Briana Al-Omoush, ELR Staffer, Fordham Law 2027

Digital Assets and Carbon: From Speculation to Sustainability? 

As cryptocurrency evolves from speculative finance to infrastructure for digital goods, blockchain innovators, such as Toucan Protocol, Carbonplace, and Flowcarbon, have begun building tokenization platforms that convert verified carbon credits into digital assets, enabling real-time tracking and public verification. Tokenized carbon credits are “permits, generated by verified emissions-reduction projects such as reforestation, methane capture, or soil carbon sequestration,  that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases.” Tokenization turns verified carbon credits into digital assets. Unlike traditional carbon credits, which exist solely in registry databases, tokenized credits exist as digital assets on a blockchain, allowing each credit to be uniquely tracked.

A carbon market is a system in which credits representing emissions reductions are created, sold, and retired to help organizations offset their greenhouse gas emissions. Traceability could help repair long-standing skepticism about these markets, including concerns about unverifiable emissions reductions and double counting, but this promise is ironic given the energy-intensive history of blockchain mining. Long condemned as a climate villain for its energy-hungry mining operations, which use large amounts of electricity to validate blockchain transactions and contribute to significant emissions, the industry now presents tokenized carbon credits as evidence that it can support climate solutions instead of undermining them. Greenwashing refers to the practice of presenting a product, technology, or initiative as environmentally beneficial when its actual impact does not meaningfully reduce emissions. This sharp reversal has drawn enthusiasm from blockchain advocates and skepticism from environmental experts, and it raises the following question: Can tokenized carbon credits actually advance environmental goals, or are they simply a new form of greenwashing? 

How Carbon Markets Work and Why Trust Is Broken

Voluntary carbon markets (VCMs) are decentralized markets where private actors voluntarily buy and sell carbon credits generated by projects aimed at reducing or removing greenhouse gas emissions from the atmosphere. Key registries for VCMs include Verra and Gold Standard. Registries for VCMs are databases that verify carbon-offset projects, issue credits, and track their transfer and retirement to prevent double-counting. In voluntary carbon markets, a program is the standard-setting organization that verifies emissions reduction projects and issues carbon credits; Verra is the largest program of VCMs by volume and involves a variety of project types, including nature-based solutions and standards for plastic waste reduction. Verra also administers a Plastic Waste Reduction Standard, which issues credits to projects that collect, recycle, or otherwise prevent plastic from entering landfills or the environment, thereby reducing the volume of plastic waste. Nature-based solutions refer to projects that use natural ecosystems, such as forests, wetlands, and soils, to capture or reduce greenhouse gas emissions. Gold Standard, established by the World Wildlife Fund and other international NGOs, focuses on sustainable development projects and community benefits in addition to greenhouse gas emissions reductions.

The Promises and Pitfalls of Blockchain and Carbon

Recent research suggests that up to 87% of credits in voluntary carbon markets may not achieve the emissions reductions they claim, meaning the counterbalancing effect may be far smaller than marketed. These markets face significant verification problems because registries apply inconsistent standards, allow double-counting of the same emissions reduction, and have issued credits to projects that did not deliver the environmental benefits they claimed. These shortcomings have fueled concerns about greenwashing, as companies can purchase or publicize credits that appear climate-friendly on paper, even when the underlying projects fail to reduce emissions in practice. All that said, blockchain advocates can solve these problems.

In practice, a project developer lists a verified carbon credit on a registry, which is the official record-keeping system for voluntary carbon markets. This system verifies emissions reduction projects, issues carbon credits, takes ownership, and records when credits are transferred or retired to prevent double-counting. Key registries for VCMs include Verra or the Gold Standard. That credit is then “wrapped” or represented as a token on a blockchain. The token can be traced, traded, or retired online. Blockchain firms argue that by tokenizing carbon credits on immutable ledgers, they create full transparency of ownership and retirement, which is crucial because reliable tracking of actual emissions reductions is essential to prevent fraud and ensure climate action actually occurs. Each transaction is public, and every credit has a digital record that cannot be altered or modified. 

The Legal Blind Spot: Who Regulates the Tokens?

The law has not caught up with tokenized carbon markets, as no federal agency has clear authority over them. The SEC may claim jurisdiction if a tokenized credit meets the Howey test, a legal standard used by the SEC to determine whether a transaction constitutes a security and functions like an investment contract. This lack of transparency leads to inaccurate reporting, inflated climate claims, and the continued use of credits that fail to deliver real emissions reductions. The Commodity Futures Trading Commission may view these credits as commodities if they are traded or marketed for profit, which would subject them to antifraud and market-manipulation rules under the Commodity Exchange Act. Environmental regulators such as the EPA and the New York State Department of Environmental Conservation have not issued guidance, standards, or enforcement rules for tokenized carbon credits, leaving no environmental framework to govern the verification and monitoring of these credits unestablished. The problem is not that agencies have refused to act, but rather that tokenized credits fall between existing legal categories, leaving no agency with clear jurisdiction to regulate them. This enforcement gap has direct environmental consequences because unverifiable or low-quality credits allow companies to claim emissions reductions that never occur, resulting in higher real-world emissions and delaying meaningful climate action. 

However, some state governments have begun to respond. California’s Voluntary Carbon Market Disclosures Act (AB 1305) requires companies that sell or use VCMs to disclose how those credits are verified. Verification typically involves independent auditors reviewing project baselines, monitoring reports, geospatial data, and emissions calculations before credits are issued, but the rigor of this process varies across programs. As a result, tokenized carbon credits will continue to operate in a regulatory gray space until lawmakers determine whether they fall within financial law, environmental law, or both. 

Can The Law Play Catch Up? A Window to the Future

Blockchain can enhance transparency in environmental data only if lawmakers and regulators establish clear rules for verifying, disclosing, and auditing tokenized credits. This shift would move responsibility from private project developers, who currently self-report emissions reductions, to regulators and verified registries with authority to enforce data accuracy. Legal accountability in this context means requiring tokenized carbon credit platforms to integrate with verified registries, disclose credit data to regulators and the public, and adopt safeguards that prevent fraud and ensure credits reflect real emissions reductions. Such a level of transparency would strengthen oversight and improve the integrity of carbon markets, making compliance easier for companies, such as Verra, as well as for regulators. Greater transparency in tokenized carbon markets would enable researchers and regulators to verify whether the emissions reductions claimed by projects are genuine, which is crucial for preventing credits from overstating climate benefits. Better public data also helps ensure that companies cannot rely on low-quality credits to appear compliant while continuing to pollute, strengthening the integrity of climate mitigation efforts. 

Tokenized credits risk becoming another speculative asset without clear regulatory standards, which undermines climate goals by allowing companies to claim emissions reductions that never occur and by diverting investment away from verified decarbonization efforts. Weak or absent verification has already allowed large volumes of traditional offsets to misrepresent emissions reductions, which demonstrates how similar gaps in digital markets could undermine climate goals if not addressed. The more pressing question is whether environmental regulators, such as the EPA, will intervene before weak oversight allows tokenized credits to undermine climate progress by enabling unverifiable offsets to circulate as legitimate. Without clear legal standards, the market cannot define itself in a way that reliably protects the environment, because voluntary governance alone cannot prevent over-crediting, double-counting, or the sale of credits with little real emissions impact.