How Blockchain Can Help the Climate
Updated: May 3, 2020
Climate change is one of the most complex collective problems the world has ever faced, and the jury is still out as to whether we will be able to curtail our emissions quickly enough to avoid potentially catastrophic impacts.
A myriad of solutions has been proposed ranging from employing a state-enforced carbon tax model, to driving capital markets away from fossil fuels and into renewable energy, to helping corporations become more conscious of their supply chain management. But many of these market measures present challenges with regards to transparency, trust, accountability and scalability. Technologies like the blockchain have the potential to assist in improving and bringing integrity to these existing markets, enabling new processes that have historically been impossible to drive. So how exactly does the integration of a blockchain application drive such a positive impact on the environment?
1. Grid Innovation
Legacy utility systems and power grids are famous for inefficiencies due to their centralized and unilaterally coordinated nature. Though blockchain’s automated smart contract capabilities, data transparency features, security mechanisms and decentralized infrastructure, makes it uniquely positioned to provide real value to a sector that has historically been slow to adopt technology. With the decline in do-it-yourself technologies like home batteries and solar panels. many consumers are storing energy surpluses that they can monetize through a blockchain-enabled peer-to-peer model. And in remote regions where total electrification is still a distant reality, community-wide microgrids can deliver the power connections necessary to elevate them into economic participation for the first time.
Power Ledger builds peer-to-peer energy trading networks with transactions mediated on the blockchain. Their proprietary technology facilitates commercial operation of microgrids with Thai energy utility BCPG, Japanese utility KEPCO, and now are moving into India. Their projects enable households and businesses to buy and sell renewable energy at affordable rates on a digital marketplace, empowering ‘prosumers’ to control their electricity consumption and earn an income off their surplus reserves of electricity.
The Sun Exchange, a crowdfunding-based solar pane marketplace in South Africa, enables an investor to remotely purchase solar cells and earn rental income from them, with asset ownership recorded immutably on the blockchain. This allows leasers to build a credit score, leading to long-term financial inclusion and economic improvement. Family members can send remittance via the blockchain which cover the expenses of the panels, thereby encouraging a trusted feedback loop of a micro-economy.
2. Supply Chain Management
Supply chain management involves the accounting of complex systems including the transfer of goods, services, and information, involving the storage and movement of raw materials and building products. The inter-connectivity of different elements in the supply chain becomes exponentially more complicated as a business scales, and crucial details are increasingly abandoned, leaving businesses and consumers at risk. In a blockchain-based supply chain system, record-keeping and provenance tracking become straightforward automated processes, where product information can be accessed through the help of embedded sensors and RFID tags. The history of a product can be accurately traced from its origination through to present day using blockchain ledger systems. This type of timely and reliable monitoring can be used to detect fraud, identify health and safety practices, or even verify the legitimacy of sustainability claims. Companies can be transparently held accountable to ethical and environmentally friendly production practices, including specifics like the type of materials and chemicals they use, where they dump their garbage, or how fairly they treat their employees.
Walmart recently had an E. Coli outbreak in romaine lettuce, affecting more than 200 people. As a response to this uncontrolled contamination, they have required all direct suppliers to adopt blockchain to improve end-to-end tracking like field location and harvest time. Using the data storage, suppliers can identify infected food efficiently, minimizing losses to retailers and safety for consumers.
Every year, eight million metric tons of plastic ends up suffocating the oceans. That is equivalent to two Empire State Buildings every month, or one garbage truck full of plastic every minute being dumped into our marina bodies. The debris infiltrates the entire food chain, not only impacting the aquaculture, but landing in human consumption as well. The challenge we face is the infrastructure and culture that emphasizes up-cycling and recycling. But integrating a blockchain system to incentivize recycling may be the optimal solution. ‘Plastic Bank’, developed in tandem with IBM, enables individuals to register recycling activities and receive a reward for their prudent actions. Plastic Bank has set up more than 40 recycling centers, exchanging plastic items for theft-proof cryptocurrencies that it records on an encrypted ledger, and can be redeemed for rewards such as groceries, medical insurance, or even tuition fees. The plastic gathered is then processed into pellets or flakes and exported to other countries, where it is then used to produce new products. They’re even partnering with governments of developing economies to set up collection centers where people can deposit used plastic in exchange for currency, services like phone charging, or necessities like cooking fuel.
4. Financing Investment into Clean Energy
Renewable energy adoption and innovation has traditionally come with a cost-prohibitive price tag that excluded the majority of capital markets from participation. Aggravating the limited supply of capital, developers and energy buyers in many emerging markets often cannot meet the stringent accreditation requirements for international climate funds or lenders. This is where blockchain and cryptocurrencies can offer an innovative solution. Crowd-funding and Security Token Offerings are now being used as a way to raise capital for infrastructure, with digital tokens representing either decentralized asset ownership or property rights to future discounted electricity. The emerging project financing mechanism democratizes investment by facilitating a marketplace for smaller investment ticket sizes, along with providing transparency and credibility in high risk markets for larger lenders.
Companies such as WePower help projects to raise capital by allowing consumers to purchase project-related tokens they may redeem for discounted future electricity, trade or sell as equity. By introducing and connecting developers and investors, they aim to make green investments fast, liquid and economically viable.
5. Environmental Commitments
Historically the carbon market has struggled with compliance and legitimacy thanks to ill-structured accounting diligence, and was plagued with fraud and manipulation from bad actors. The challenge in tracking the real impact of environmental treaties has not yet been adequately resolved, and there’s often a mismatch between government and corporate incentives.
In response to the Paris Agreement, Canada-based Blockchain for Climate Foundation is a not-for-profit startup focused on improving global carbon markets, by standardizing the architecture of a country’s carbon accounts. The objective is to harness enough data in tokens stored on a country’s chain so the provenance and eligibility of each ton of emission reductions is clear. Embedded in the tokens are details such as the type of carbon abatement strategy (being a reforestation or renewable energy project for example), validating the authenticity on fungible tokens, enabling a liquid and global trading market.
NGOs play a pivotal role in allocation of funds to causes around the world, but even the most legitimate of organizations have had challenging with misappropriate funds, costing them credibility and public support. As a consequence, both governmental and private donors demand insights on income and expenditures, along with specific budget breakdowns. Blockchain has immense potential to not only reduce transfer costs but also to help ensure transactional security and financial transparency for NGOs, allowing capital breakdowns to be distributed publicly. Blockchains also allow funds to be raised outside the traditional banking system which is beneficial to people in countries that lack banking infrastructure.
GuideStar, a U.S.-based organization that rates and provides information profiles on non-profits, helps prospective donors evaluate organizations. The rating system is based on criteria such as overhead, programs, progress, and results, earning these non-profits accolades such as bronze, silver, gold or platinum seals of transparency. This ranking has been found to correlate directly with donations: the higher the ranking, the more private donations an organization receives.
7. Carbon Tax
In the current system, the environmental impact of emitting behaviours is often difficult to calculate, and carbon footprint is not factored into the price allocated. This means that there is little incentive for consumers to buy products with a low carbon footprint, and even less of an incentive for companies to produce such products. Tracking the carbon footprint of each product using the blockchain would provide incontrovertible evidence of its impact, helping establish a clear pricing metric that would be visible by consumers. If a product with a large carbon footprint is more expensive to buy, environmentally friendly products would be automatically prioritized.
Following the cap-and-trade model, Emmi will allow the carbon price to be set at a social level, with companies proposing targets and validating their actions by internal business units competing for scarce carbon permits across a scalable, decentralized, and trusted platform. By operating as a decentralized system Emmi will significantly reduce the cost burden of the carbon price whilst helping to drive carbon emission reductions within participating companies.