Deep Dive into Carbon Emissions Trading and How Blockchain Can Help

Author: Jason King

Blockchain solutions are so widespread, it’s almost like they’re airborne. And really, there are several compelling blockchain use cases swirling through the very air we breathe, including the establishment of a cleaner planet.

For over a decade, the world’s leading economies have worked towards limiting the amount of greenhouse gases emitted into the atmosphere. An essential element of that effort has been the tracking and trading of carbon emissions.

Carbon trading is a method of re-allocating emissions. A country with lower carbon emissions can sell their excess emission rights to a country with higher emissions. In other words, companies going over their allowed emission level can meet their targets by buying carbon offsets from other companies.

In an ideal scenario, the carbon emissions trading market enables the most efficient and cost-effective method of controlling overall emissions, and the offsets are real, measurable, and provable.

Unfortunately, we don’t live in an ideal scenario. There are some challenges with this model as currently practiced:

• Tracking emissions is difficult. There’s no standard measurement protocol, and many measures are estimates. A lack of common standards leads to confusion. There’s also a big issue with “double counting” of carbon emissions, where multiple entities claim the same, single credit.
• There’s a lack of transparency. Often, self-reporting is relied upon with little or no independent verification. Consumers don’t have access to truly see what any one company is doing or how they’re hurting — or helping — our planet.
• There are carbon cheaters. Corruption in carbon trading markets abounds. “Carbon markets have been infested by corruption and non-transparency,” writes Steffen Bohm in The Guardian.
• There are multiple markets. The overall carbon trading landscape is fragmented with various carbon markets around the world. There is little coordination between them, resulting in inefficiencies.
• Carbon emissions trading can be complicated and incur high transaction costs. One critical problem with carbon markets is “transaction costs associated with complex mechanisms,” according to a report by the World Bank. As a result, some organizations that might otherwise participate in the market are deterred because it’s simply too complicated or costly.
• There are too many middlemen. The number of intermediaries involved in carbon trading is a clear indication of its complexity — and its unnecessarily high transaction costs. “Carbon markets have created a lot of income for consultants, carbon brokers and project developers, not to mention the validators, policy makers, NGO professionals and academics who have made a living from these markets,” Bohm, who is a professor of management and sustainability at Essex Business School, continues.

Fortunately, there is hope for the future of carbon emissions trading, hope in the form of blockchain technology.

The distributed ledger approach of the blockchain is the ideal solution for a market dealing with issues of transparency, complexity, inefficiencies, and lack of standardization. Its distributed nature also allows individuals — not just multinational corporations — to enter into previously closed marketplaces.

Here are some of the most promising projects and potentials that just might save the planet:

You can’t improve what you don’t measure. Management guru Peter Drucker is often quoted as saying that “you can’t manage what you can’t measure.” While Drucker was referring to business metrics, it’s also very applicable to greenhouse gases (GHG) as well.

“Despite international agreements, there is a lack of [a] global and standardized system to measure carbon emissions and track where [they are] generated across the supply chain. Without such a system, sustainable strategies will have only a limited impact,” according to Arnab Banarjee in an Infosys report from Oracle.

The blockchain can help. It’s the ideal solution to pull in data from multiple sources that manufacturers are already using and coordinate a reporting network based on standardized metrics. The result is a single platform for carbon measurement, so companies and individuals can see the actual impact of each and every product they produce or buy.

“Thus, blockchain provides a platform where every partner across the supply chain, i.e., manufacturers, suppliers and distributors can work together in a transparent and accountable manner with the original equipment manufacturer (OEM) or retailer to drive a unified carbon ecosystem with accurate measurement and credits,” explains Banarjee.

Through the blockchain, companies and individuals will have a standardized, accurate way to measure their activities. In other words, individuals will know exactly how much carbon was released in producing that pair of Nike shoes and transporting them to their local Footlocker, and exactly how many carbon credits it will take to mitigate their purchase.

PowerLedger: Direct from the Source. If Mr. Rogers taught us anything, it’s that changing the world starts with being a good neighbor.

Turns out, that even applies to clean energy. Thanks to Power Ledger, residential and commercial customers can sell off their excess solar energy to other consumers in their area.

“Power Ledger is focussed on creating the right economic and investment platform for consumer-owned, low-cost, low-carbon energy systems to transform the electricity industry,” said Power Ledger Managing Director David Martin.

Using blockchain to deploy a trustless economy for distributing renewable energy, Power Ledger is cutting the middleman out of electricity transactions (and, aspirationally, cutting out carbon). The system empowers individuals to choose clean energy and engage in a democratized, community-driven marketplace that ultimately costs consumers less while earning them more.

Simply put, it supplies power to the people both figuratively and literally. Clean energy suppliers are rewarded for their environmentally-conscious contributions to the community through real-time payment for their surplus power. Meanwhile, the residents that buy up that excess enjoy lower energy bills and a cleaner conscience.

CarbonX: Making It Personal. It’s natural for individuals to look to the “big guys” to make changes. After all, what can one person do?

Actually, quite a lot. At least, that’s the philosophy behind CarbonX personal carbon trading.

“CarbonX will engage millions of people in fighting climate change by materially rewarding responsible behaviors toward the personal consumption of carbon,” startup founder Bill Tapscott told Bitcoin Magazine. “CarbonX’s ultimate goal is to become the global exchange for peer-to-peer personal carbon trading.”

CarbonX makes it easy to reduce your carbon footprint by buying carbon credits and allowing users to offset their impact through carbon-reduction projects like tree planting. Users are also rewarded with CarbonX tokens (CxT) for carbon-friendly behaviors, which can then be exchanged for real goods and services.

Say you buy local produce instead of strawberries flown in from Guatemala. You’ll get CxT as a reward. “Consumers are rewarded with the tokens at the time of purchase, which they store in a digital wallet and can then use to buy other products and services,” explains Ben Schiller in Fast Company.

And because of the blockchain, it’s all performed seamlessly, without intervention from numerous brokers, bankers, companies, and other costly — and time-intensive — intermediaries.

Building a Better Market. One of the promises of blockchain technology is that it can bring efficiencies and access to virtually every market. IBM and Energy Blockchain Labs put this promise to the test by working together to build a better carbon trading market.

Their objective: To bring efficiencies to developing, managing, and trading carbon credits, with the ultimate goal of reducing carbon emissions. By doing so on a public blockchain, they combat the issues of corruption and lack of transparency.

“The ability to create immutable transactions on blockchain helps ensure that the data is traceable, transparent and visible in real time to all stakeholders. The entire carbon trading process becomes more shareable as well, which naturally streamlines it,” Cao Yin, Founding Partner and Chief Architect of Energy Blockchain Labs, said in an IBM case study report highlighting the project.

The results: Reduced time-to-market for carbon assets (projects with a more significant reduction in emissions), reduced cost, greater transparency, and better security. “Participants can easily track their carbon footprint and better understand when to buy or sell in the carbon asset market. And regulators can more easily monitor progress against quotas to ensure that participants meet carbon reduction goals,” IBM explains.

Looking forward

“Blockchain technology has the potential to further expand the applications of market-based mechanisms to help solve environmental concerns,” says environmentalist Richard Sandor, chair and CEO of Environmental Financial Products and founder of the Chicago Climate Exchange, in Bitcoin Magazine.

There are yet still so many other potential applications for the blockchain in regards to creating a greener, more sustainable planet. From microgrids to peer-to-peer solar trading, the future is bright. Now is time to build it.

Jason King is a Humanitarian Hacker, feeding the hungry as the Executive Director of Unsung.org. Known for running across the country to raise bitcoin for the homeless in 2014, King is a long-standing member of the crypto community and continues to solve to the sector’s most pressing problems as Co-Founder of Kingsland University — School of Blockchain, the world’s first university-accredited blockchain training program. Find out more about Kingsland’s leading-edge education at KingslandUniversity.com