Can a carbon credit-backed currency help us fight climate change?

Imagine if you could save the planet every time you spend money.

A Swiss-South African start-up has launched Toco, a digital currency which is backed by carbon credits.

The currency can be used to pay for goods or transfer them to another account. Users can “retire” their Tocos to permanently lock away the corresponding carbon certificates to offset their own carbon emissions. 

Its developers say it is already accepted at some 50 shops and cafes in Switzerland and Denmark.

Carbon credits represent the removal or reduction of one metric ton of carbon dioxide from the atmosphere, with every toco representing that. For example, one Toco is currently about €26. 

“We designed this initiative so that it can be a transactional currency so that we can use it on a day-to-day basis,” Paul Rowett, co-founder of Toco, told Euronews Next.

“We specifically chose that route so we could create consistent demand in the carbon markets so that the magic of an individual going and paying for their lunch in Toco and creating demand for decarbonisation is quite a magical concept,” Rowett added.

He believes the novel monetary system is a solution for climate change that doesn’t compromise economic growth.

“The problem that causes climate change is inherently built into our economic system as economies grow,” Rowett said.

“Carbon emissions are built into our economic system and we don’t pay for them. It’s free to emit. And economic growth in our capitalist world is fundamentally important,” Rowett added. 

When users purchase Toco with traditional currency, the Carbon Reserve, a non-profit foundation chaired by the currency’s founders and based in Switzerland, uses these funds to buy carbon removal certificates from projects like forests, renewable energy, or direct air capture from existing carbon markets.

These certificates act like receipts to prove that carbon dioxide has been removed from the atmosphere.

“Those assets then form the underlying value that backs up the currency in circulation,” Rowett said.

What is carbon trading?

The idea of linking money to carbon removal might sound strange, but it is an institutionalised practice that dates back to 1997 when the United Nations Framework Convention on Climate Change (UNFCCC) adopted carbon credits.

In 2005, the EU set up the world’s first and largest carbon market, covering about 40 per cent of the EU’s greenhouse gas emissions, the EU Emissions Trading System (EU ETS). 

Globally, companies have drawn criticism for using carbon credits to offset oil and gas extraction emissions, rather than transitioning away from fossil fuels.

Electric automaker Tesla generated $2.8 billion (€2.6 billion) from carbon credit sales in 2024, according to its annual financial report.

While carbon credits have existed as a concept for decades, the idea driving the Toco project is not yet mainstream, though some experts have expressed a belief that it could work in theory.

“[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, the centre manager of the Center for Climate IT who has researched carbon economies at the IT University of Copenhagen, told Euronews Next in an email.

“[Carbon emissions] could be a new ’standard of value’ for money like the gold standard used to be,” he added.

How does Toco work?

Toco says it incentivises carbon removal efforts by making them a part of the currency ecosystem.

“You could fundamentally change the economic system because your underlying value is no longer, essentially debt, which fiat currency is based on. And it’s now something that we depend on, our world literally depends on,” Rowett said.

Toco says the Carbon Reserve purchases “high-quality” carbon removal certificates from voluntary carbon markets and holds them as assets, similar to how central banks historically held gold to back their currencies.

“It’s an asset-backed currency and the asset that backs the currency is carbon mitigation certificates [which prove] that carbon has been removed,” he added.

But who verifies that the carbon removal actually happens?

Unlike the compliance market like the EU ETS, where companies are legally bound to pay for their emissions, the voluntary carbon market is where companies and individuals choose to offset their emissions by buying credits from environmental projects, often to meet corporate social responsibility goals.

In the voluntary market, under which Toco operates, independent organisations such as Verra and Gold Standard issue serialised certificates of carbon removal or emissions reduction projects. 

Potential hazard

Toco says it uses a permissioned blockchain to maintain a permanent registry of assets held by the Carbon Reserve. Its centralised blockchain also allows for transparency in tracking transactions, unlike some cryptocurrencies where ownership is harder to trace. 

“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 said.

Yet some experts remain sceptical about using financial markets to protect the environment.

“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, a researcher specialising in international financial markets and blockchain technology and the chair in international banking law and finance at the University of Edinburgh, told Euronews Next.

“They just multiply financialisation of a common good instrument like the carbon certificates, adding volatility to both markets,” he added.

Avgouleas says both blockchain token and carbon certificate markets are volatile and connecting those can pose a “double hazard” of destabilising both markets. 

“Most tokenisation projects create serious links between the token and the underlying asset. Any adverse price impact on the token market is immediately transmitted to the market of the underlying asset, which in this case is the carbon certificate,” Avgouleas said.

Toco says its system is safe as it requires users to verify their identity.

Its central bank equivalent, the Carbon Reserve, is regulated by the Swiss Financial Market Supervisory Authority (FINMA).

However, the evaluation of its underlying asset, carbon credits, is complicated, experts say.

Can climate be ‘treated like an account’?

“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,” Dalsgaard said.

“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,” he added.

Dalsgaard says there are a lot of uncertainties about the trustworthiness of how valuable specific carbon credits are, citing an investigation by the German Oeko Institute that found fewer than 16 per cent of the carbon credits issued to investigated projects actually reduced carbon emissions.

“Companies like Verra claim that their methods guarantee that these savings are additional, but how do you prove that? 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?” Dalsgaard added.

Experts also cited the history of fraud in the crypto industry and called for more scrutiny.

“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,” Avgouleas said.

“I hope these tokens will produce white papers that provide honest disclosures or statements to investors, which is not always the case”. 

Toco says it has about 1,000 users in Switzerland and Denmark and plans to expand in Europe to help fight climate change.

“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,” said Rowett. 

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