In a world grappling with climate change, innovative solutions are emerging to bridge the gap between environmental sustainability and economic growth. At the forefront of this movement is Toco, a digital currency backed by carbon credits. This novel currency, developed by the Carbon Reserve—a non-profit foundation—aims to incentivize carbon removal while facilitating everyday transactions. Since its inception, Toco has garnered roughly 1,000 users across Switzerland and Denmark, where it is accepted in around 50 shops and cafes.
Each Toco represents one carbon credit, symbolizing the removal or reduction of one metric ton of carbon dioxide from the atmosphere. The Carbon Reserve purchases carbon removal certificates from projects such as reforestation, renewable energy initiatives, and direct air capture through existing carbon markets. By leveraging funds from its users, the foundation secures high-quality carbon removal certificates as assets. These efforts are regulated by the Swiss Financial Market Supervisory Authority (FINMA), ensuring rigorous standards in the voluntary carbon market.
The Carbon Reserve's approach allows users to "retire" their Tocos, effectively locking away the corresponding carbon certificates to offset personal carbon emissions. This system promotes environmental responsibility while maintaining the integrity and security of transactions through identity verification measures.
Despite its innovative approach, the concept of using carbon credits as currency is not without critique. Steffen Dalsgaard, a scholar in environmental studies, raises concerns about the robustness of verification mechanisms in carbon markets.
“Critique has been levelled against carbon credits and markets numerous times and their promises of ‘robust' verification mechanisms frequently fall short simply because the whole idea that the climate can be treated like an account in this way is fraught,” – Steffen Dalsgaard
Dalsgaard further explains the challenges inherent in valuing forested land for carbon credits.
“In the case of forests, a piece of forested land can only be valuable as a carbon credit if it was under threat of deforestation. It is about avoiding that deforestation and saving the sequestered carbon which has value, not the forest in itself, which is already there,” – Steffen Dalsgaard
The creation of counterfactual scenarios to justify carbon credits also presents difficulties.
“It relies on presenting a number of credible counter-factual scenarios of what might happen in the absence of the issuance of credits, but how can you ever prove that something counterfactual really would have happened?” – Steffen Dalsgaard
Emilios Avgouleas, a finance expert, emphasizes the need for transparency and auditing in digital currencies like Toco.
“There should be an auditing process or mechanism to verify that the underlying instrument or asset in stock [with the digital token issuer] and back the exchange rate of the token. If it's not, obviously the token is worthless,” – Emilios Avgouleas
Avgouleas cautions both investors and policymakers about relying too heavily on such currencies.
“I would urge caution both to investors and public policymakers. These coins are not the answer to our prayers to contain climate change,” – Emilios Avgouleas
Rowett, a key figure behind Toco's development, defends its design by highlighting the initiative's commitment to security.
“In the design of this initiative, we've taken the positives of blockchain and discarded some of the things that we don't agree with, such as the anonymous movement of money. We don't believe in that because we believe that any kind of value transfer needs to come with security,” – Rowett
Rowett envisions a future where Toco's widespread adoption could significantly impact carbon markets.
“Let's say every European person, working person, 190 million people bought one cup of coffee a day using Toco. That would translate into $50 billion (€48.5 billion) of demand for carbon mitigation assets in the current carbon markets,” – Rowett
The voluntary carbon market where Toco operates differs from compliance markets like the EU Emissions Trading System (EU ETS), which covers about 40% of the EU's greenhouse gas emissions. The EU ETS remains the world's largest carbon trading market, underscoring the significance of regulated frameworks in addressing climate change.
Electric automaker Tesla exemplifies success within compliance markets, generating $2.8 billion from carbon credit sales in 2024. As Toco pioneers its path in voluntary markets, its founders maintain confidence that linking currency to carbon removal can combat climate change without stunting economic growth.
However, Dalsgaard points out that despite speculation on carbon credits as currency years ago, they have not been officially adopted as such by large organizations or governments.
“[Carbon credits] have to my knowledge never been seriously – that is, in official policies of large organisations or governments – thought about as a ‘currency’, although both I and some other scholars speculated about a decade ago that it could, in theory, come to this,” – Steffen Dalsgaard
He also proposes that carbon emissions could establish a new monetary standard akin to historical gold standards.
“[Carbon emissions] could be a new ’standard of value’ for money like the gold standard used to be,” – Steffen Dalsgaard
Rowett affirms Toco's standing as an asset-backed currency.
“It's an asset-backed currency and the asset that backs the currency is carbon mitigation certificates [which prove] that carbon has been removed,” – Rowett
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