step of the " M ARC sequence: Measure), Avoid, Reduce, Contribute", focusing on the incompressible emissions and the contribution projects behind to achieve accounting neutrality. It applies when a legal entity or individual offsets its remaining emissions by supporting projects that reduce or absorb GHG emissions elsewhere, such as reforestation or carbon capture projects.

For example, a company may purchase carbon credits to offset emissions it has not been able to avoid or reduce. It is commonly said that some companies compensate before avoiding and reducing, which will always remain the priority, but it is far from being the majority according to some studies. Trove research analyzed in 2023 carbon emissions' performance over the past five years of over 4,000 companies and compared it with the purchase and use of carbon credits for over 350 firms( 1 ). The result is that contributing to global climate neutrality through the purchase of carbon credits in no way reduces companies' efforts to reduce their scope 1 and 2 emissions.

Two markets exist in order to encourage companies to invest in such projects, the ETS and the VCM. The ETS Emissions Trading Scheme) is a greenhouse gas regulation mechanism conceived and signed under the Kyoto Protocol in 1997 and implemented in 2005. It applies to the most polluting industries only. Also called the "polluter pays system", companies receive emission quotas, and those that pollute less can sell their unused quotas to others that exceed their limits. In itself, it's a punitive economic incentive to reduce pollution, which in itself is laudable. However, it does not push to contribute to financing innovations or solutions for ecological transformation. This report will then focus only on the VCM, its main challenges, its problems, and the use of technologies to solve some of them.

The arguments will be based on an in-depth analysis of scientific papers, reports, and press articles. This consciously heterogeneous distribution of sources is considered useful to explore the next priorities of the VCM and can serve as the base for the next research.

There are many different possibilities to enhance the market in the future, but we will focus on those three that are considered the most important: carbon policy framework, carbon accounting and the creation of a meta-registry.

SECTION 1 The essential Voluntary Carbon Market

Its current role in the fight against climate change

The Voluntary Carbon Credit market occupies a central and much-debated position in the fight against global warming. As we have seen, as a complement to priority reduction measures, it plays an essential role in achieving the Paris objectives.

The international scientific community is unanimous. The IPCC Intergovernmental Panel on Climate Change), UNEP United Nations Environment Program), and the French National Academy of Sciences all agree that carbon sequestration is essential to achieving the Global Net-Zero and Paris Agreements ( 2 , 3 , 4 ).

The VCM trades carbon credits, a tradable commodity, with 3 important points to keep in mind:

• A carbon credit is a certificate or tradable unit representing the reduction of one tonne of carbon dioxide equivalent (tCO2e) in the atmosphere. • They are generated by project developers who avoid or eliminate greenhouse gases GHGs), and are then sold to other market players. • Carbon credits are registered in several registries around the world Gold Standard and Verra for over 80% of them (cf figure 14 , and retired or eliminated when they are used to offsetting other emissions, thus theoretically avoiding double-counting.

It is called voluntary because it is an unregulated market. These credits can be traded on market platforms (different from a global exchange) or withdrawn to offset part of their greenhouse gas emissions.

A. The 2 different categories of carbon credits:

There are 170 in total, divided into two categories, the NbS and the technological projects.

The NbS Nature-based solutions) represent 55% of projects, for instance: agroforestry, regenerative agriculture, blue carbon: mangroves, brown carbon (soil…) etc…

The Technological projects represent 40% of the total of projects, focusing mainly on avoided emissions thanks to renewable energies (solar panels, wind turbines…) and also on sequestration through technology. These are for instance Direct Air Capture DAC technology, which separates carbon dioxide from the air using fans and a chemical process, then injects the carbon into deep rock, storing it forever, or collecting and injecting organic waste -which would otherwise have decomposed and released emissions -deep underground, where it cannot escape into the atmosphere.

B. The 2 different types of carbon credits

Avoidance Removal

→ generated by projects that prevent emissions from occurring, while removal credits are generated by projects that remove carbon from the atmosphere.

→ are generally cheaper and easier to obtain than removal credits. They also tend to have a lower impact on climate change, as they only prevent emissions from occurring, rather than removing carbon from the atmosphere.

Mechanisms: By using better alternatives in comparison with a specific scenario.

Example: REDD or RE

Limitations: Hard to estimate how much has really been avoided.

→ They have a greater impact on climate change because they actually remove carbon from the atmosphere, which is essential to achieving our climate goals.

→ This is an important point for companies to comply with regulations.

Mechanism: This measurement can be carried out using methods such as satellite monitoring, ground measurements or remote sensing technologies. The measured amount of carbon dioxide removed is then quantified and translated into removal carbon credits that can be traded on the voluntary carbon market.

Example: ARR Afforestation, reforestation and revegetation): tree planting is a common offset program that is only effective if the trees planted are protected throughout their lifetime to ensure that the carbon benefits are realized.

Limitations: Feedback from the field can be different from the absorption curve (e.g. on organic farming), and they are usually more expensive.

According to a report from June 2022 "Carbon avoidance credits dominate the supply market and account for more than 90% of the carbon credits across the four largest voluntary carbon standards"( 5 ). Daphni represents here an overview of the different projects for both types of carbon credits.( 6)

Figure 1 Overview of some different projects for both types of carbon credits Daphni, 2023

2. A market set to grow drastically in the coming years, which will conduct a shift from all its actors to resolve its problems

A. The combination of commitments and scientific consensus

Since its inception, the carbon credit market has been used to finance the development of renewable energy, as in many cases the technology, was more expensive than traditional energy sources and could not be developed without carbon finance. However, this is also changing as renewable energy becomes increasingly affordable, meaning that carbon finance is now only needed to implement certain types of projects in certain countries. It is increasingly difficult to justify the 'additionally' of a renewable energy project, as it is no longer politically or financially sensible to build dirty energy projects. There is every reason to believe that they are being phased out, or at least drastically reduced.

According to the World Resources Institute, NbS can account for at least 23% of the climate mitigation solution required, but today represents only 3% of investment (public and private combined). Around "USD 133 billion a year is currently injected into NbS (taking 2020 as the reference year), with public funds accounting for 86% and private funds 14%. Of the public funds, which amount to USD 115 billion a year, more than a third is invested by national governments in protecting biodiversity and landscapes" ( 7 ).

• The state of the VCM from the 1990s to 2023

The VCM has existed since the 1990s, even before the ETS was created. We can see here its evolution through the years. The percentages represent the shares of the four main carbon standards that will be presented a bit more in the 2nd section. The voluntary carbon credit market accelerated sharply (by a factor of sixty) between 2009 and 2021, and despite a stagnation in 2022 (linked in particular to the problem of confidence which we will look at in the following paragraphs), this trend will continue over the coming decades.

• The state of the VCM according to different forecasts

This market is expected to grow significantly in the coming years (and decades), driven by tighter regulations on companies' contributions to carbon neutrality. In fact, according to forecasts by McKinsey, we are only at the dawn of a colossal market, as the graphs below illustrate: The report indeed refers to the potential of carbon credits, estimating "that demand for carbon credits could increase 15-fold or more by 2030 and 100-fold by 2050," with a market that could "be worth more than $50 billion by 2030." (

B. Expected shift from companies: the cost of inaction is higher than the cost of action

Pushed by regulations, companies also are committing more and more to Global Net0, and not only for scopes 1 and 2, but also for scope 3, which could lead to some major economic deficiencies if they don't anticipate. The risks of inaction for nature are too high, while the incentives for corporations to act now are too low". Indeed, in reality, the market looks more like this. However, to make it more simple, here is an overview of the process from the implementation of one project in 2023, till the end of the chain, when the carbon credit coming from the project can be retired. The figure is modified from a scheme from the Carbon Markets Initiative ( 20 ).

Figure 12 The full process for a carbon credit to be emitted, verified, bought, and retired

The average age of retired credits is approximately of an average of 7 years, but depends on the nature of the projects and on other factors (duration of certification, of validation…). This duration rose to 7.3 years in 2022 compared to 6.1 years in 2021 and 5.3 years in 2020 Carbon Direct, 2022 .

Based on those 2 last figures, many questions can be raised on the relationships between all of those actors, and the challenges that all of them are facing within the whole chain. This extended figure then illustrates the process of developing and bringing carbon credits to the markets and highlighting its problems.

Figure 13 The main problems in the process for a carbon credit to be emitted, verified, bought, and retired (inspired by a scheme from the "Carbon Market Initiative)

This non-exhaustive scheme explains most of the problems within the chain, but let's treat them one by one.

1. The complexity, fragmentation and the lack of uniformization from all the actors working in this market

A. Entropy of certifiers and registries

In the light of figure 14, we might presuppose that registers play a unifying and standardizing role. However, this is absolutely not the case.

To date, here is a non-exhaustive list of the major certifiers:

A This list is expanded every year, with new entities emerging regularly.

Each certifier applies its own methodology (calculation method, certification process, accounting, etc.) and nomenclature. For example, some registries have 3 statuses for carbon credits, while others have. And no carbon registry is located in Asia. They are all from the US or Europe. Furthermore, the absence of a unified database for these registries paves the way for duplication, where a single sequestration of emissions could potentially be counted multiple times.

The registries not only vary in quantity but also in their methodologies and terminologies, leading to inconsistencies in the market. Some have an international reach, such as Verra, while others like the American Carbon Registry are continental/regional, and some are national, like Label Bas Carbone in France.

This diversity fosters a non-uniform market where validation by one registry might not be recognized by another, giving rise to significant disparities in the information contained within this system. To exacerbate the situation, the lack of standardized protocols and requirements for monitoring, reporting, and verification creates inconsistencies across the market, among certifiers, and between projects.

B. A market threatened by conflict of interests

Many certifiers play a dual role in the voluntary carbon market, being responsible for both the initial certification of projects and their subsequent verification. This dual role can call into question the objectivity and independence of the certification process. When an organization is both judge and jury, this can raise doubts about the rigor and transparency of its assessments. Indeed, if they identify an error or irregularity during verification, they may be tempted to play it down or ignore it so as not to call into question their own initial certification work. This situation jeopardizes the independence and integrity of the process, as the certifier may prioritize the protection of its reputation over the accuracy and rigor of the verification. This type of judge and jury problem is not unique to certifiers but to a number of players in the market (marketplaces, brokers, etc.). The report will not focus on each of them for the sake of readability and priorities but will expose some solutions to those problems in the next part regarding policy framework and a possible meta-registry.

But now, let's focus on the other, more operational problems within all the chain of a carbon credit.

2. Problems at the 1st part: Project design A. Limited market access, including access to upfront capital On the offer side, there is a first problem related to money transmission to the project developers.

The carbon market has a chaotic history, with problems relating to the failure to channel money to local communities, or the creation of perverse collateral damage along the way, such as the destruction of one crop to plant another in order to obtain credits.

A number of critics have highlighted examples of carbon contribution projects that have harmed local communities or caused greater environmental damage (leakage).

Also, the fact that the market is so fragmented and opaque makes it difficult for project developers to secure the financing needed.

On the demand side, this is also a market closed to retail buyers. It is structurally almost impossible and too expensive to access the VCM, and even for some other companies, i.e. an individual or a company cannot invest unless it finances the entire project, e.g. 1 million euros.

B. Lengthy process for developing new methodologies

Another problem that penalizes the design of projects is the methodologies used to certify and process the projects themselves, and their duration, which can vary from several months for some certifiers (proposed in particular by ERS, Ecosystem Restoration Standards) to two years (such as Verra).

Faced with these differences between certifiers, organizations such as ICROA The International Carbon Reduction and Offsetting Accreditation), ICVCM The Integrity Council for the Voluntary Carbon Market) and VCMI The Voluntary Carbon Markets Integrity Initiative) have been set up with the aim of establishing a framework and becoming "the standard for certifiers". However, here again, the acceptance criteria for each differ. Some of these certifiers are ICVCM accredited but not ICROA and vice versa, while a number of up-and-coming certifiers have decided to develop independently, without this certification (e.g. Label Bas Carbone in France).

In addition, the political and regulatory frameworks also introduce a great deal of complexity, since, despite the international nature of the market, each country (or group of countries) has its own political and regulatory landscape. Each country therefore introduces its own standards and requirements for carbon credits.

While several types of projects are commonly established (conservation or regeneration of forest ecosystems, conservation or regeneration of coastal and marine ecosystems, sustainable agriculture, biochar, clean energy, direct capture technologies, etc.), some are accepted in certain regulations and others are not.

The technical nature of carbon credits, with its multiple quality criteria that vary according to the different reference bodies in the field, makes it difficult for the uninitiated to identify high-quality credits or projects. In this respect, the certifier itself cannot be a guarantee of security. For example, for a given certifier (e.g. Verra), the value of carbon credits varies between $2 and over $100, and the quality of the associated projects varies just as much.

Faced with this complexity, a feeling of incomprehension, not to say skepticism, prevails among both the public and professionals, fuelling a general mistrust of the market. There is no established common understanding.

And it led to scandals, as reported The Guardian: "The investigators concluded that "more than 90% of (the provider's) rainforest offset credits-among the most commonly used by companies-are likely to be 'phantom credits' and do not represent genuine carbon reductions." ( 23 ). And it also happened to many other credits bought by multinationals ( 24).

The market suffers from a crying need for standardization, which will be addressed in part 4.

3. Problem at the 2nd part of the scheme: the Monitoring, reporting and verification.

Limited transparency around verification:

According to several reports and in-depth studies, including those by the United Nations Environment Program UNEP and the Organization for Economic Co-operation and Development OECD , one of the main obstacles to confidence in the voluntary carbon market concerns the monitoring, verifiability and concrete demonstration of the impact of carbon credits.

The ability to monitor and prove with certainty that emissions reduction or sequestration has taken place is crucial to the integrity of the market. In the absence of clear and uniform standards for verification, as well as a robust system of monitoring and proof, there is a risk that credits will be allocated to projects that have not actually reduced or sequestered emissions, thereby shattering the confidence of players, companies and the public in the market itself.

Thus, despite the efforts of carbon contribution programs, a number of independent studies have identified serious problems with certain carbon contribution credits. For example, studies of the world's two largest contribution programs suggest that up to 60 70% of their contribution credits may not represent valid GHG reductions or sequestration.

Most of the certifiers are NGOs. Verra has a team of 50 people maximum. CAR has a team of approximately 20 people. They don't have the human needs to certify and follow all the projects with the same quality. There is a lack of financial, human and material needs to manage the data from the projects. Access to qualitative data within all the periods of the projects is then key, and we will explore them in the 3rd part, thanks to the help of technologies and dMRVs.

4. Problem at the 3rd part of the scheme: The transaction

A. Mistrust of credit quality:

As a consequence of the problems described earlier, the transaction side, where the brokers, marketplaces, and other exchanges have a role in trading the carbon credits, many issues and a lack of transparency occur.

Currently, the project manager's intermediaries sell the certificates issued by the registry to organizations seeking to offset their emissions and pass on the payments received to the project developer. The registry (the blue part in figure 14 then acts as a transfer agent on the securities markets, keeping records of ownership of the certificates. But the certificate does not confer ownership of the carbon captured; rather, it represents the holder's right to count as their own a portion of the carbon (to be) captured, as subscribed to by the registry. The agreement to sell the certificate generally excludes any substantial penalty for the registry in the event of misrepresentation or wrongdoing. The buyer of the certificate has no direct legal link with the contribution project, which means that it cannot control the actual capture and sequestration of the carbon.

In the current VCM, systems for reporting carbon emissions and contributions are inconsistent and idiosyncratic. In the absence of robust protocols for monitoring the status of carbon contributions, the accountability of both sellers and buyers is impaired, and they pay less attention than they should to maintaining carbon sequestration over the life of their implied obligations. Unless contribution contracts are properly accounted for and audited, market-based approaches to reducing GHGs will be vulnerable to misrepresentation and fraud.

The Guardian scandal mentioned earlier is a perfect illustration of the consequences of the lack of auditability and accounting of the system as it stands.

B. Lack of efficient price discovery and liquidity

The buyer of the certificate for carbon credit is not directly legally connected to the contribution project and grapples with the challenge of effective price discovery. It's unclear what proportions of the margins are allocated to the project developer, the intermediary, or the third party due to the involvement of multiple intermediaries and the associated certification and monitoring costs. Then, those complex financing dynamics often leave climate-positive projects that can't afford certification unfunded. The lack of transparency regarding commissions paid to intermediaries exacerbates the mistrust in funding new climate initiatives, and the trading of carbon credits in themselves.

Operationally, it is also hard to sell a carbon credit after some years. Some intermediaries are not even useful and just add more complexity. Most transactions are OTC, fragmented across numerous selling agents, done on Excel and via email, without any benchmark pricing, where all the carbon credits are heterogeneous. Plus, the absence of universal norms, transparency, and lengthy and costly certification processes, this situation leads to an illiquid market, which is one of the main obstacles to the optimal development of the carbon contributions market. Several experts and studies, including those by the World Bank, have highlighted this challenge. Liquidity, which is essential to the proper operation of any open market, is the ability of a market to allow the purchase or sale of an asset without causing major fluctuations in its price. As it stands, the VCM does not have the liquidity required for efficient trading. This is due to all those factors.

Overall risk of greenwashing that hamper the VCM' growth

The lack of transparency and reliability in the monitoring, tracking, and reporting of carbon credits, as well as the challenges of channeling and distributing the money, are all systemic challenges affecting the integrity of the voluntary carbon market, which is still very young and immature, and hampering its growth.

The current state of the VCM complicates the sales cycle for corporations and instills a fear of investing in associated projects. A significant financial bottleneck is emerging, hindering mass adoption due to challenges in balancing the scale and quality of developing credits.

This issue is not theoretical but a present reality, with major corporations like Shell abandoning their ambitious carbon credit programs. Shell had envisioned harvesting 120 million carbon credits annually by the end of the decade, primarily from carbon sequestration projects they would develop. However, the complexity of finding projects that adhere to their stringent quality criteria while maintaining the desired scale has proven insurmountable for them. ( 25)

This narrative is echoed across the industry. Companies like BP, Chevron, Woodside Energy, Equinor, and Eni are all striving to develop their own carbon credit pipelines. Yet, there is prevailing uncertainty about their ability to realize targets as ambitious as those Shell initially set. The intricate dance between scale and quality, coupled with a lack of transparency and efficiency in the VCM, casts a shadow of doubt over the future of these programs and the broader initiative to offset CO2 emissions effectively.

SECTION 3 How combining new technologies can solve some of the market problems

In this third section, the report delves into the transformative potential of Blockchain and dMRVs. Their capabilities and constraints will be shown, illuminating their role in enhancing transparency and efficiency. A concrete example will conclude this section, offering a practical perspective on the implementation and impact of these technologies, and the different issues a company face on its journey for carbon contribution.

A short blockchain explanation

First, let's define the terms. Also, called Distributed Leger Technology DLT , blockchain technologies "enable the storage and transmission of information, transparently and securely and without the intervention of a central control body. ( 26) This information is by nature immutable, which means never to be changed or deleted, transparent and secure.( 27) It can be summarized as follows:

Figure 16 « What is blockchain ? » Source: Eanet Agency ( 28)

Beyond cryptocurrencies, each blockchain allows answering certain types of problems according to their objectives written in their algorithms. They are commonly called "smart contracts", and represent in a more casual definition lines of code that determine specific predefined requirements and "automatically execute contractual actions" if these requirements are met ( 29 ).

The related benefits are numerous in many fields and specialties when their use is really needed, but in the case of the VCM, the United Nations Environment Program UNEP described blockchain as an accelerator for climate action in areas such as transparency, clean energy, carbon markets, and climate finance. ( 30)

Advantages of blockchain for the VCM

Once defined, this part will give the advantages for the non-exhaustive problems or barriers to entry for new entrants explained earlier at each stage.

To be noted that the complexity, fragmentation, and lack of uniformization from all the actors working in this market, part 1 of the 2nd section, will be treated in the 4th section, as well as the need for a meta registry.

A. At the project design stage

• Inherent transparency gives trust to enhance access to upfront capital for project developers

Utilizing blockchain can enhance confidence and motivation in climate discussions.

By adopting a blockchain-driven accounting system for climate commitments, everyone can aim higher and be assured that others are honoring their pledges. "Such transparency removes the risk for corporate buyers who want to ensure their net-zero budgets are going towards measurable, verifiable climate mitigation efforts." WEF,2023

• Fractionization of the carbon credits creates a new category of assets and draws a fresh type of investor to finance projects.

Secondly, by fractionalizing some verified credits "into units smaller than one tonne of CO2, [it] may support the growth of a retail customer base and embedded application programming interfaces APIs) into e-commerce solutions. WEF, 2023 It then leads to more social justice since the investment is more inclusive and everyone can contribute. Carbon credits that can be costly (see Direct Air Capture project) could be offset directly during the purchase of the product.

Indeed, blockchain technology, with its public, accessible, and machine-readable format, stands out as a promising solution. The World Economic Forum even states that "digital environmental assets help streamline asset discovery and purchasing (...) Blockchains can therefore help disintermediate the carbon value chain and reduce transaction costs, ideally with more financing reaching project developers on the ground" WEF, 2023

B. At the verification and reporting stage

The CCPs state that to be considered high-integrity, carbon credits must fund emissions reductions and removals that are additional (generated by projects that would not have gone ahead without carbon credit funding), counted only once, permanent and measured robustly and conservatively. "They must support the transition to net-zero and not lock in net-zero incompatible activities" ( 31 ). As a result, it is imperative for builders to demonstrate tangible outcomes, including reduced CO2 emissions, restoration of mangrove areas, and transactions executed for communities, among others.

In itself, blockchain enables it to be fully transparent and accessible at any moment (for public blockchains). It is proven by several papers that this technology would make it possible to avoid double counting of carbon credits ( 32 ), their opacity, and fraud ( 33 , 34 ).

C. At the transaction stage D. Answer to difficulties of funding and illiquidy:

Being onchain means you have liquidity and can sell your carbon credits if you want to after 15 years for instance.

Managing forward contracts on-chain is another emerging trend that may increase liquidity to scale carbon sequestration projects in the years ahead. " WEF, 2023

• Value and margin diverted by intermediaries

Through blockchain and digital MRV Measurement, Reporting, and Verification) tools, market clarity, and reliability can be enhanced. For instance, blockchain-powered carbon removal firms transparently indicate how much of the carbon price regenerative small-scale farmers receive.

Disadvantages of blockchain on this market • Hacks and vulnerabilities of smart contracts

While smart contracts offer many advantages, their security is solely dependent on the quality of the underlying code. If any vulnerabilities exist within the code, it leaves an opening for malicious individuals to manipulate the smart contract, potentially leading to the theft of funds or disturbances to the network. Such activities can pose risks, like unauthorized transfers of tokenized carbon credits. Such incidents can erode the confidence of participants and investors, jeopardizing the credibility of the carbon market.

Additionally, due to the inherent interoperability and foundational structure of blockchains, it introduces multiple points susceptible to cyber-attacks. These vulnerabilities could arise from cross-chain bridges, online wallets, or DeFi systems. Considering 2022 marked a record year for cryptocurrency-related breaches (as reported by Chainalysis, 2023 , this is a significant issue to bear in mind when integrating any element of the carbon market onto the blockchain.

• The User Experience of blockchain adds more complexity.

Gilles Dufrasne, the policy lead at an oversight NGO named Carbon Market Watch, characterized this new market by stating: "It may be transparent, but it's not accessible because nobody understands how it works apart from the fintech people" Lo, 2022 . Indeed, using a web3 wallet, swapping credits in carbon pools, dividing credits into fractions, transitioning credits to the blockchain, and engaging with the DeFi landscape all demand advanced technical knowledge. This complexity could deter many stakeholders from engaging in the VCM, potentially hindering the system's overall effectiveness.

Investing in fiat and not in crypto, buying with a banking card is already available, but this is not the case for every blockchain actor.

• Lack of regulation within the market

Numerous governments remain ambivalent about blockchain, lacking the established structures to formulate clear regulations and legal guidelines for its utilization. The anonymous nature of web3 feeds into this hesitation and is a point of contention in the voluntary carbon market. Currently, registries mandate all account users to complete KYC checks, adhere to anti-money laundering AML rules, and accept their "User Agreements". There is apprehension that web3's anonymity might sidestep these requirements.

• Introducing blockchain technology might not directly address all the challenges faced by the current VCM Consider where blockchain could have the biggest impact

Turning off-chain issued credits into tokens on-chain doesn't resolve existing challenges in the issuance process, like inefficiencies, elevated expenses, and dubious credit validations.

Per the 2022 insights from Carbon Direct's Commentary on the Voluntary Registry Offsets Database, "Instead of acquiring high-quality credits, blockchain purchasers have predominantly opted for credit categories that are more likely to be of inferior quality" Carbon Direct, 2022 . One contributing factor to this trend is the qualifying criteria in carbon pools, which permits subpar credits to be normalized and marketed to less informed consumers with old vintages and faulty carbon avoidance.

Currently, "97% of all projects issuing credits over the past two years were reductions, not removals, which typically have few durable storage options and are more at risk of reversal » Carbon Direct, 2022 . Tokenizing those credits and using blockchain won't change those risks, even though carbon removal is supposed to scale far more than carbon avoidance in the future.

This part stated it well: blockchains can play a complementary role in facilitating a holistic market, interconnected between players. However, this is not possible without accurate, real-time data about the projects via other technologies, such as dMRVs. This part will then answer the remaining 4th problem of figure 13 stating that there is limited integration of technology in MRV processes.

4. The use of dMRV A focus on some of them A. The need for technology to solve the Limited integration of technology in MRV processes dMRV stands for Digital Measurement, Reporting, and Verification. It's a system that incorporates digital technologies to measure, report, and verify activities related to carbon trading and emissions reductions.

In essence, the different kinds of dMRVs revolve around using digital technologies to enhance the accuracy, transparency, and efficiency of carbon measurement, reporting, and verification processes.

There is an important need since paper-based reporting is the way that carbon schemes rely on. Excel sheets and PDFs still rule in this regard, and project developers, companies, or other actors in the market have to collect and calculate data manually using a prescribed formula. Then, these results are later verified manually again through several audits, as required by the methodology from the different certifiers, which is time-consuming and could lead to human errors.

Many experts are saying there is a shortage of auditors and inspectors to verify projects over time. DMRV then increases efficiency. Typically, "audits on nature-based projects are conducted very sporadically, and often with many years passing between each one. It is often not financially feasible for the project or the auditors to conduct checks more frequently" ( 35 ), also because of a lack of human and way needs.

During the time without audits, mistakes, miscalculations, or fraud could go undetected, leading to inaccurate offset claims from a project. Constant validation and verification, especially with automated data from IoT devices, can detect or prevent these issues sooner.

Then, dMRV brings automation and allows for some better validation and verification to be added to the process. Results can be immediately available, providing data from the indicators chosen with a greater degree of transparency than MRV counterparts. Let's focus on remote sensing and satellite imagery.

They are terms that are often used interchangeably, but they have distinct definitions and scopes. Let's break down their differences and then delve into how they work together in the context of carbon data treatment.

B. Remote sensing

Remote sensing is a broader term that refers to the process of obtaining information about an object, area, or phenomenon without making physical contact with it. This process involves detecting and measuring the radiation emitted or reflected by the target.

Here are their scopes :

Mediums: Remote sensing can be performed from various platforms such as satellites, aircraft, drones, balloons, or ground-based stations. In essence, satellite imagery is a subset of remote sensing. While all satellite imagery involves remote sensing, not all remote sensing involves satellite imagery.

Technologies: It employs various technologies, including but not limited to optical sensors (visible, infrared), radar, and lidar Laser Imaging, Detection And Ranging).

An IoT sensor is a device that collects and sends data from the physical world to the Internet or other connected devices in an Internet of Things IoT system.

They can measure various factors like temperature, moisture, light, motion, and more, enabling automation and advanced analytics in various domains. IoT sensors for carbon markets are like magical detectives that can "sense" or "detect" the levels of carbon in the environment and then share this information using the Internet.

Aspects Advantages Disadvantages

📊DataCollection Accurate, real-time data collection.

Can lead to data overload.

🤖Automation Streamlines and automates daily tasks.

May lead to job losses in some sectors.

⚙Efficiency Increases operational efficiency.

System malfunctions can disrupt processes.

💡EnergySaving Potential for energy savings. Initial setup can be energy-intensive.

🔗Integration Can be integrated with various devices.

Compatibility issues with older devices.

🛡Safety&

Security

Can enhance safety through monitoring.

Vulnerable to cyber-attacks and data fraud.

🤔

Decision-Making

Provides data for informed decision-making.

Over-reliance on data may ignore intuition.

🛠Maintenance Predictive maintenance is possible.

Can be expensive to replace or upgrade.

🌍Environmental

Impact

Potentially reduces waste and energy use.

E-waste concerns when devices become obsolete.

An example of this might be something like the verification of re-forestation data using LiDAR and satellite or drone imagery over time:

Figure 17 Picture from a Lidar Earth data, 2010

The lidar data provide a vertical profile of the forest structure, from trunk to treetop, allowing the researchers to determine the forest height and the complexity of its branch structure. "The lidar penetrates the whole canopy all the way to the ground, and it is by far the best remote sensing tool we have to relate to biomass." ( 36 )

Another type of remote sensing is satellite imagery, which we will dive into based on its use for the carbon markets.

C. Focus on satellite imagery

Satellite imagery specifically refers to images obtained by sensors mounted on orbiting satellites. For the carbon market, it involves using satellite-based remote sensing technologies to capture images and gather data related to carbon emissions and sequestration across the Earth's surface. It can be used for specific projects, regions, companies or even project developers. That is what the French company Kayyros is providing. ( 37)

The satellite imagery coming from satellites is all open-source in Europe. Everyone can use them, but the real question is, how accurate and how much money needs to be used to make the model and the machine learning algorithm the most accurate for a specific factor. In the case of carbon markets, it also depends. It can be essential for the imagery to be of high resolution to accurately assess carbon offsets, detect changes in forest cover, and monitor agricultural practices, or not.

The specific resolution may range from a sub-meter to several meters, depending on the application and the satellite used. For instance, monitoring forest changes for carbon sequestration might require higher-resolution imagery to detect individual tree crowns and small-scale deforestation activities.

It can go from 0.50 meters to 250 meters resolution, for instance. Here we can see an image with a resolution going from 22 to 250 meters. The colors change depending on the heights of the trees.

Figure 18 Two pictures from two different resolutions -Source: Kia, 2015 (

The PlanetScope constellation of 130 microsatellites from the European Space Agency "take a picture of every tree on Earth every day", taking images with a very high spatial resolution of 3 meters. The daily coverage of images from PlanetScope then allows for the first time to take the pulse of carbon in forests in almost near real-time, with "a daily collection capacity of 200 million km²/day". ( 39) Since its first launch in 2014, they have released three PlanetScope instrument types, the last one in April 2022.

Also, in March 2023 a NASA-led research team used satellite imagery and artificial intelligence methods to map billions of discrete tree crowns down to a 50-cm scale. ( 40They "assessed more than 9.9 billion trees derived from more than 300,000 satellite images, covering semi-arid sub-Saharan Africa north of the Equator. " ( 41 )

Figure 19 Differences between trees for capturing carbon depending on the different regions -Source: NASA, 2023.

In their study, the researchers showed that the average carbon stock per tree varied by rainfall zone, ranging from 51 kg to 98 kg, per year. In comparison, in France, on average, a tree can absorb approximately "25 kilograms 55 pounds) of carbon dioxide CO2 per year". ( 42) This estimation is based on various factors, and it shows how much it can change from the species, but also the type of tree, its age, and other environmental conditions.

In contrast, larger scale agricultural monitoring might be feasible with slightly coarser imagery. For assessing large-scale forest carbon stocks, a coarser resolution like 100 meters might be sufficient, as seen in the Global forest management data for 2015.( 43)

Aspects Advantages Disadvantages

🌐Coverage Comprehensive global coverage enables monitoring of remote and vast areas.

Some regions may have less frequent satellite passes.

🔍Resolution High-resolution data provides detailed insights.

Resolution can be limited by atmospheric conditions.

🕒Real-Time

Monitoring

Offers near real-time data, crucial for swift decision-making and frameworks like REDD .

Might not capture sudden or short-lived emission events.

🌍Accessibility Overcomes geographical challenges, granting access to previously unmonitored areas.

Limited by satellite pass timings and orbital dynamics.

📊Objective Data Provides unbiased data, free from human error or manipulation Kraetzig, 2021 .

Needs calibration and validation against on-ground data provided by project developers.

Now that both technologies have shown their advantages and inconvenient, and proven their real impact on the future of the VCM, let's explore how with the help of those new technologies and all the blockchains that can be used for transparency and traceability, contribution can be seen as less challenging to push mass adoption.

Study case: The challenges of a fictitious company to accomplish its carbon contribution strategy

This scenario combines most of the challenges that companies are facing, based on current discussions within companies and environmental directions that the authors had the chance to talk to.

As a company director, how can I standardize and facilitate the planning, management, and monitoring of my carbon contribution strategy? In a way that is simple, meets the expectations of stakeholders, and complies with growing regulations, but above all, how can I eliminate the risk of exposure to greenwashing?

SECTION 4 The need for a carbon policy framework, focusing on carbon accounting to reach standardization, backed by a meta-registry

The regulation of carbon offsetting is on the go, whether for the ETS or for the VCM.

1. The existing and next policy framework for the VCM

A. The existing ones

The next policy framework for carbon offsets is evolving with a focus on certification, disclosure, and regulatory reforms. Several key developments and initiatives are shaping the future of carbon offset markets:

EU's Mandatory Disclosure and Certification Rules:

The European Union is introducing mandatory disclosure and certification rules for carbon credits. These rules are designed to enhance transparency and credibility in the carbon offset market, ensuring that credits represent real emissions reductions and removals ( 44 ).

Carbon Removal Certification:

The European Commission is proposing certification for carbon removals. This initiative seeks to ensure that carbon removal projects meet high environmental standards, contributing to carbon neutrality efforts ( 45 ).

Article 6 of the Paris Agreement: Article 6 of the Paris Agreement focuses on international carbon market mechanisms. It plays a significant role in shaping the global framework for carbon offsets and emissions trading ( 46 ), and especially for carbon contributions which are needed to reach Net0.

Net Zero Initiative Guidelines:

The Net Zero Initiative provides guidelines for organizations and governments to achieve net-zero emissions. These guidelines influence the development of carbon offset policies and strategies worldwide ( 47 ). • CSRD The new regulations that will boost the funding and the commitment of companies

The European Green Pact and the

Before neutrality was a choice. Now, it is a regulation.

As the CSRD significantly broadens the scope of NFRD, it's expected to roughly quadruple the number of covered organizations to over 50,000 (whereas it was 11 000 before) many of which will be required to report their full carbon emissions for the first time.

« An essential pillar of the EU's sustainable finance strategy, the CSRD aims to direct investment flows towards sustainable businesses, in order to ensure that the objectives of the European Green Deal are met. » ( 50 )

To address the consequences of the CSRD on carbon contribution, it's important to understand that the directive places increased emphasis on environmental and sustainability reporting.

Companies subject to the CSRD will likely need to report more detailed information about their carbon emissions and sustainability efforts.

Here are the three most important point on CSRD to note:

• Greater Accountability and Due diligence: Procedures must be implemented to identify, prevent, mitigate and report on actual and potential negative impacts on the environment and local communities. The CSRD will hold companies more accountable for their carbon contributions, encouraging them to take proactive steps to reduce emissions. • Scope of application: the CSRD will cover the entire corporate value chain.

• Regulatory Compliance: Non-compliance with CSRD reporting requirements could lead to penalties or reputational damage. The reporting indicators relating to climate change form a central basis of the CSRD they are the subject of a materiality analysis. The double materiality assessment ensures that sustainability reporting captures a holistic view, highlighting both the potential risks and opportunities arising from environmental and social considerations.

They are divided into 13 reporting requirements specific to climate change, which can be classified under the TCFD pillars and which can also refer to the CDP.

Withing those 13 reporting requirements, we are gonna focus on carbon contribution, since one is focusing exclusively on carbon credits (with mitigation and sequestration projects), and two will be triggers for an increase in carbon contribution strategy. Those are:

-Internal carbon price -The implementation of metrics to calculate scopes 1, 2 and 3, and their carbon intensity of revenues, which will lead to a calculation of emissions from all the supply chain, then of the insetting and offsetting needed.

This is then a way to separate reductions from contributions via carbon credits, which strengthen the clarity and transparency of climate goals.

Similarly, in the United States, the Securities and Exchange Commission SEC has drafted a climate disclosure rule along similar lines. Although it is not yet the final version, the ambition is clearly stated. This will require companies to disclose their Scope 3 emissions, which include all emissions linked to a company's supply chains and investments (for many businesses, this is by far the largest part of their emissions). In addition, it will require companies to disclose details of the carbon credits they use to make carbon contributions (not just the quantity, but also the price, project, and vintage), enabling an assessment of quality.

• ITMOs: "Internationally transferred mitigation outcomes"

ITMOs, or Internationally Transferred Mitigation Outcomes, are an instrument introduced under Article 6 of the Paris Agreement. They allow for the international transfer of greenhouse gas emission reductions between countries. Essentially, ITMOs enable countries that have overachieved their emission reduction targets to sell their surplus outcomes to countries that might find it more challenging or expensive to meet their own targets (

How ITMOs could change the voluntary carbon market:

• Standardization and Credibility: It can provide a standardized mechanism, which might enhance the credibility of carbon credits on the market. • Enhanced Transparency: By mixing companies and countries levels, ITMOs are designed (in theory) to avoid double counting of emissions reductions, promoting transparency and trust in the market. • Incentivizing Participation: With a more transparent and standardized market, more countries might be incentivized to participate in the voluntary carbon market. • Greater Impact Measurement: Since it will be from country to country, they can work together for better tools and methodologies for measurement.

However, the implementation and impact of ITMOs would depend on various factors, including the regulatory environment, market dynamics, technological advancements, and global cooperation on climate change mitigation. Also, "Such a rule change might be difficult to achieve without stricter requirements on NDC targets and establishment of a binding compliance regime under the Paris Agreement." World Bank, 2022

For now, the ITMOs are not scaled and are almost considered as a theory for many. There are still some discussions about which market could be provided worldwide (a spot or an option market), and after Cop26 in 2021, there wasn't a clear overview of how it would happen.

However, some countries are anticipating the clear deployment of ITMO. Suriname, for example, aimed to be the first to sell carbon credits under the Paris Agreement, signaling an eagerness to adopt ITMOs in their market operations by 2023. Here is an overview based on this article from Reuters written recently in September 2023 ( 54 ).

• How it works and how is it based: "Suriname's forest credits are generated using a baseline it registers with the United Nations stating how much carbon stock its forest contains. If the country protects its forest, so the carbon stock rises, it can package those gains as carbon credits."

• Explanation of why Suriname is the first country in the world to use ITMOs: "Suriname is one of a handful of "carbon-negative" countries, with its vast jungle absorbing more greenhouse gas than the developing nation emits."

• The amount: "According to the U.N. REDD website, Suriname has registered a reduction under the program of 4.8 million metric tons of carbon dioxide equivalent for 2021. That would allow for the country to sell up to 4.8 million credits, as each ton equates to one credit (at least $10 per credit)". To be noted that since those projects are considered REDD , the methodology is still criticized, and "the credits were not subject to robust verification standards to prove a contribution to curbing climate change."

• Honduras and Belize are also working on ITMO sales to take place in 2024.

So now we know the VCM is becoming more and more at the international level. But in order to keep an accurate eye on all of those carbon assets from country to country, we need also robust inventories to keep track of the credits sold by the countries to the companies, such as the Suriname probably selling those 4,8M credits to 30 companies.

But how could we be able to do this?

The two next parts of this section could give us some hints on how to resolve it, first with carbon accounting, and second with a meta registry that will rule and register all the carbon credits issued, verified, or retired all around the world.

Focus on carbon accounting to enhance mass adoption

Taking into account that data coming from the projects will be the most accurate possible, thanks to dMRVs and the quality of the projects that will have the right amount of funding, and all the other possibilities this report mentioned earlier, carbon accounting is the next step to make sure that the regeneration of the ecosystems reaches mass adoption. Regarding this, it includes reporting on carbon accounting in the balance sheets and financial documents.

It stems from an essential point of view: the fact that a company does not count everything it owes to its ecosystem in its financial documents. The point is that the accounting system in the format we all know in the corporate world IFRS standards) meticulously takes into account all the assets, liabilities, debts, receivables, expenses… and income of a company, but this time it should also take into account the climate debt and its balanced assets. This is based on the idea that there are already distinctions to be made between 2 activities:

-operating activities: what the company does in terms of its needs and the services it provides -preservation activities: what it puts in place to deal with the emissions that pollutes from its activities.

By theorizing it and pushing companies to count everything their own to ecosystems based on their activities, it will be compulsory for them to be clean in regard to the environment, to complete the MARC scheme the right way, and to have a positive impact, if well audited.

But how do you theorize it?

Before answering this main question, let's dive into the existing discussions happening.

A. Where does it come from?

In a paper written in 2009, the authors were already stating that we need carbon accounting, focusing on forestry carbon offsets. "Appropriate and uniform classification of forestry carbon offsets in the financial statements is imperative both for internal decision-making and for external stakeholders such as investors. Without clear accounting guidance for forestry carbon or voluntary offsets, comparability across projects will remain vague. The global forestry carbon market is gaining momentum; however, it must still develop the regulatory and institutional frameworks necessary to become a viable and active market." (

Also, this report from KPMG in March 2023 mentions: "As more companies enter into commitments to reduce their carbon emissions or invest in renewable energy, questions about how to account for carbon offsets and credits are becoming more pressing." ( 56 )

In the US for instance, "About 90% of the companies in the S&P 500 now issue some form of environmental, social, and governance reports, almost always including an estimate of the company's GHG emissions." But the problem is that those reports "are often made up of inaccurate, unverifiable, and contradictory data." ( 57)

But what has been done so far to resolve this issue to account to carbon offset?

The conclusion is that: "At the same time, there is no specific accounting guidance and no consistent terminology that helps identify the nature of a carbon credit in a given situation." No standards internationally are finding consensual terminologies: "Although several standard-setting projects have been attempted, there are currently no accounting requirements under IFRS Accounting Standards (or US GAAP specific to carbon offsets or credits." KPMG, 2023 Also, different organizations, such as the International Sustainability Standards Board ISSB , SEC, and the European Financial Reporting Advisory Group EFRAG , have proposed their own ESG reporting standards, leading to a lack of alignment.

Why is it so complicated?

"There is no one-size-fits-all accounting answer, and a contractual reference to a carbon credit can mean a variety of things -from a separable asset that can be traded to a 'green' credential or attribute." KPMG, 2023

When are the guidelines becoming clearer? It is impossible to know. However, "the IASB has a project on pollutant pricing mechanisms on its newly created reserve list." But even considered a high priority, the IASB will review the project only if its capacity "becomes available before its next five-year agenda consultation in 2026.

Then, as a high priority, what should be done?

This report will base itself on one paper from Harvard Business Review focusing only on accounting for organizations, to explain and show the difficulty of assessing a carbon accounting framework that is accurate overtime. This paper elaborated an accurate and auditable accounting framework based on five accounting principles. ( 58)

3. "Rights to carbon removals are recognized as E-assets when the timing and magnitude of the offsets are reasonably estimable and probable."

The main question is about timing: Sets guidelines for when an offset producer can recognize and trade captured carbon as an E-asset. "Estimates from NASA suggest that man-made carbon emissions persist in the atmosphere for at least 300 years (and possibly more than 1,000 years), an exceedingly long time horizon compared with that of virtually all other commercial contracts." ⟶"This provision can be satisfied through standard performance contracts" 4.

"A company shall net a given quantity of E-assets against its E-liability account only when that quantity of GHG has been actually removed from the atmosphere and indefinitely sequestered."

In other words, offsets must be measurable, verifiable, and accurately reported, to know exactly when the E-asset is compensating the E-liability. When it happens, the E-asset is called "realizable", but doesn't solve the problem of the "indefinite" sequestration. What happens if a forest burns and the CO2 is released into the atmosphere? Thanks to blockchain, all of this info can be available on time.

5. "An offset asset shall be impaired or accreted on the basis of new information about the quantity and duration of actual carbon sequestration."

In other words, the "final principle directly addresses the risk that an offset asset's value may fluctuate over its lifetime". There is a need to ensure that carbon offset markets operate with sound accounting principles to prevent fraud and misrepresentation to ensure transparency and accountability (which is also helped by blockchain).

The 3 first guidelines are understandable in the way they were explained in the article. But let's focus on the 4th and the 5th guidelines, which give a clear overview of how these environmental financial sheets will present themselves.

• The 4th guideline and the notion of positive earning in the E-financial documents

To understand the 4th guideline, a scheme is needed with an example, from the same Company X that the study case stated in the 3rd section. To be noted, the authors use the word earned for a specific reason. "The higher standard of "earned" for eliminating E-liabilities (relative to "realizable" for recognizing E-assets) is based on the economic significance of netting. Just as revenue recognition increases a firm's income, raising shareholders' expectation for dividends, reducing a company's E-liabilities communicates to customers, shareholders, and regulators that the firm's products (its inputs and operations) generated less carbon than those of its peers did", which then can be considered as a "positive earning".

Then, there would be 2 environmental accounting books, which would be inter-correlated and will update themselves based on the data incoming:

-the gross, with gross purchase amounts -the net, which will fluctuate given that nature fluctuates on an almost real-time basis.

The point is to keep the gross value of the asset being purchased. The goal is to prevent the company from overestimating the net amount depreciated or appreciated.

• The 5th guideline exposes some of the inherent limits of the model:

Knowing the "actual carbon sequestration" is far from being easy. Offset projects could lose value based on the fact that they face:

• More prominent climate hazards and natural catastrophes. This would mean that the company would have to reinvest according to the liabilities it makes, which would encourage it to modify and reduce the impact of its business model.

• The halting of a project or the differences in emissions per year linked to it: due to climatic hazards.

• Natural projects can also gain value, "such as when the forest grows larger and faster than anticipated, enabling it to capture and store more carbon."

This access to data is vital, and really hard to assess, which the authors agree. Even with a framework to add E-liabilities and E-assets, "how can you accurately measure the quantity of carbon captured over the productive lifetime of a forest? Is a kilogram of carbon captured in trees equivalent to a kilogram of carbon stored in rocks or soil? And will the carbon being captured in trees or underground be sequestered for the same duration as current CO2 emissions will linger in the atmosphere?" Since those accounts have to be published every year, they will have to be updated, and the most accurate possible.

Those questions raised show how carbon accounting is in progress and still needs research to be solid enough to be differed as standard worldwide.

C. The advantage of a carbon accounting guideline framework overall

Without going too much into detail, the Harvard carbon accounting guidelines give a short overview of how we could represent nature in balance sheets. The 4th guideline even presented the notion of "positive earning" in a way that eliminating e-liabilities could be seen as an increase in a firm's income from all their stakeholders, giving them a competitive advantage, and raising questions about the advantages of such a framework overall. Here is a short list:

• Enhanced Verification of Net-Zero Commitment

Companies can confidently validate their net-zero commitments "In this system, a firm would qualify as net-zero for a given reporting year only if its closing E-liability balance at the end of that year had been matched by nettable E-assets. A similar logic would apply to the firm's individual products and services claimed to be net-zero", ensuring transparency and accountability. If there is a deficit, the company can seamlessly purchase the necessary offset amounts to achieve equilibrium, enhancing credibility.

• Augmented Auditing Mechanism

Carbon accounting paves the way for rigorous auditing conducted by both financial and climate science firms: "The current approach to carbon reporting, based on selective disclosures of emissions and the accelerated use of offsets, is generally unaudited. » This system, though, "can be fully audited to provide a "true and fair" representation of an entity's carbon emissions and carbon-removal offsets." This dual-audit mechanism amplifies trust and integrity in reported data.

• Diversified Portfolio Management could be seen even more as a benefit

Firms are empowered to mitigate risks and harness sustainable gains by building a diversified offset portfolio. A company, for example, can invest in a variety of carbon offset projects, ensuring a balanced mix in terms of risk, duration, and technology. This strategy ensures consistent compensation engagement over decades and automatic reinvestment in emerging projects.

• Cost-Efficient and Reliable Blockchain Application

"Blockchain technology, starting with the first stage of production, can be used to accumulate and transfer E-liabilities from stage to stage, reducing accounting and auditing costs across the entire system." This system will drastically reduce accounting and auditing expenses. For example, an on-chain system interconnected with meta-registries nullifies the need for extensive calculations and audits, enhancing accuracy and preventing instances of double counting.

• Amplified Marketing Strategy to attract stakeholders

Carbon accounting amplifies a company's communication and market positioning. For instance, a company's transparent carbon accounting practices would become a narrative that distinguishes it in a competitive market, attracting eco-conscious consumers and investors.

• Financial and Emission Regulation: access to loans with new types of covenants

The incorporation of carbon accounting refines financial and emission-related loan access. For example, a company's interest rates can be indexed to its carbon withdrawal capacity, linking financial obligations to environmental performance, and incentivizing reduced emissions. The company would have to pay a higher interest rate in one year than in another, linked to the fact that it has not succeeded in offsetting the desired amount linked to its environmental debts.

• Real-Time Emission Allowances

A mechanism akin to a market in allowances ensures companies' emissions are accurately accounted for, similar to the ETS market, which is updated every year, at the level of a company, subsidiary, or even a product. With blockchain and high-performance dMRVs, for instance, a company's emissions are tracked in real-time, offering precise data that facilitates informed decision-making and compliance.

• A more robust Governance Structure

Transitioning existing registries into authoritative entities strengthens the market-based carbon-emissions solutions. By specializing in managing risks associated with specific types of offsets, such as focusing only on NbS or Technological offsets, they would embody a pivotal role in enhancing the system's efficiency and reliability.

Each advantage would exemplify the impact of integrating comprehensive carbon accounting.

It would then underscore the tangible benefits for companies in terms of transparency, accountability, strategic positioning, and more.

Overview of the actual trends and tendencies, a meta registry to rule them all

Many different trends have been seen in the market, focusing on beyond carbon, such as new types of credits, biodiversity credits, plastic credits, and new ways of funding.

This report could have introduced those different possibilities in more detail, but, even though important and really needed, a decentralized meta-registry, with the help of a solid policy framework, new technologies, and the development of a worldwide carbon accounting methodology or standard, is, in the author's opinion, the field that will have the biggest change.

The last benefit from the carbon accounting part opened the door for the last part of this section, which will now be focused on a meta-registry to rule all the existing ones.

A. Presentation of a meta-registry Remember the figure 14, stating all the four main carbon registries in the world, and their entropy as well as their lack of human, financial, and operational needs. Each has its own set of rules and requirements. This can make it difficult for buyers to navigate the market and find the right carbon credits to meet their needs.

Carbon registries are the authorities that authenticate and create the existence of carbon credits. Verra, the Gold Standard, American Carbon Registry and Climate Action Reserve can then be considered as the top 4 "Carbon central banks" of the carbon credit world.

• They evaluate offset project developers and create the credits that the carbon project developers resell.

• They provide search and listing functionality for buyers and sellers online.

• They facilitate the account management and electronic transfer between different entities.

• They provide the audit trail of the destruction of carbon credits when those are retired.

To use a meta registry, carbon credit sellers must first register their credits with the participating carbon standards. The credits are then aggregated and listed on the meta registry platform. Buyers can search for and purchase carbon credits from the registry, with the transactions being tracked and recorded on the platform.

But all of this information is not available on one platform. A meta registry helps to solve this problem by providing a single one where carbon credits from different standards can be registered. This makes it easier for buyers to access a diverse range of carbon credits that meet their specific requirements, which can be summarized here:

Indeed, if possible, the meta-registry should connect to the national registries as well as the voluntary independent registries to maximize data interoperability, with DLT to prevent fraud and money-laundering due to the lack of transparency. All this architecture is really well explained by this paper from the IVCM written in January 202, of 156 pages.

Figure 24 Recommended architecture for a meta-registry Source: TSVCM, 2021 ( 62))

The conclusion of the task force is that it "recommends a central, well-protocolized meta-registry that provides clear, effective accounting and seamless connectivity among governments, NGOs, and market participants." TSVCM, 2021 Let's see what has been built so far.

B. The creation of a meta-registry on blockchain

This part will focus only on meta-registry linked by blockchain, so with web3 technologies, and not with web2 technologies.

For instance, the United Nations Framework Convention on Climate Change ( 63 ) has created in 2012 business and technical specifications to define registry behavior and ensure interoperability between all registries but lacks the efficiency, data integrity (not immutable), transparency, security, and interoperability offered by blockchain.

Certain private enterprises are initiating their own registries by tokenizing carbon assets (ex-post carbon credits and ex-ante carbon investments). However, this effort can inadvertently lead to the very issues they aim to avoid: double claiming and double counting.

This arises due to two primary reasons:

• While tokenizing a single project can be effective, the challenge emerges when multiple projects potentially tokenize identical credits on different, non-interoperable blockchains. This lack of interconnectivity and standardization can lead to overlaps and inconsistencies.

• The issue of additionality is further complicated by the distinction between tokens and retirement certificates. This differentiation can create ambiguities in tracking and validating the impact and exclusivity of each tokenized credit, leading to potential double claiming.

Then, the most likely to be settled is an institutional one, such as the one created by the World Bank or one backed by institutions and by the main actors from the market, such as the IHS Markit.

• The IHS Markit IHS Markit, a significant entity in critical information, analytics, and solutions, launched the First global Carbon Credit Meta-Registry on October 28, 2021. It includes data from eight programs and over 90 countries, spanning national, sub-national, international CORSIA-approved, and voluntary programs Gold Standards, Verra, Plan Vivo…). It has formed a Carbon Meta-Registry Advisory Board with representatives from various programs/standards, governments, NGOs/industry associations, and the private sector.

To date, there are 127 supported Countries, with 7041 tracked projects.

"Trust is critical to the future of carbon markets," said Jose Gondim Santos of the Acre Carbon Standard. "By providing connectivity and transparency, the Meta-Registry will greatly benefit our program and the markets more broadly." ( 64 )

It functions as a global online ledger, facilitating access to information on projects and credits across various jurisdictions and ensuring transparency in transactions and the tracking of carbon credits. ( 65 )

It enables:

• "Cash and position settlement for all transactions, whether OTC or exchange-traded • Connectivity with exchanges/auction platforms • Electronic trade confirmations • Reference identifiers • Portfolio view for market participants"

As a non-institutional one, to be efficient this meta-registry needs to be backed by main institutions of the market, and we can see it here: But it is not the first registry that has been built.

• The Climate Action Data Trust The CAD Trust open-source metadata system uses blockchain technology to create a decentralized record of carbon market activity to avoid double counting, also increase trust in carbon credit data, and build confidence in carbon markets through improved transparency.

It aims to create a decentralized metadata platform to connect, aggregate, and harmonize data from all major carbon credit registry systems.

The Council consists of representatives from countries and registries, some that are the same as the IHS Markit such as Verra, Gold Standard, American Carbon Registry, and Global Carbon Council but also countries as Singapore, the UK, Japan and others. The next steps are:

• Standardization: There's a need to develop and adopt global standards to ensure consistency and reliability in data across different regions and markets. • Security: Implementing robust security protocols to safeguard sensitive data and ensure the integrity of transactions recorded in the registries. • Interoperability: Enhancing the compatibility and communication among different existing and upcoming meta registries to avoid data silos and ensure comprehensive global data access.

8.Conclusion

In conclusion, this report recognizes the pivotal role the VCM plays in mitigating climate change, despite its associated challenges. As this market burgeons, the complexity and fragmentation, risk of greenwashing, and issues spanning from project design to transactions become more prominent.

Harnessing emerging technologies like blockchain can offer profound solutions, enhancing transparency and efficiency, although they are not without drawbacks. The introduction of dMRV systems accentuates this evolution and its main utility for the market.

However, for mass adoption and optimal functionality, it's evident that defining carbon accounting on a global scale is a main issue that requires regulatory attention. Blockchain technology, the advancement of dMRVs, and the development of a decentralized registry stand as pivotal elements in operationalizing and enhancing the efficiency of this process. « These disclosure-based approaches are arguably easier to comply with, but we note that the world can never achieve its climate goals if we do not quickly embrace an accounting method that records corporate carbon emissions on balance sheets. ( 67)"

These integrative efforts will address the prevalent issues, streamline operations, and fortify the VCM's impact on global climate preservation. The rapid evolution and adaptation of these facets are not just necessary but urgent to harness the VCM's full potential.

This report will end with this quote from IETA ( 68 ): "The core role of the VCM remains consistent:

• To provide a robust mechanism for corporates to reduce or remove emissions beyond their value chain in support of science-aligned net-zero pathways. • To channel finance to where it is desperately needed, including to LLMIC, removals, forest conservation and delivery of the UN SDGs. • To pave the way towards compliance markets."

Indeed, what will happen to the compliance market ETS when the VCM is finally regulated, and every company is forced to account for its carbon offsets?

  GHG protocol: "The GHG Protocol represents a comprehensive global standardized framework for measuring and managing greenhouse gas GHG emissions." LLMIC : Low and Lower-Middle Income Countries MARC Measure, Avoid, Reduce, Contribute NbS Natural Based Solutions VCM Voluntary Carbon Market

Figure 2 Figure 3

 23 Figure 2 Evolution of the VCM according to the 4 main registries ( 8 )

Figure 4

 4 Figure 4 Showing how reaching the 1.5 degree warming target could require a large quantity of negative emissions, including some generated using carbon credits. Source: McKinsey & Company, 2021

Figure 5 and 6

 6 Figure 5 and 6 Graphs about the potential for the VCM Bloomberg, Mc Kinsey & Company)

Figure 7

 7 Figure 7 Figures about Net0 commitment from companies and the EU Sources: Accenture ( 15 ), Net Zero Tracker ( 16 ), Winters, Joseph, 2023 ( 17 ), European Green Pact and European climate law

Figure 8 and 9 " 12 SECTION 2 .Figure 10

 912210 Figure 8 and 9 "Growth in SBTi signatories not matched by the retirement of carbon credits, and the cost of inaction WEF, 2023 ( 18 )

Figure 11

 11 Figure 11 Overview of the Voluntary carbon market in 2023 Source: puro.earth ( 19 ))

Figure 14

 14 Figure 14 Distribution from the main certifiers Source: Carbon credits ( 21 ))

Figure 21 A

 21 Figure 21 A brief overview of the main policy framework surrounding public companies Source: adapted from an illustration by the European Commission 15/06/2022 -EcoAct)( 51 )

Figure 22

 22 Figure 22 Example of a company' balance sheet inspired by the Harvard Accounting Scheme

Figure 23

 23 Figure 23 Introduction to IHS Markit's Meta-Registry Solution Sustainable Finance" IHS Markit, 2022( 61 )

Figure 25

 25 Figure 25 Meta-Registry Advisory Board of the IHS markit Source: IHS Markit, 2022

"

  The World Bank, along with the International Emissions Trading Association IETA and the government of Singapore, launched a new carbon credit platform "CAD Trust" to clean up the market and integrate several registries." ( 66 ) This meta registry will be available soon in Q4, 2023 after its creation in 2019. This achievement is the result of three years of diligent work and the development of numerous prototypes through a series of simulations for aggregating carbon data. The project engaged 30 organizations, involved the cooperation of 11 national governments, and was refined through 58 testing sessions.[START_REF] Credits | The Ultimate Guide to Understanding Carbon Credits[END_REF] It uses blockchain technology to coordinate global carbon data and pricing within its broader Climate Warehouse initiative.

Figure 26 CAD

 26 Figure 26 CAD Trust Council all over the world for now Source: Carbon credits, 2022

multinationals have been accused of misleading advertisements on their "net-zero" plan.

  European Climate Act: commit Europe to achieving its climate neutrality targets by 2050 and reducing its greenhouse gas emissions by 55% compared to 1990 levels by 2030. Developed by the European Commission in late 2019, with the proposal officially presented in February 2023, it represents a major step forward for climate policy in Europe, while sending a strong signal to the world to propel global climate action.B. The new laws that will take place Carbon offsets have an emerging legal risk. "The fiction of carbon offsetting is attracting increasing legal risk -the risk of non-compliance, shareholder action, litigation, and regulatory enforcement." Companies such as Shell or KLM and other Total Energies for instance had a claim accusing him of "telling shareholders that carbon credits will deliver emissions reductions. » (48) "Given the legal and reputational risks associated with the reliance on offsets in corporate transition plans and advertising based on claims of 'CO2 compensation' or 'carbon neutrality' , company directors will need to consider if such strategies are compatible with their duties to act in the best interests of the companies they serve." ( 49 ) However, some new norms, such as the Corporate Sustainability Reporting Directive (or CSRD have the aim to harmonize mandatory non-financial reporting by companies in the European Union, coming into force in the European Union EU in January 2024. It gives a clearer overview of carbon contributions and carbon reductions.

  52 ,53 ) This way, countries can achieve their Nationally Determined Contributions NDCs) in a cost-effective manner.The implications of this shift are profound, marking a transformative step in global climate action where both corporate entities and nations operate under a unified mechanism to combat climate change. In other words, this can be considered as a huge game changer because Climate Mitigation won't be only available on the national level, but at a global scale. World Bank, 2022 .

Important to note: Other methods of ecological accounting could be presented, such as the CARE system developed in France Comprehensive Accounting in Respect of Ecology) ( 59 ) focusing also on the organizations' level, or other models at the national level (unpaid ecological costs), or at the level of collective ecosystem governance (ecosystem centred management accounting) ( 60 ). But this section does not have the objective of going too deep into the theory of carbon accounting, but only presents briefly the objective, advantages and limits of carbon accounting to enhance mass adoption.

B. The Harvard carbon accounting guideline: Environmental balance sheets for carbon offsets

These principles define what can and cannot be counted as a carbon offset and set guidelines for proper accounting. They raise some questions that we will answer and are all based on the same article from Kaplan, Robert S., et al. in July 2023.

The key points to note here are the terms of E-liability and E-assets. "The principles presented here extend the E (or environmental) liability method of carbon accounting, [...] which enables organizations to measure and manage the cradle-to-gate GHG emissions incurred in their outputs." In other words, every year, a company would have to show its standard financial sheets, and its new environmental financial sheets, new E-financial documents, with E-assets and E-liabilities, where the measure of unity would not be necessarily money, but GHG emissions based on the GHG protocols.

The authors provide us with 5 guidelines for this new environmental finance sheet. "The first 2 determine the scope of the markets by defining what can and cannot be counted as an offset and what may or may not be traded. The remaining principles set out basic accounting guidelines for offsets." We will focus on the 4 th and the 5 th ones, which are the most important.

Guidelines on how to represent carbon accounting Explanation

1. "Only removal offsets that take carbon out of the atmosphere can be used to reduce an organization's reported emissions."

"Eliminates the accounting error of treating prospective emissions reductions as current offsets", because avoidance is highly subjective, "while encouraging companies either to invest more to green their operations or to purchase more removal offsets from efficient carbon removers."

2. "Companies can buy or sell removal offsets but cannot trade E-liabilities."

• Firms can reduce their E-liability balances by purchasing valid removal offsets. • E-liabilities are tied to the underlying product inventories and cannot be separated.

• Legislation and Regulation: Developing clear legal and regulatory frameworks to govern the operation of these registries, ensuring compliance with international climate and data protection standards. • Stakeholder Engagement: This report showed the different governments, registries, programs, and companies involved. But it needs all of them and the public to enhance awareness, participation, and trust in these meta-registries if it wants to succeed.


Ouiam-Fatiha F Boukharta
email: ouiiamfatihasm@gmail.com

Loïc Sauvée

Fabiana Fabri

Leticia Chico-Santamarta

Luis-Manuel Navas-Gracia

; Sauvée

; Fabri

; Chico-Santamarta

; Navas-Gracia

City agricultural systems, innovative alternatives for sustainability transitions: Evidence from case studies in France

Keywords: City farming, urban agriculture, well-being, implementation, benefits

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The importance of urban agriculture and gardening in cities is growing and has been recognized by various initiatives such as Milan's Urban Food Pact [START_REF] Pact | Milan urban food policy pact[END_REF]. There is also a growing awareness of the significant contribution that a link with nature makes to our mental health and well-being [START_REF] Bailey | Connections in the garden: Opportunities for wellbeing[END_REF]. Indeed, urban agriculture is a form of farming that aims to ensure food security, maintain urban ecosystem services, and improve quality of life [START_REF] Soga | Health benefits of urban allotment gardening: Improved physical and psychological well-being and social integration[END_REF]. In addition, the use and transformation of abandoned areas is proving to be an appropriate way of creating new green spaces [START_REF] Gros-Balthazard | L'avenir productif des territoires industriels: analyse de la diversité des trajectoires économiques locales[END_REF]. This study focuses on the analysis of urban agriculture practices in the city of Rouen, France, where an assessment will be made of the distribution of the value created by the implementation, procedure and planning of urban agricultural practices, together with an evaluation of the benefits they bring in economic, social and environmental terms. The work consisted of interviews with stakeholders involved in the operation, including farmers, citizens, project managers and department head representatives, along with site visits for a better analysis and evaluation of each of the cases. This work employs an empirical analysis using NVivo software, which is now widely recognized for its efficiency in processing data related to qualitative research [START_REF] Zamawe | The implication of using NVivo software in qualitative data analysis: Evidence-based reflections[END_REF]. The findings show that the two social cases evaluated are both keen to ensure a better green environment for city residents, giving them the opportunity to reconnect people with nature while offering them the chance to grow their own fresh food and improve their health and well-being. Furthermore, the results show that there are a number of similarities between the different entities in terms of objectives and activities performed, along with a number of differences in terms of their structure, governance and management and the distribution of tasks.

Acknowledgments: This research benefits of a support from the Chair "UsinoVerT. Usines & Territoires", Rouen, France https://chaire-usinovert-unilasalle.fr . The present work is also related to FUSILLI Project, which is based on food and natural resources, and which is funded by the European Union's Horizon 2020 research and innovation program under grant agreement No.101000717 https://fusilli-project.eu/