How Can Blockchain Support Sustainability and Solve the Climate Crisis

BSN LONG STORY SHORT SERIES #3

Bitcoin has risen from a popular technology among cryptographers to the world’s ninth most valuable asset by market capitalization in just over a decade. The meteoric rise of Bitcoin has made millionaires, redefined money, and sparked a multibillion-dollar economy based on its groundbreaking decentralized technology called ‘Blockchain.’ However, it has also resulted in some unwelcome side effects.

The computational power necessary to support Cryptocurrencies’ (e.g., Bitcoin’s underlying network) now consumes roughly as much energy as Argentina, prompting concerns about the environmental impact of Cryptocurrencies.

In this article, we discuss these issues and explore the current trends relating to the use of Blockchain to help solve critical problems such as climate change. To know more about how Blockchain helps with supply chain management and protects consumer rights, please visit our previous episode.

Steps into a sustainable future

Climate change has emerged as the greatest threat of the twenty-first century, and investors are flocking to renewable energy development. It is the economic and social sectors’ most significant challenge. Scientists have already warned that using energy in the next ten years will determine our future as species.

Organizations worldwide are being implored to meet new standards for lower energy consumption and reduced carbon emissions. The world’s leading enterprises and countries are also investing in sustainability on an unprecedented scale to try and meet targets and mitigate climate change.

For example, China intends to peak carbon emission by 2030 and be carbon neutral by 2060, known as the 30/60 goal. The 30/60 goal will result in a drastic shift in carbon emission trajectory, as shown in the graph below. To achieve this goal, approximately $15 trillion of investment will be put into sustainable financing over the decades to come.

(Source: Paia Consulting )

How to make sure the sustainability and climate change mitigation actions are actually in place and we are on the right track towards our sustainability goals?

The key here is visibility — the visibility into the tracking and reporting of energy consumption, emissions, and all sorts of carbon footprint. As also addressed under the Paris Climate Change Agreement, one of the key aspects is the reporting on the carbon impact and tracking of emissions in each country, thus making collective efforts to mitigate climate change.

Therefore, countries, cities, regions, and enterprises must use the creative and cutting-edge technologies available to quickly implement the Paris Climate Change Agreement. Increased stakeholder involvement, transparency, and engagement can be achieved with the help of Blockchain technology in the battle against climate change, which could lead to improved climate outcomes.

The internet of things, remote sensors, big data, and artificial intelligence are a few of the digital technologies that Blockchain networks utilize to alter how climate mitigation and adaptation outcomes are measured, reported, and validated (MRV).

Blockchain platforms that capitalize on the charisma of Blockchain while sacrificing environmental integrity may give an immutable record, but is the impact they track credible?

Blockchain improves transparency and aligns with energy-saving

In terms of greenhouse gas emissions, Blockchain could provide more transparency. Furthermore, it is capable of simplifying the tracking and reporting of emission reductions, so resolving the issue of “double counting.” It could be used to track the execution of the Paris Agreement’s Nationally Determined Contributions (NDCs).

Traditional power networks are centralized, which can lead to inefficiencies in energy delivery, such as surplus energy being left unused. Because Blockchain allows for the public tracking of critical environmental data and the demonstration of whether pledges were reached, it could deter firms and governments from backsliding on their environmental promises or misreporting their progress.

Another key point to consider is the role of Blockchain in promoting sustainability. By nature, the incentives of using the technology align to reduce carbon footprints over time. This is because all Cryptocurrencies and other Blockchain applications are not designed to sell power, but rather consume power.

It means that it’s in everyone’s best interest to actively try to achieve the same outcomes with the lowest possible carbon footprint and energy consumption to get the most efficient use from this technology.

Blockchain’s Role in Green Finance

When it comes to green finance, Blockchain is now contributing to help the world’s leading organizations and nations to achieve their sustainability goals. The development of both crowdfunding and peer-to-peer financial transactions, which can promote climate action, can be aided by Blockchain.

This would also increase investor trust and assurance that their money is getting to the project they intended, as well as allowing smart contracts to provide real-time status reports.

In 2020, it is claimed that there is a record of $350 billion issuances in the global green bond market. About $100 trillion is used for working on climate change solutions, which is just a fraction of global bond issuance (3.5%), according to the Climate Bond Initiative (CBI).

However, due to insufficient environmental, social, and governance (ESG) data and analytics, ESG tracking is difficult because there is no unified standard. As a result, it becomes less possible to achieve a wider range of sustainable investments.

Since Blockchain-based digitalization can provide the ESG and green bond standards transparency and tracking capabilities, it will unlock the enormous inflow of money into the market.

The Blockchain is an ideal platform for peer-to-peer (P2P) renewable energy trading, allowing consumers to buy, sell, and exchange renewable energy. They can do so by using tokens or digital assets that represent a certain amount of energy. As a result, it aims to reverse the negative reputation of Cryptocurrencies, such as Bitcoin and Ethereum.

Green Finance Initiative by China

China is going to open up the capital market to allow foreign direct investment (FDI) into its bond market. Currently, China is the second-largest bond market with about $15 trillion. In this case, China will take the lead not just because of the scale but also because of government support.

Blockchain has become the top strategy for many countries and organizations; initiatives such as the Blockchain-based Service Network (BSN) provide Blockchain interconnectivity to accelerate application on a large scale.

Future Trends Forecast

Solutions for more sustainable living will only continue to grow following the COVID-19 pandemic. The digital economy has gone from zero to now pushed over to record high level in countries like China and the US. For example, China’s digital economy has accounted for around 40% of GDP over the past year, which is only set to keep growing.

Offline businesses are dying, while online businesses have doubled. So, higher demands for more digital services and products emerge and force businesses to adapt. More efficient settlement and flexible payment optionality will be available with the use of digitalization, especially Blockchain technology, which is maturing to help organizations lower costs.

Another key trend to be aware of is that regulations are now allowing the world’s leading financial institutions to adopt Blockchain technology. We’re now seeing this adoption is taking off, with insurance firms, banks, and even governments investing heavily. Globally, organizations like International Capital Market Association are making guidelines called Green Bond Principles, setting standards for transparency and managing green bond market development.

Due to a lack of relevant stimulus, a tremendous amount of money has nowhere to land. There is about a 3% yield differential between the Chinese and international bond markets, which will be attractive for investors to come in.

As China is stepping up to unify local bond standards with global bonds, there will be a trillion-dollar opportunity for investments into China through green bonds. So, China will be committed to paving the way for boosting the development and large-scale application of green finance and sustainability.

Final Thoughts

Blockchain-based green finance has been talked about for several years, but now is the time to expect a significant uptake over the next year or two. Blockchain can act as the solution to reduce climate risk, emissions, and energy consumption. Organizations in the sustainability sector, such as Allinfra, now use Ethereum as the most efficient and effective solution to drive their green finance standards.

To gain the widespread adoption necessary to drive significant change, large financial institutions must first be comfortable with the technology and the associated risks. Still, the nature of Blockchain provides that level of comfort through its unparalleled transparency.

Blockchain is already demonstrating how effective it can be. With the development of new applications and the continued growth of adoption, the positive impact on sustainability could be enormous.

Still, it’s important to reiterate that the timeline of reaching the target of net-zero emissions must be accelerated, even with these positive steps forward being taken. The climate crisis is urgent, but the Blockchain is playing a significant role in helping to make the goals far more achievable.