The current carbon credit system has come under heavy criticism for potential conflicts of interest and transparency shortfalls and is the subject of an independent review.
He described the market as immature and defined by “often fuzzy carbon credits and fairly clunky ways of transacting – and yet we are looking to move to a world that is enabled by digitised tokens and decentralised finance.”
He said ANZ believed an exchange using “tokenised” carbon credits (digitised contracts exchanged via blockchain) will provide the best chance to create an efficient, liquid global market for emitters and investors.
“Our ability to tokenise carbon credits and offer a digital means of settlement with our stablecoin is a great example of how we think we can participate in the transition and help accelerate it,” he said.
ANZ Chairman Paul O’Sullivan: “The adoption of a highly efficient and secure infrastructure, we believe, will accelerate the scaling and credibility of [carbon] marketplaces.” Oscar Colman
ANZ is already experimenting with the new infrastructure. In June, private investor Victor Smorgon Group used A$DC to purchase Australian Carbon Credit Units (ACCUs) that had been “tokenised” by BetaCarbon, a carbon trading platform, to create digital security tokens known as BCAUs.
Mr O’Sullivan said NFTs could be used to create a secure representation of a carbon offset; for example, codifying where the credit come from and results, which will also assist secondary market trading of the new securities.
“One of the key challenges looking at carbon offsets is getting confidence around provenance, whether they are genuine and whether they will be delivered,” he said. “We believe these challenges can be mitigated by verifying and codifying project-specific credentials using non-fungible tokens, which addresses many of the concerns around greenwashing.”
Wendy Mackay, managing director of Pollination, told the event that creating liquid markets using new technology would not only help to value carbon but natural assets as banks are pushed to engage with biodiversity.
“We need to radically change economic systems and financial systems because the scale of change that has to happen is tremendous,” she said. “There are trillions of dollars of investment that is required here… We need to change the rules and help investors who come to us and say there is not enough product at the moment.”
The event at the ASX was attended by Reserve Bank governor Philip Lowe, ASX CEO Helen Lofthouse, and Ellis Connolly, the head of payments policy at the RBA.
Pivot point
Andreas Furche, CEO of the research centre, said blockchain technology can help to turn a register of ownership, typically seen as part of the back office, into a transactional engine to allow trading of digitised representations of a wide variety of instruments. It creates “exchange, clearing and settlement all together to become one transaction,” he said. “Blockchain has started to make people think differently.”
Mr Jones said the Albanese government strongly supported the development of digital finance applications to improve the efficiency of the financial system, within appropriate ‘guard rails’ to protect users.
“It is no exaggeration to say we are at a pivot point in the way commerce is done, and no greater pivot point than the invention of money as a mean of exchange, the digitisation of everything including currency itself. It is exciting, while creating enormous challenges for regulators and business,” he said.
The government is “delighted” to see the Reserve Bank exploring potential use cases for a ‘central bank digital currency’, and he said he was excited about the ‘tokenisation’ of real-world assets because “this is an area where consumers will see a direct and real benefit”, pointing to new ways to enter the property market.
Last week, the government said it would continue with a ‘token mapping’ exercise to define different crypto tokens to inform future approach to regulation.
“We want to get the regulation right because we want to ensure the guard rails are sufficiently wide apart to enable innovation to occur, but we want to ensure that innovation occurs within a safe ecosystem,” Mr Jones said.
The DFCRC will also study the application of blockchain and digital currency by the mining and minerals industry, along with the potential use of central bank digital currency and stablecoins in ‘decentralised finance’, where blockchain is used to mimic traditional banking activity without intermediaries.
The members of the DFCRC board were at the event on Monday night: former ASIC chairman Greg Medcraft, Trovio Jon Deane, CFO of Challenger Rachel Grimes and media executive Clare Gill, and professors Julie Cogin from RMIT and Dan Johnson from Macquarie University, along with former senior federal bureaucrat Neville Stevens, who is board chairman.
Mr Stevens paid tribute to the Hawke government for establishing the CRC program, while Mr Jones acknowledged the former government for seeding the DFCRC with $60 million (which was matched by private funding to bring the total to $181 million). “It was a commitment made by them, taken up with new energy, vigour and motivation by the Albanese Labor government,” he said.
‘Real-time disintermediation’
Mr O’Sullivan said DeFi, artificial intelligence and the emergence of Web3 “will accelerate the pace of change, not stabilise or slow it down”.
“One of the things we are witnessing in real time is the disintermediation of the traditional value chain of big banks,” he said.
“Once where we had to do everything end to end, increasingly these technologies facilitate somebody else finding a better or cheaper way of doing things and coming in and disintermediating that part of the value chain. The reality is that is going to happen whether banks chose to participate or not.”
The former leader of Optus pointed to M-Pesa in Kenya as an example of how mobile phones in Africa had brought finance to the unbanked. While Australia had different challenges, “we will continue to see technology, telcos and financial services continue to merge and the lines between them to get more and more difficult to differentiate,” he said.
Using the Ethereum blockchain to trade carbon credits could broaden access to emerging carbon markets to retail investors, while the technology could be used to facilitate micropayments to allow alternative energy to be traded through apps.
Under the terms of its carbon credit deal with Victor Smorgon and Zerocap, ANZ provided redemption rights for A$DC, ensuring the tokens could be transferred back to Australian dollar cash. A$DC is fully collateralised by the Australian dollar and redeemable at par with funds held in an ANZ-managed reserve account.
One of the initial projects of the DFCRC, in partnership with the RBA, will involve the development of a limited-scale CBDC pilot that industry participants will be invited to engage with, to demonstrate innovative and value-added use cases for a CBDC. The project is expected to take around a year, after which a report on the findings will be published, including an assessment of the various use cases developed, the RBA said last week.