IBM has partnered with environmental fintech startup Veridium Labs to turn carbon credits — tradable instruments that provide an economic incentive to those who want to reduce their greenhouse gas emissions — into blockchain-based tokens.

In a joint press release, the two companies announced a collaboration to “transform the carbon credit market using IBM blockchain technology with the goal of making it easier for companies to offset their environmental footprints.”

“By using a public, permissioned blockchain network, we can help Veridium create a new sustainable marketplace that is good for business and good for the world,” said Bridget van Kralingen, senior vice president of IBM Industry Platforms and Blockchain. “This is a great example of how industries are being reinvented by blockchain [technology], in this case establishing a far more efficient and transparent approach to carbon accounting and offsetting that will empower individuals and companies to play a role in improving our environment.”

A carbon credit is defined as “a certificate showing that a government or company has paid to have a certain amount of carbon dioxide removed from the environment.” In return, environmental regulations allow the holders of carbon credits to burn a certain amount of fossil fuels.

While the carbon credits market exists, with many active sellers and buyers, measuring carbon emissions is complicated and costly, and purchasing carbon credits can be complex. According to the joint press release, “blockchain based digital assets, or tokens, can enable innovative ways to buy and use” carbon credits.

A recent report produced by the IBM Institute for Business Value (IBV), titled “Moving to a token-driven economy: Enabling the digitization of real-world assets,” notes that assets like gold, real estate, fine art or carbon credits are difficult to transfer, often necessitating an abundance of paperwork and prolonged procedures for both buyers and sellers. “By representing physical assets as digital tokens on a distributed digital ledger or blockchain, it’s possible to unlock the value of real-world assets and to exchange them in real time,” states the report.

Relying on IBM’s blockchain technology and expertise, Veridium “plans to transform carbon credits into a new type of fungible digital asset that can be redeemed and traded on the Stellar network.” Their approach “will encompass the entire process of carbon footprint accounting and offsetting.” The tokenized carbon credits will include REDD+ credits from InfiniteEARTH, backed by projects that pursue long-term sustainability. Both Veridium and InfiniteEARTH are associated with EnVision Corporation, an incubator of sustainable technologies.

Jared Klee, blockchain manager for token initiatives at IBM, explained to TechCrunch that buying and accounting for REDD+ credits is currently quite complicated. “It’s a major pain point,” he said. “Today REDD+ credits are over the counter assets and there is no central exchange.”

Therefore, IBM and Veridium’s initiative, also supported by Stellar, could significantly simplify carbon credits trading, thus making carbon credits more appealing and contributing to environmental preservation and sustainable development.

“For years, we’ve been trying to mitigate environmental impacts at every point in the value chain, however previous solutions still presented significant complexities and costs,” said Todd Lemons, the chairman of Veridium. “Our work with IBM is the first step in dramatically simplifying the accounting and offsetting processes, and therefore ultimately helping reduce costs. Our digital environmental assets are designed to help companies and institutional investors purchase and use carbon credits to mitigate their environmental impacts today, and even hedge their potential carbon liabilities risks in the future.”