Digital Tokens for Climate Action and Nature-Based Solutions: Exploration of Opportunities and Considerations

Environmental tokens, or Eco tokens, are a specific type of digital token. The authors in (Gómez Mont, et al., 2023) explain that digital tokens have created what is called the Regenerative Finance (ReFi) movement, which promotes Sustainable Development Goals (SDGs) with a strong focus on climate change. The authors explore the application of this tool in rich biodiversity areas such as Latin America and the Caribbean. This region hosts more than 40% of the world’s biodiversity, 30% of fresh water available on earth and almost 50% of the global tropical rainforests, acting as the lungs of the Earth. Biodiversity can combat the climate crisis, absorbing greenhouse gases naturally. 

Digital tokens are creating new, accessible, and transparent ways of allowing more people to finance nature-based solutions. It is explained that digital tokens are assets on a blockchain that are explored as transparent, agile, and decentralised processes. Smart contracts are used to establish the logic of the token, as well as the history of transactions and balances. Tokens can be classified as: 

• Fungible: They are not unique and can be divided into subunits, as happens with cryptocurrencies. 

• Non-fungible (NFTs): Each token has specific features and cannot be divided into parts. 

Their traceability and fractionality qualities make digital tokens unique in the development of new forms of sharing information, distributing benefits, and trading value. Tokens are reported to be used as mechanisms to: 

• Fundraise for nature-based projects including a mechanism for the ownership of rights of a digital or material asset tied to the financing of nature-based solutions. This type of digital token application allows the creation of a system of awards that incentivise behaviour change at the consumer level. The purchaser does not receive ownership of a tradable asset, rather the purchase is donation type that translates into real-life conservations led by the digital token issuing party 

• Participate in the carbon market – decarbonisation projects. Organisations sales NFTs that represent nature-based projects tied to carbon credits. Some models are selling tokenised carbon credits directly which represent specific amounts of CO₂. reduction (for example, a one-year ton of carbon emissions). The NFTs holders receive the yield made from the selling of the carbon credit in carbon voluntary markets. Some examples listed include Carbonable, Earth, Universal Carbon, AirCarbon Exchange, World Bank’s International Finance Corporation, ZeroCap, KlimaDAo, ClimateCoin, etc. 

• Share data between various organisations and information points. Digital tokens can enhance data flow among parties, making it more transparent, traceable, secure, and agile. This creates incentives for data sharing both within and across borders. 

• Create supply chain transparency through blockchain.  Blockchain technologies enable parties in the value chain to register data at each step of the supply chain, enhancing accountability and transparency. This adds value to environmental data, incentivises sustainable practices, and supports micro-payments in a cost-effective, automated way.