Blockchain’s ‘bright’ future in the Solar and Renewable Energy Movement
Ever since the European Union’s Emissions Trading Scheme (EUETS) was launched in 2005, carbon tracking, carbon credits, and cap-and-trade systems have become commonly heard key words in industries across the globe. As global warming progresses dangerously close to the tipping point, and climate change activists rally and inform people of the adverse effect emissions from industries were having on the environment and how there are barely any strict regulations enforced to draw the line, companies have taken it upon themselves (or have realized their massive carbon emissions will soon be fined) to reduce their carbon footprint and invest in more sustainable alternatives or solutions. Carbon tracking is a new process that industries, old and new, are slowly beginning to accept and accommodate in all their incoming business plans. It refers to the precise calculation and recording of data regarding a company’s carbon dioxide emissions in order to understand how to reduce and control or regulate it. It is absolutely imperative that carbon is tracked transparently and thoroughly as the fate of the world, quite literally, rests on it.
Before getting to the part where blockchain comes in to save the day and provide the best possible solution to the complications that arise with carbon tracking, it is important to understand what different components of the current regulatory system are. To begin with, carbon credits.
Carbon credits are allowances provided to industries that emit large amounts of carbon dioxide. Each credit is worth one metric ton of carbon dioxide, meaning when the company has emitted that exact amount of the greenhouse gas (GHG), they will have retired one of their carbon credits. These credits can either be retired, traded, sold, or saved for future use by the company that owns them.
Next, carbon offsets. A carbon offset refers to a token that, when purchased, is put towards the creation of a specific amount of sustainable energy equivalent to one metric ton of carbon dioxide, or the worth of one carbon credit. When a company cannot reduce their carbon emissions, they are investing money into a sustainable project that will eventually make up for it. Some common offset projects include wind farms, reforestation projects, and solar farms.
Finally, the cap-and-trade systems. They are ones that support, regulate, and monitor the use of carbon credits. In such a system, an entity, usually the government, places a cap on the amount of carbon credits each company is permitted to retire. If a company manages to reduce their carbon emission to the degree where they have credits remaining, they can choose to auction, sell, or trade them with companies participating in the system, or they can choose to save the credits for future use. California is the first state in the United States to employ such a system to reduce their total carbon emissions. Their goal is to lower emissions to 40% below the 1990 levels by 2030. Since this is such a noble, albeit inevitable, measure taken in the fight to save our planet, it is not crazy to assume that all the other states will soon follow suit, if unlike Washington, they haven’t already. Once these rules have been set, there will be a rush for credits, and legitimate ones at that.
This is where blockchain technology comes in. It is the most secure, immutable, and trustworthy ledger technology available out there and when applied to the carbon tracking initiative, it will truly make a difference in reducing carbon emissions and the effects of global warming. The most basic way it can be applied is in tracking and verifying carbon credits themselves. In today’s market for credits, there is a large overlap of duplicate credits whose unfortunate effect is twofold. One, it allows for the emission of two metric tons of carbon dioxide instead of one, and two, it places the companies that purchased it in a tough spot with auditing authorities as it is difficult to pinpoint who is to blame. Blockchain can clear up such predicaments by making duplications impossible in the first place by its very nature. The information being entered into a blockchain, once verified, cannot be altered at any point in time. It also has a specific key that maintains the originality of the information and ensures that its duplication does not occur.
Blockchain can also be helpful in the employment of physical Power Purchase Agreement (PPA) or Virtual Power Purchase Agreement (VPPA). A physical PPA is a deal that companies make with renewable energy projects, like solar energy and wind farms, to use that clean energy to power their own facilities. A VPPA is a deal that allows companies to pay for and claim the benefits of switching to green energy without actually needing to be powered by this energy. Instead, the energy they paid for will join the project’s local grid, while the company itself remains powered through their local electric grid. Essentially, a VPPA allows companies to outsource the clean energy resources they paid for to minimize the cost of transporting this energy to their respective headquarters or facilities while reaping the rewards of going green. Both agreements are becoming increasingly popular as they are effective ways of keeping carbon credits stationary so they can later be used in collecting revenue through the cap-and-trade system. Still, these processes may sound like complex, inter-weaving of electric data that are difficult to regulate and monitor. Blockchain technology returns to clean up the mess, secure the data, and provide smooth transitions of energy.
The future of the renewable energy game involves a whole lot of legal jargon, rules, and legislation. Now is the time for companies to get ahead and sort through their affairs regarding the way they plan to use their carbon credits and carbon offsets. The easiest route to ensuring the validity of their credits, their energy data, and data coming to them from their PPAs or VPPAs, is blockchain technology. Furthermore, different applications of blockchain integrated with Internet of Things (IoT) and Artificial Intelligence (AI) can provide client companies with real time carbon tracking reports thus allowing them to stay on track and make necessary changes ahead of schedule. Blockchain can give companies the tools to audit, manage, track their progress in the green energy revolution, and eventually, it will play a major role in saving the planet.
References
4 questions to ask before choosing a physical or virtual power purchase agreement. LevelTen Energy. (n.d.). Retrieved June 28, 2022, from https://www.leveltenenergy.com/post/physical-power-purchase-agreement-or-virtual-ppa
Daniel Goldman Co-founder and Managing Director Clean Energy Virtual Event: Watch Keynote Sessions. Why Carbon Tracking and reporting is necessary to hold corporations accountable. Greenbiz. Retrieved June 28, 2022, from https://www.greenbiz.com/article/why-carbon-tracking-and-reporting-necessary-hold-corporations-accountable
Kemp, L. (2022, May 30). Crypto carbon credits: The canary in the coal mine in the race to net zero. Forbes. Retrieved June 28, 2022, from https://www.forbes.com/sites/leannekemp/2022/05/29/crypto-carbon-credits-the-canary-in-the-coal-mine-in-the-race-to-net-zero/?sh=30c9bcfd6049
What is the difference between carbon offsets and carbon credit? Carbon Offsets vs Carbon Credit | Harmony Fuels. (n.d.). Retrieved June 28, 2022, from https://www.harmonyfuels.com/how-it-works/carbon-offsets-vs-carbon-credit
Matthews, L. (2022, April 28). How blockchain is revolutionizing the Carbon Credit Space. LeafScore. Retrieved June 28, 2022, from https://www.leafscore.com/blog/how-blockchain-is-revolutionizing-the-carbon-credit-space/
