CARBON CREDIT TOKENIZATION IN ISLAMIC FINANCE: INTEGRATING SHARIA PRINCIPLES INTO CLIMATE ACTION MARKETS

Abstract

This research investigates the incorporation of carbon credit tokenization within the framework of Islamic finance, focusing on Sharia-compliant mechanisms to advance environmental sustainability. It explores how Islamic financial principles can address global climate challenges through innovative frameworks, focusing on the integration of Sharia-compliant mechanisms in emerging carbon markets. A thorough literature review consolidates insights from scholarly examinations, institutional publications, and practical implementations, underscoring the role of blockchain technology in enhancing transparency, accountability, and efficiency within carbon markets. The paper presents a pioneering Sharia-compliant tokenization framework, integrating Islamic contracts such as wakalah and musyarakah while aligning with the objectives of maqasid al-sharia. Key findings reveal the transformative potential of blockchain in carbon markets, notwithstanding challenges such as scalability, security, and the varying interpretations of Sharia law. The discussion emphasizes actionable strategies for embedding Sharia principles into carbon markets, promoting cross-sector collaboration, and addressing governance deficiencies. While conceptual in nature, this study lays the groundwork for future empirical validation and practical application. By bridging Islamic finance with sustainable development, the research aims to enhance Islamic green finance and empower Muslim-majority countries to take the lead in ethical environmental practices. Future inquiries should concentrate on operationalizing this framework, tackling technical and regulatory challenges, and standardizing Sharia-compliant carbon markets on a global scale.