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Creating Sustainable Carbon Economy With Blockchain

In the week of Feb 14, 2021, an unusual ‘Arctic blast’ pummeled Texas, US. The temperature plunged to historically low levels leaving scores of people deprived of electricity and drinking water. As per experts, ‘a sudden stratospheric warming’ caused a large area of low pressure and swirling cold air, commonly referred to as the polar vortex. It is usually found near the poles. Several scientists consider human-induced global warming as the prominent reason for the polar winds’ atypical southward flight.

Is This Winter Storm Heralding a Bigger Threat?

Global warming has become a dire threat to the environment in the past decade. The average temperature of the globe has increased by 0.18 degree centigrade per decade since 1981. In comparison, it raised by 0.07-degree centigrade from 1880 to 1980. This accelerated increase in temperature has several catastrophic effects – rising sea levels, loss of ice mass in the poles and mountain glaciers worldwide, frequent extreme weather conditions such as hurricanes, wildfires, droughts, and floods, and cloud and vegetation cover changes.

Source: Average annual global temperatures since 1880 via NOAA National Centers for Environmental Information

If not arrested soon, this climate change can also result in the mass extinction of living species, including humans. The Paris Climate Agreement of 2015, adopted by 197 countries, pledged to reduce greenhouse gas emissions. The accord also recommends keeping the global temperature rise for the century to 1.5 to 2 degrees centigrade above the pre-industrial levels.

Reality Check

In reality, however, there is not enough action taken to keep the temperature increase in check. Scientists have empirically proved that the excessive burning of fossil fuels has released large amounts of heat-trapping greenhouse gases, such as carbon dioxide, methane, etc. These gases are warming the world at an unprecedented pace.

Scientists and environmental experts have long been exploring ways to attenuate adverse climate change. “Achieve decarbonization by becoming carbon and climate neutral through carbon offsets gained by offering carbon credits” is their commonly shared motto.

These words may sound arcane to many of us. But, the ultimate goal that several nations are pursuing is decarbonization. It means resetting the amount of carbon dioxide equivalent (CO2e) gases in the atmosphere to the same level as it was before humans were involved.

The first step is to attain net-zero emissions of fossil fuels, either by eliminating their release or by offsetting them in one place with avoided or reduced emissions in another. It is commonly referred to as being carbon neutral (if it involves only CO2) or climate neutral (includes other greenhouse gases.) Carbon offsets involve using renewables as energy sources or investing in reforestation projects that lead to permanent sequestration of CO2.

Encouraging Low-Carbon Initiatives

Carbon credits are the means to reward the low-carbon initiatives. Every ton of CO2e prevented from entering the atmosphere will earn its contributors one credit. There are several voluntary market standards for measuring the emissions and calculating carbon credits – Climate Action Reserve (CAR), Verified Carbon Standard (VCS), etc. Similarly, Reducing Emissions from Deforestation and Forest Degradation (REDD) is a United Nations-backed initiative for arresting climate change. The program aims to prevent the destruction of forests in developing nations. The UN facilitates the funding for the actions taken by these countries to preserve their biodiversity by means of carbon offsets. Several countries have also attempted to dissuade their people and industries from using fossil fuels by levying carbon tax. They have tried encouraging green fuel adoption by providing financial and regulatory benefits. Yet, there is still a lot to be done to spur the widespread espousal of clean energy.

How can Blockchain technology contribute towards the Decarbonization goal?

Source: Shutterstock

Blockchain is one of the best-suited technologies for achieving the Paris Climate Accord goals. It can bring together the disparate stakeholders, whose contributions are essential to reach the decarbonization targets. It provides the transparency required in tracking carbon emissions. Smart contracts help in accurate calculation of the offset credits. Finally, the platform makes it easier to tokenize and trade carbon credits.

End-To-End Tracking Of Carbon Emissions

Today the consumers are becoming more conscious about purchasing eco-friendly, ethically sourced products. To that effect, carbon labels that impart information about the amount of carbon released into the atmosphere during the manufacturing, processing, and distribution of the products they purchase will help customers make wise, informed decisions. Firms such as CarbonNeutral and EarthCheck provide other organizations the insights into their carbon footprint. But a typical supply chain has several stakeholders spread across the globe – suppliers, contract manufacturers, OEMs, Logistics Providers, etc. Each participant adds CO2e gases into the environment along with the value they add to the final product. But due to the lack of a central system that effectively captures the CO2e released at each step, it is impossible to get an accurate measure of carbon emissions across the value chain.

Blockchain can bridge this gap by giving all supply chain stakeholders a shared, common platform to track and monitor their carbon produce. The value chain partners can use the insights from the platform to redesign their processes to reduce their carbon footprint.

Tokenizing Carbon Credits

Today, businesses who wish to atone for their contribution to the world’s carbon footprint visit carbon markets and voluntarily buy carbon credits earned by the green projects. But several companies do not pursue this option as it means they are willingly paying higher taxes. As a result, these markets have an over-supply of carbon offsets. Furthermore, in today’s carbon markets, these credits are sold in bulk, usually to large corporations.

Consequently, higher entry costs and upfront capital are stopping individuals and smaller firms from trading the credits in smaller quantities. Blockchain can lower this barrier. Carbon credits earned by a single sequestration project can be minted into multiple tokens. Each token can be bought, sold, and traded individually, thereby lowering the costs.

According to Jon Deane, the CEO of Trovio, the tokens can actually be used as ’green’ investment vehicles. He noted that –

“Since these credits do represent an absolute amount of carbon still existing in nature, they don’t have to be burned either. Investors can simply hold them, as it is likely that they will appreciate over time as there is a fixed amount of carbon in the earth. This also means that nature stays preserved, only now there is the ability to earn a return on these assets.”

Several initiatives have attempted to tokenize these credits. UPCO2 is a token conceptualized by the Universal Protocol Alliance – a coalition of several Blockchain firms, including Uphold, Trovio (Infinigold), and Certik. According to Deane, UPCO2 can be either held as investment or ‘burned’ to offset the individual’s or company’s carbon footprint. It tokenizes REDD credits and represents one year-ton of CO2 pollution averted by a certified REDD+ project. Projects such as Nori issue carbon tokens that commensurate to the extent of carbon sequestered from the environment. Digital tokens such as SolarCoins reward the users for generating electricity by renewable means.

Carbon Credits Marketplace on Blockchain

The lack of traceability of the carbon credits is a critical issue in the voluntary carbon marketplaces. Today, the same tree is sold over and over again without anyone noticing. Moreover, every country determines its own emissions quota and the credits earned. A lack of common standards makes it difficult to calculate the offsets and credits accurately.

Blockchain makes up an effective means to solve these problems. Besides tokenizing carbon credits and tracking the provenance of these tokens in the entire lifecycle, blockchain has many benefits for the marketplace. Each ‘tokenized tree’ is unique and non-fungible. As a result, any attempt to sell the same tree multiple times becomes evident immediately.

Hence, it is possible to prevent the ‘double counting’ or ‘double spend’ problems prevalent in today’s markets. Besides, since Blockchain platforms bring together participants from varied backgrounds and geographies, it is easier to arrive at standards.

Blockchain also brings the low-carbon projects looking for money and the investors planning on funding such projects together. Such a collaboration would not involve intermediaries. It results in increased transparency and accountability along with reduced costs.

Efforce is one such Blockchain-based energy-saving platform. Here, the contributors tokenize the savings from their energy-efficiency projects as Energy Performance Contracts. Those who are looking to offset their carbon footprint can buy these tokenized energy savings. The energy savings are eventually apportioned between the investors and the beneficiaries as per the contractual terms.

Similarly, Climatetrade and CO2FarmersMarket help connect the investors looking to offset their carbon footprint with the sequestration projects.

Decentralized Energy Markets

Emphasis on transitioning to a low-carbon economy will create an opportunity for decentralized energy markets. On one side, the residential and commercial consumers, who intend to go green, will choose to buy their electricity from renewable sources using city- or local micro-grids. On the other hand, some of them will produce green energy and prefer to sell it back to the grid. Blockchain network serves as an efficient system to impartially connect the energy producers with the consumers. They can accurately track the energy consumption and ensure they pay a fair price by using the platform.

Power Ledger and Brooklyn Microgrid are a few projects that aim at creating a peer-to-peer energy marketplace.

There are several other initiatives currently in the works where Blockchain drives the pivot towards a greener world. This technology can play a vital role in tracking carbon emissions, tokenization and trading of carbon offsets, and peer-to-peer energy trading. It is, however, essential to choose the right Blockchain platform for the job.

Original Source: ” Creating Sustainable Carbon Economy With Blockchain” , Data Driven Investor, March 3, 2021

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