RMI to Develop Green Crypto Accounting Methodology & Procurement Principles for the Crypto Climate Accord
These open-source tools will promote good practices in the crypto industry and, eventually, supply chains in other sectors
Since launching the Crypto Climate Accord (CCA) in early April 2021, the crypto and financial technology (FinTech) industries quickly embraced the Accord, forming a fast growing community with NGO, energy, and climate stakeholders. This broad acceptance speaks volumes to the innovative and forward looking nature of the crypto and FinTech industries.
The CCA has emerged for a number of reasons, ranging from public scrutiny of electricity consumption from mining operations and the environmental impacts of various consensus mechanisms, to the continuing debate on crypto’s future role in the global financial industry and opportunities to use the crypto sector as a sandbox for digital climate solutions.
The CCA community is working together to achieve the objectives of the Accord by developing a suite of open-source solutions for crypto miners, exchanges, applications, and investors/hodlers. These solutions range from methodologies to account for the energy use and carbon emissions from crypto market activities and guidance on good practices for renewable energy and carbon offset procurement to digital solutions that simplify renewables and carbon offset procurement and that deliver proof of green mining, where the tenet of fungibility is a crucial requirement for various market participants.
RMI is, in support of the CCA, leveraging its experience and knowledge as a leading nonprofit in the realm of greenhouse gas (GHG) accounting to create a viable accounting system and digital schema for the cryptocurrency industry that tracks the GHG emissions embodied in cryptocurrency — mostly taking place at the time of mining, but also for the use of cryptocurrencies in ‘downstream’ activities, such as within exchanges, wallets, and applications.
To deliver the most impact, we at RMI believe the accounting methodology and technical solutions developed under the CCA should be made compatible with the current global framework of greenhouse gas reporting (the Greenhouse Gas Protocol), to the benefit of miners, infrastructure providers and users who will invariably need to make disclosures on the footprint of their crypto-related activities and holdings. The Greenhouse Gas (GHG) Protocol was conceived in the early 2000s by collaboration between WRI, WBCSD, and industry partners. It started as a guidance document for corporations (the Corporate Standard) and expanded into a variety of compendia aimed at providing specific guidance for sectors and scopes. The GHG Protocol is the source of the taxonomy of emissions we all know, classifying emissions into Scope 1, 2 and 3. The entire ecosystem of GHG reporting has grown from it.
The ‘mining’ of cryptocurrencies — i.e., the process of verifying transactions — differs depending on which consensus algorithm is used. For the largest cryptocurrencies, such as Bitcoin, the current consensus algorithm is called Proof-of-Work, which is a computationally expensive and energy-intensive process. In GHG accounting terms, this means that emissions from crypto mining affect the miner as indirect emissions from electricity consumption (Scope 2) and the holder of the currency as supply chain emissions (Scope 3).
(Note: Ethereum is currently in the early stages of migrating from Proof-of-Work to Proof-of-Stake, which is a significantly less energy-intensive process.)
Crucially, RMI is spearheading the development of three open-source solutions to accelerate the development of a crypto-specific carbon accounting system:
1. Work in lockstep with the CCA community to develop a ‘Green Crypto Accounting Methodology’ for the crypto industry.
RMI is leading the development of new accounting and digital infrastructure for the generation, tracking, exchange, and mitigation of energy and carbon attributes in the crypto industry. Near-term deliverables will include a ‘green crypto accounting methodology’ that differentiates accounting considerations between crypto mining facilities versus crypto exchanges/platforms and investors/hodlers, where possible. This accounting methodology will aim to address both the direct and indirect emissions (Scopes 1 & 2) at the point of mining, as well as the Scope 3 emissions (and therefore accountability) of exchanges, applications, and currency holders.
2. Facilitate the development of a ‘Public Energy and Carbon Emissions Calculator’ through a CCA working group to identify and develop accounting best-practices in a collaborative and open manner.
RMI is facilitating a working group of CCA Supporters that are interested in developing and using energy and carbon emissions calculator applications to make it easier for market participants to determine the renewable energy and carbon procurement needs associated with their respective crypto-related activities. This CCA working group is collectively identifying and defining the best-practices that crypto stakeholders should adhere to when calculating the energy use and carbon footprint of their activities. Given various synergies, this work is taking place in parallel to the development of the green crypto accounting methodology.
3. Establishing the ‘Green Crypto Procurement Principles’ alongside the CCA community.
RMI is working with CCA Supporters and energy and carbon market stakeholders to develop the recommended actions and good practices that crypto mining facilities, exchanges, platforms, and investors/hodlers should conduct to make verifiable claims about renewable energy sourcing and decarbonization efforts across Scope 1–3 emissions. We envision this taking the form of a set of guidance documentation, or ‘Green Crypto Procurement Principles’, that crypto market participants should subscribe to in order to achieve their respective sustainability goals. This guidance will build on existing work in this area, such as the Buyers’ Principles developed by the Renewable Energy Buyers Alliance (REBA).
These open-source tools that RMI is driving ahead—alongside publicly accessible digital procurement tools in development now in the CCA community like Energy Web Zero—will make it easier for crypto market participants determine their procurement needs, procure verified renewable energy and carbon products, and understand how they should account for and report this procurement in line with good practices.
RMI also believes the opportunity to operationalize the CCA not only presents us with a great opportunity to meet the needs of the crypto industry, but can also serve as a sandbox and launch-pad to effectively decarbonize all physical commodity supply chains.
If you’re interested in informing this open-source development and participating in a solution showcase (or simply want to first join the CCA community as a Supporter or Signatory), please contact us at firstname.lastname@example.org.