SDG Series: Blockchain and Climate Change
Written and researched by Gabi Skoff
Today — April 22nd, 2021 — marks the 31st annual Earth Day. After 31 years of bringing social consciousness to our impact on the environment, you can bet the world’s meteorological organizations and scientists have analyzed bountiful data to make the case for climate change action. By no small chance, the United Nations (UNs) World Meteorological Organization (WMO) released their State of the Global Climate 2020 report this month, which compares our current climate situation to historical climate data, collected over 28 years of meteorological research. The WMO report, in conjunction with news of troubling delays created by COVID-19, carries a grave message of urgency to drastically increase our efforts to combat climate change before it’s too late.
If we fail to address the impending climate crisis, our work across the entire SDG spectrum will be catastrophically delayed — causing existing inequities across the globe to deepen.
Already vulnerable populations with the least capacity to adapt will be hit hardest by droughts, floods and other natural disasters. The WMO report cites that refugees, internally displaced people and migrants are often among those most vulnerable to climate- and weather-related disasters.
Climate change will impact our ability to meet nearly every SDG target, either directly or indirectly. Not only will it ignite mass migrations, but it will also strain food security, damage vital economic infrastructures in emerging economies, and exacerbate violent conflict around the globe. Combating climate change is therefore a linchpin for achieving meaningful progress on the inter-related targets of the UNs Sustainable Development Goals (SDGs).
The WMO report delivers the devastating news that 2020 was ranked as one of the hottest years on record, tied with 2016 and 2019 despite the cooling effect of La Niña weather conditions and the drop-off in emissions due to travel bans and economic slowdowns resulting from COVID-19. The results indicate that we are not doing enough to meet net-zero emissions by 2050.
It’s high time we get serious about kicking climate change solutions into high gear if we want to stave off disaster for both people and the planet. Blockchain is one of many promising technologies that can be used to facilitate targeted climate action. It offers a unique advantage to enabling broader participation and unifying global carbon offset efforts by facilitating an open carbon credit trading ecosystem.
Carbon…Whatsit?
The phrase “carbon credit” is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon dioxide or equivalent (CO₂-e). The purpose of all carbon credits is to reduce global greenhouse gas emissions by putting a price on carbon pollution as a means of bringing down emissions and driving investment into clean energy options. The carbon credit concept was born of the 1997 Kyoto Protocol, the international agreement governing how much CO₂e each country is permitted to emit in order to curb the progress of global warming.
Carbon credits were first conceptualized as a market-based tool to enable high-income countries to offset excessive greenhouse gas emissions by financing clean energy and sustainable development projects in low-income countries. This is also commonly referred to as an emissions trading scheme. Today, various carbon offset initiatives have made carbon credits a popular way for companies and consumers to offset the carbon positive impacts associated with a product or purchase.
Carbon pricing is a cost applied to carbon pollution that enables the tokenization and sale of carbon credits. According to the World Bank Group’s State and Trends of Carbon Pricing 2020 report, 61 carbon pricing initiatives have been implemented or scheduled across 46 national, and 32 subnational jurisdictions.
Carbon credit markets are vital mechanisms to combating climate change. They are particularly well-suited to our current stage of climate action because they work under the assumption that some activities can’t be made carbon-free right away. While carbon credits are not the exclusive answer to combating climate change, they are a critical tool to support the transition to a net-zero emissions world.
Sounds great! What’s the catch?
Currently, existing carbon credit markets are plagued by a number of issues, including double-counting, and a lack of transparency and trust. When it comes to efficacy, the broad diversity and number of disparate offsetting initiatives around the world can be chaotic rather than helpful. These challenges make it difficult to standardize and organize a concerted global effort. As of yet, no united mechanism exists to unify global carbon credit ecosystems and induce a more democratized form of individual participation under one digital “roof”.
The EU Emissions Trading Scheme (ETS) is the oldest and currently the largest carbon credit market in the world. It covers around 40% of the EU’s greenhouse gas emissions through a cap-and-trade scheme and accounts for around 80% of traded volume. However, the ETS and other large-scale compliance markets have been criticized for being highly centralized, opaque, and offering restricted participation for large-scale private sector actors and governments only.
The popularity of voluntary carbon offset schemes around the world proves that the problem is not a lack of interest but the lack of a system to connect emissions reduction opportunities with available capital and demand. The challenge at hand is not so much about finding the one right approach to carbon credit markets, but enabling the aggregate potency of governmental, institutional, and individual climate change actors across the globe.
A Blockchain-Powered Carbon Credit Infrastructure
Since 2017, talk of the suitability of blockchain infrastructures to facilitate a platform for the seamless minting and trade of carbon credits has been consistent. The hype comes from the ability of blockchain technology to tokenize any unit of measurement — making it a perfect tool for transforming impact into an asset — as well as its trustless design, which enables a diversity of actors to engage in transactions without the need for a centralized authority.
These key features of blockchain technology allow it to offer greater integrity and inclusivity to carbon credit markets by removing the need for intermediaries and enabling a simplified channel for more direct participation. As an applied example, blockchains can provide a whole-of-journey approach to carbon credit markets through existing supply chain transparency initiatives.
On a macro scale, blockchain technology can provide the critical infrastructure necessary to facilitate the creation of a secure global ecosystem for organizing climate action. As a tool, blockchain is known for being accessible, collaborative, transparent, secure, and flexible. Likewise, blockchains have the unique ability to capture the entire history of an asset — a feature that would ameliorate the problems with double-counting presented by the cacophony of existing carbon offset systems. These qualities make it well-suited for application as an architecture for a global, open-source climate credit marketplace.
Blockchains come in a diversity of different shapes and sizes, so to speak. Many aspects, from whether a system is public or private, to how much energy it uses, are customizable by design. It makes sense that an application to mitigate carbon emissions should be as energy-efficient as possible. One of the reasons blockchain technology has been criticized is that it can be a huge energy suck. That is certainly true of most general-purpose blockchains that utilize a proof of work (PoW) consensus algorithm. Many blockchains today are either building with PoS from the start or replacing existing PoW algorithms to make a blockchain that is 3 orders of magnitude (or 1000 times) more energy efficient.
It is essential that a blockchain application for a carbon credit marketplace would utilize a blockchain infrastructure built in an impact-specific way — this comes with the territory of responsible tech solutions to SDG challenges.
Blockchain technology seems to tick many of the boxes where current systems of climate credit marketplaces fall short. It can provide the infrastructure to create a global, climate credit ecosystem, empower greater participation from a broader diversity of actors, and address gaps in transparency, double-counting, and trust. An impact-focused blockchain can provide the critical architecture required to organize a more effective and participatory form of carbon credit markets — providing a smart, energy-efficient solution to a problem in need of answers as quickly as possible.
