Putting the Paris Agreement on the Blockchain
International collaboration on reducing greenhouse gas emissions is critical to halting climate change. A national accounting of emissions, connected through a ledger recording international transfer of emissions reductions, enables transparency and accountability on who is doing what for the climate. This in turn paves the way for proactive investment into climate projects, technologies and policies by creating a financial pathway for incentivizing emissions reductions and increased ambition. Blockchain for Climate Foundation is building the tools to achieve this goal using blockchain technology.
For the first time in the history of humanity, 196 countries have committed to work together to fight climate change. Under the Paris Agreement, each country sets its own unique, differentiated “Nationally Determined Contribution” (NDC) stating the specifics of how it is going to fight climate change. Yet we know it’s critical to link the actions and efforts of all parties into one cohesive whole if we’re going to have a chance of achieving our goal.
Today’s world presents nearly unlimited opportunities to reduce greenhouse gas emissions, but has lacked a system to connect emissions reductions opportunity with capital and demand. Blockchain technology holds promise of manifesting a transparent, public and universal ledger, that can serve as a medium of exchange for emissions reductions outcomes.
A variety of brilliant teams are developing tools for putting carbon offsets and climate initiatives on the blockchain. They are building peer to peer trading systems, business-to-consumer carbon markets and a wide range of mechanisms that drive emissions reductions, adaptation efforts and broad environmental action.
Thinking broadly about “Putting the Paris Agreement on the Blockchain” and the architecture of a blockchain tool connecting carbon accounts of every country in the world, we will have to design for the following criteria:
1. A public, open source blockchain protocol is necessary. Any tool for global action needs to be widely available; built for ease of collaboration, transparency and extensibility. If we’re asking countries big and small to link efforts with both friends as well as mortal enemies, this tool needs to belong to the world.
2. The blockchain tool should be able to accommodate the design parameters of “Internationally Transferred Mitigation Outcomes.” (ITMOs), contemplated by Article 6.2 of the Paris Agreement. Each represents an emissions reduction or removal that has been approved for transfer across national borders. ITMOs carry many of the qualities of a carbon offset, but will span a broader range of provable climate outcomes.
3. The blockchain units, denominated in tonnes of CO2 equivalent (tCO2e) must be able to carry the information about their generation, standards, origin, vintage, audits and national approval to be transferred out of country and off their genisis national account. This data needs to be immutably linked to the blockchain carbon unit, as over time, these units may be bought and sold hundreds of times before the carbon unit is retired against an emission.
This third point made us realize putting carbon on the blockchain, and right-sizing a tool’s capacity for encompassing scale of the Paris Agreement would require a radically new design. A key fundamental of carbon units is that they are “fungible — tradable like for like.” However, when we look at building a global, “Paris-sized” system, we need to have a fungible interlinked carbon currency while at the same time, be able to distinguish the unique details of every carbon unit.
The rules for “Non-Fungible Tokens” (NFTs) built on the Ethereum blockchain have recently been standardized. If “Fungible Tokens” (FTs) are like cash, NFTs are like baseball cards. Each NFT is unique, and holds a distinct set of data. It’s these same NFTs that will allow us to embed specific information pertaining to each tonne of carbon directly into a new blockchain token. However, these tokens typically represent only one unit of their respective type, hence you’d need to mint a new NFT for every tonne of carbon.
Enter “Unique Fungible Tokens” (UFTs), a new design combining the uniqueness of NFTs with the divisibility and fungibility of FTs. Each UFT that is created for a Carbon project and vintage would be capable of issuing a total supply of fungible tokens based on its verified emissions reductions. The FTs for that project can be traded like for like within a project, and at the trading parties discretion. The same exchange functionality and interfaces available in the wider blockchain world can be used without any additional integration — allowing rapid scale-up and avoiding the long time-frames involved in building international climate infrastructure from scratch.
Now we will have created a carbon unit, on the blockchain, that tells exactly when and where it was made, what standard it used, whether it has proper national permissions to be transferred across borders. As the blockchain is a tamper proof record of all transactions, the relationship between tradable carbon fungibles and a carbon initiative’s details is preserved forever, so we’ll always know where a carbon unit came from. In this fashion, we can create a trusted, secure unit of account within the Paris agreement that allows all countries, businesses and citizens of the world to link their climate goals, and march forward together. At any one time, some parties will be able to contribute more to the climate fight, and others less. By building a secure, transparent mechanism that incentivizes emissions reductions anywhere in the world, we can drive net global emissions down farther, faster, and give ourselves a fighting chance to beat climate change.
Joseph Pallant
Founder — Blockchain for Climate Foundation
Matt Lockyer
Head of Blockchain Solutions — Blockchain for Climate Foundation
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