Blockchain Pioneering Green Practices: Validating and Tracking Carbon Footprint on the Public Ledger
The 2015 COP21 Conference of Parties in Paris (COP21) marked a landmark agreement to reduce greenhouse gas emissions, intending to limit the global yearly temperature increase to 1.5–2.0 degrees Celsius (UNFCC, 2015). Nations are taking steps to comply with their pledges as a result of COP conventions, such as the EU forcing exporters to provide sustainability information. This will be crucial for companies doing business with these countries to maintain market access. Consumers are also demanding transparency and information about the production of their products, accelerated by the COVID-19 pandemic (Granskog et al., 2020).
To meet these challenges, companies and brands must deliver greater transparency and traceability across their supply chains and generate data to assure governments and consumers about their products' environmental and social credentials. A carbon footprint calculator based on blockchain technology can be adapted to meet this demand. The European Green Deal, a comprehensive plan to make the EU climate-neutral by 2050, includes the EU “Fit for 55” package, which aims to reduce greenhouse gas emissions. The CBI encourages businesses to gather supply chain traceability information and share it with buyers based in the EU (CBI, 2022).
Carbon Footprint and EU’s Green Deal
A carbon footprint is a measure of the quantity of carbon dioxide (CO2) and other greenhouse gases emitted into the atmosphere as a result of human activities. It evaluates the environmental impact of an individual, a business, or a product and can be used to reduce emissions hence mitigating the effects of climate change.
The European Green Deal is a comprehensive plan presented by the European Commission to achieve climate neutrality in the European Union (EU) by 2050. This includes reaching net-zero emissions in many areas such as energy, industry, agriculture, transport, and construction. The EU “Fit for 55” package, adopted in 2021 as a part of the European Green Deal, aims to improve the EU’s efforts to meet its 2030 and 2050 climate targets (European Parliament, 2021). The EU Carbon Border Adjustment Mechanism (CBAM), which is now in the proposal stage, is aimed at addressing carbon leakage, which refers to the movement of carbon-intensive industries to countries with weaker environmental standards (European Commission, 2020).
The Center for the Promotion of Imports from Developing Countries (CBI) encourages businesses to collect supply chain traceability data and share it with EU buyers. Sharing traceable, timely, and accurate data is critical for preserving competitiveness and continuing to export to the EU while avoiding the green taxes imposed at the point of import due to a lack of data or unsustainable practices. Similar restrictions are being proposed in other major economies and more countries are expected to follow suit in response to the EU’s moves or international commitments made by nations (PwC US, 2021).
What is Greenwashing?
Greenwashing is misleading customers and authorities into believing that a company’s products are more environmentally friendly or have a greater positive impact on the environment (Hayes, 2022). This can lead to businesses investing more time and resources in promoting their environmental friendliness than taking meaningful action to reduce its impact. To avoid greenwashing, it is essential to back up sustainability statements with relevant and accessible information, using verifiable data as proof. Being upfront and truthful about a company’s sustainability goals and plans is also crucial. (Noyes, 2021)
Transparency is essential in addressing the gap between fake environmental care and real concern. The inclusion of citizens in sustainability efforts is crucial, as advancements in technology like artificial intelligence (AI), blockchain, and digitalization can help monitor carbon emissions, spread awareness, and provide accurate advice on ethical and low-carbon usage. Currently, efforts and software solutions enable people to minimize their carbon footprint by educating them about their choices in food, transportation, home energy consumption, and lifestyle.
Why track carbon emissions on the blockchain?
Sharing your carbon tracking targets with your stakeholders (investors, customers, employees, suppliers, the board of directors, etc.) and how you plan to reach them can help you in various ways. This is where blockchain-based carbon tracking comes in handy. Following are the specific advantages that come with using a blockchain-backed solution for carbon tracking. (Marchant et al., 2022).
- Transparency and Traceability: Blockchain-based carbon tracking provides a transparent, traceable record of carbon emissions and offsetting efforts, fostering trust among companies by providing verifiable data on their carbon footprint.
- Immutable Record-Keeping: Blockchain technology ensures tamper-proof data, ensuring accurate and reliable carbon data, crucial for compliance with regulations and demonstrating a company’s sustainability commitment.
- Automation and Efficiency: Blockchain-based carbon tracking automates carbon calculating and offsetting processes, saving time and reducing errors, enabling companies to show progress on carbon reduction targets.
- Cost Savings: Blockchain-based carbon tracking can help companies reduce costs associated with carbon offsetting by streamlining the process and making it more efficient.
- Smart Contract: Smart contracts automate the carbon offsetting process by triggering payments or actions when conditions are met, enabling companies to offset their emissions more efficiently and cost-effectively.
- Decentralized: Blockchain technology, decentralized, stores data across a network of computers, enhancing the security and integrity of carbon data, making it less susceptible to tampering or hacking.
- Auditing: Blockchain-based carbon tracking simplifies auditor verification of a company’s emission data, ensuring compliance with regulations and fostering stakeholder trust.
How to quantify carbon footprint in the public blockchain?
Calculating a company’s carbon footprint varies depending on whether it’s for internal engagement or mandatory carbon accounting. The three main areas to cover in carbon emission reporting are direct emissions from organizational activities, indirect emissions from consumption, and related external emissions.
Experts may be needed to analyze the entire business to pinpoint carbon emissions from each activity. This involves identifying and measuring sources of greenhouse gas emissions, including energy use, transportation, and product use. This information can be used to identify high-emission areas and prioritize efforts to reduce them. The entire production and delivery process, including suppliers, manufacturers, distributors, and retailers, can also help identify high-emission areas and prioritize reduction efforts.
The process involves analyzing energy consumption in buildings, machinery, and equipment, identifying areas for improvement, and analyzing the transportation of goods and people to evaluate the environmental impact of a product or service. This helps identify high emissions areas and prioritizes efforts to reduce them.
Formulas are created to capture carbon emissions in real-time or periodically, and a fully functional carbon-capturing model is formulated. Expert formulas can be defined in the blockchain, verified for authenticity and validity, and proofs are captured for usage. Real-time outputs are displayed on a dashboard, while product-specific emissions are provided to consumers. A comprehensive report is presented to investors and stakeholders, providing concrete evidence on the environmental impact of carbon emissions. (Tracified, 2022).
In Tracified’s blockchain solution, the system tracks data in units called TDPs (Traceability Data Packets) and hashes them into the public blockchain. It also implements a protocol for performing carbon footprint calculations on the blockchain. In this system, relevant field experts can introduce formulas to calculate the carbon footprint for various steps involved in a supply chain. While defining the formulae, the experts are supposed to provide evidence supporting their correctness, such as scientific research. The expert can also suggest candidate values for constants used in the formula and link them to credible sources. All the formulas are sent to a collection that is available for business administrators who attempt to calculate the total carbon footprint for their business’s supply chain.
They would first identify activities that contribute to the carbon footprint and subsequently try to pick the best formula out of the above-mentioned collection for each activity. After that, the business administrator has to link the dynamic variables in each formula selected to the relevant tracking data in their supply chain. Tracified enables the calculation of carbon footprints on two public blockchains: Stellar and Ethereum. In Stellar, the carbon footprint calculation is performed offline while referring to blockchain supply chain data and a protocol specified in the blockchain. In Ethereum Tracified directly involves smart contracts deployed in the blockchain, so the carbon footprint calculation happens on-chain straightaway.
To facilitate detailed verification of carbon footprint calculations, Tracified offers a web-based tool named “Proofbot” which enables automated blockchain audits (see an example here).
This article is an executive summary of comprehensive research and includes only the original research's brief methodology and practical values. If you are interested in the extended research information with the total journey of the pilot project, follow the link here.
References
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Marchant, G. E., Cooper, Z., & Gough-Stone, P. (2022, Summer). Bringing Technological Transparency to Tenebrous Markets: The Case for Using Blockchain to Validate Carbon Credit Trading Markets. Natural Resources Journal, 62(2), 159–181. https://digitalrepository.unm.edu/nrj/vol62/iss2/2
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Tracified. (2022, August 10). Social Impact Feature — Stellar Protocol. Tracified. Retrieved February 13, 2023, from https://help.tracified.com/docs/BlockchainWiki/SocialImpactFeature/Stellar/Overview
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