Decarbonization & NetZero were due yesterday. Blockchain has to be part of the plan to catch up.

“The report is a call to governments and private sector players to take drastic action against climate change.”

World Economic Forum, 2022 [1]

Climate risks have been a growing concern not only for civil society and non-governmental organizations but also for governments and private institutions. This shift in focus has been influenced by the awareness and attention that the financial impact of climate risks and material financial risks has gained on the corporate agenda. And it is not by chance. The latest IPCC reports were clear: we need to act quickly and together on multiple fronts.

Now, 7 years after the Paris Agreement, organizations are still figuring out their strategies to achieve the primary goal of reaching a 1.5 °C warming limit and ensuring a global average temperature increase of no more than 2°C above pre-industrial levels. The journey has been challenging and governments and enterprises are not meeting expectations.

How should we reach Decarbonization & NetZero?

To address climate change, actions need to be developed in three steps: mitigation, adaptation, and compensation. To build climate resilience, governments and organizations need to find ways to achieve NetZero.

The first step is understanding the emissions of a determined organization or city through a Greenhouse Gasses (GHGs) Inventory that will quantify emissions and be the basis of future GHG reduction targets.

Mitigation actions focus on analyzing emissions sources and activities to identify which processes can be changed to reduce GHG emissions. With this analysis, organizations can set Science-Based Targets, which can and should be monitored to effectively guide the reduction of emissions. Energy efficiency solutions are a key enabler to reducing and avoiding further emissions, for example.

When organizations have already taken action to reduce GHG emissions, but operations, processes, and dynamics still emit GHGs, the next step is compensation. It is possible to offset emissions that are unavoidable through the carbon market, which has been gaining attention in recent years. The carbon market is where supply and demand for carbon meet: projects that generate carbon credits (such as renewable energy projects) are connected to organizations interested in buying the credits to compensate for their residual emissions. But, the purchase of carbon credits to offset emissions is not an alternative to undertaking the hard work of decarbonization.

With all the changes that come with the climate crisis, adaptation and resilience are no longer merely suggestions for the success of businesses or the well-being of citizens, but an urgent necessity. Companies and municipalities have to develop strategies to adapt to all climate risks, both physical and transitional, to increase resilience in their ecosystemic dynamics. The adaptation phase seeks to reduce the negative effects of the climate risks and explore opportunities. Therefore, practices such as scenario analysis, risk mapping, physical adaptation measures, financial impact assessments, territorial adaptation actions, and target monitoring are crucial. The climate lens needs to be incorporated into all dynamics of institutions’ risk management, governance, and all planning initiatives.

While there is a concern for change, transformation is necessary and, if well-governed, can generate positive impacts. All the efforts to build resilience to climate change can generate opportunities for businesses, such as access to new markets, resource efficiency and cost savings, the adoption and use of low-emission energy sources, the development of new products and services, and building resilience into supply chains. [2]

Initiatives have to focus on removing and balancing GHGs released into the atmosphere. For a company to reach NetZero, it has to encourage and materialize action throughout its network of stakeholders. It is crucial that the company is aware of its Scope 3 emissions from its supply and value chains, as they account for a large portion of the organization’s total emissions since the sources of Scope 3 emissions come from activities performed but not controlled by the organization in its supply chain, such as business travels and employee commuting, upstream and downstream transportation, purchased services, and materials, etc. According to CDP, Scope 3 emissions are more than 11 times higher compared to operational emissions. [15]

How does blockchain impact climate change?

“In climate policymaking, transparent measurement, reporting, and verification of climate action is important. It enables policymakers to understand where they need to incentivize greenhouse gas emission reductions while being confident that they comply with the requirements set in its standards.”

Massamba Thioye, a co-Chair of the Climate Chain Coalition, and Manager, Regulatory Framework Implementation sub-division, Mitigation division at UN Climate Change [3]

The key features of blockchain technology, such as an immutable transaction audit trail, cheap and borderless value transfer, and automated contract execution [4], offer multiple opportunities and potential applications to accelerate global and regional actions towards achieving the targets set by the Paris Agreement and the UN Sustainable Development Goals (SDGs):

Improvement of the transparency, accountability, and traceability of GHG emissions

Blockchain can serve as a transparency mechanism that allows companies and governments to provide more accurate, reliable, standardized, and readily available data on carbon emissions – which today can be incomplete and unreliable -, encouraging emissions reductions and monitoring of targets. [5] Accurate tracking and reporting of emissions reduction, which can be facilitated by blockchain technology [3], could be used by national governments as a tool to monitor the progress made in implementing the Nationally Determined Contributions (NDCs) under the Paris Agreement [3], and as a way to monitor how nations are taking action to reduce their impact on the climate. [6]

The decentralized blockchain approach enables the tracking and reporting of the reductions of GHG emissions throughout the supply chain – including manufacturers, suppliers, distributors, and consumers [5] -, involving and enabling the participation of different stakeholders. Blockchain also provides a decentralized infrastructure that can enable new business models in climate finance and clean energy generation. [4]

Blockchain can be used through smart contracts to better calculate, track and report carbon footprint reduction throughout value chains. It can provide instant authentication, real-time data verification, and clear data logs. [5] Smart contracts also enable the design of globally accessible and automated incentive systems that can directly reward individuals, businesses, and governments for engaging in sustainable practices – such as regenerative agriculture, carbon offsets, and crop insurance, among others. In addition, smart contract tools can ultimately incentivize the change in global consumption habits. [7]

Climate finance, clean energy, and carbon market

Blockchain technology provides the ability to improve climate finance flows and investments that contribute to tackling climate change. Moreover, if carbon markets are scaled up, companies and industries will be able to transition to low-carbon technologies. [6] As for the carbon market, blockchain can be used to improve carbon asset transaction systems and carbon emission tradings. [3]
Blockchain technology could also facilitate clean energy trading by enabling the development of peer-to-peer platforms for renewable energy trading. [3] This could in turn accelerate the adoption of renewable energy sources. As these kinds of energies are decentralized, such as wind and solar, there is a need for new forms of energy markets, which can be created through blockchain technologies. [6]

“”As countries, regions, cities and businesses work to rapidly implement the Paris Climate Change Agreement, they need to make use of all innovative and cutting-edge technologies available. Blockchain could contribute to greater stakeholder involvement, transparency, and engagement and help bring trust and further innovation solutions in the fight against climate change, leading to enhanced climate actions.”

Alexandre Gellert Paris, Associate Programme Officer at UNFCCC [3]

In their contribution to the IPCC’s Sixth Assessment Report, Working Group III highlights that even though digitalization can reduce emissions and contribute to climate change mitigation, it can also have negative externalities. As a result of digitalization, the demand for goods and services would increase due to the use of digital devices, which in turn can generate more electronic waste, negative impacts on labor markets, enlarge the existing digital inequality etc. [8] [9] One of the main topics of discussion of negative impacts associated with blockchain technology is the consequent huge energy consumption associated with it, which can nevertheless be addressed through low-energy solutions. [6] [3] The use of digital technology will be an effective decarbonisation strategy only if appropriately governed. [8] [9]

There are initiatives and players in the blockchain industry that strive to connect the Paris Agreement and climate change on the blockchain, some wanting to ensure that any energy consumed by their activities is entirely carbon-free. One year ago, the Energy Web Foundation, Rocky Mountain Institute, and the Alliance for Innovative Regulations, launched the Crypto Climate Accord (CCA), intending to decarbonize the global crypto industry by prioritizing climate stewardship and supporting the entire crypto industry’s transition to net-zero greenhouse gas emissions by 2040. [10] Additionally, there is The Blockchain for Climate Foundation [11] and the Blockchain & Climate Institute (BCI). [12] The first has been focusing on building a pathway for countries to operationalize Article 6 of the Paris Agreement [11], while the second is a progressive think tank focusing on using emerging technologies for climate and sustainability. [12]

Furthermore, it is important to recognize the role that clean technology startups play in this process: By developing blockchain platforms that meet the needs of all stakeholders, including business, government, and citizens, they facilitate collective action to counter climate change. [5]

For illustration, ClimateTrade [13] connects companies willing to offset their carbon emissions to a large number of verified environmental projects. Another example is Nori, a marketplace for carbon removal that promotes regenerative agriculture projects that relate to soil carbon sequestration, and has a Carbon Removal Cryptocurrency, the NORI, that has the goal to provide a tradable market commodity while avoiding the double-counting and fraud present in some carbon markets. [14]

In short, for blockchain to thrive as a solution for climate action, digital infrastructure will need to be improved and access to the internet and smart devices expanded in an affordable way. International dialogue has to be expanded with the involvement of experts and scientists, who need to deepen their studies about the applicabilities, consequences, and solutions driven by blockchain – given the need for more technical research -, and policymakers, who will also have to adjust regulations. [6]

Sources

[1] World Economic Forum (2022). What the IPCC Report tells us about the need for radical climate action. Retrieved from: <https://www.weforum.org/agenda/2022/03/what-the-ipcc-report-tells-us-about-the-need-for-radical-climate-action/>

[2] Task Force on Climate-related Financial Disclosures (2017). Recommendations of the Task Force on Climate-related Financial Disclosures. Retrieved from: <https://www.tcfdhub.org/Downloads/pdfs/E06%20-%20Climate%20related%20risks%20and%20opportunities.pdf>

[3] United Nations Climate Change (2021). The Good, The Bad And The Blockchain. Retrieved from: <https://unfccc.int/blog/the-good-the-bad-and-the-blockchain>

[4] UNEP DTU Partnership. Climate Change challenges and Blockchain opportunities. Retrieved from: <https://unepdtu.org/wp-content/uploads/2019/02/udp-climate-change-blockchain.pdf>

[5] European Commission. Blockchain for climate action. Retrieved from: <https://digital-strategy.ec.europa.eu/en/policies/blockchain-climate-action#:~:text=Blockchain%20is%20a%20powerful%20tool,available%20data%20on%20carbon%20emissions>

[6] UN News (2021). Sustainability solution or climate calamity? The dangers and promise of cryptocurrency technology. Retrieved from: <https://news.un.org/en/story/2021/06/1094362>

[7] World Economic Forum (2021). Blockchain can help us beat climate change. Here’s how. Retrieved from: <https://www.weforum.org/agenda/2021/06/blockchain-can-help-us-beat-climate-change-heres-how/>

[8] IPCC (2022). Climate Change 2022: Working Group III contribution to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change. Mitigation of Climate Change: Summary for Policymakers. Retrieved from: <https://report.ipcc.ch/ar6wg3/pdf/IPCC_AR6_WGIII_SummaryForPolicymakers.pdf>

[9] IPCC (2022). Climate Change 2022: Working Group III contribution to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change. Mitigation of Climate Change: Chapter 16: Innovation, technology development and transfer. Retrieved from: <https://report.ipcc.ch/ar6wg3/pdf/IPCC_AR6_WGIII_FinalDraft_Chapter16.pdf>

[10] Crypto Climate Accord. Retrieved from: <https://cryptoclimate.org/accord/>

[11] Blockchain for Climate Foundation. Retrieved from: <https://www.blockchainforclimate.org/>

[12] Blockchain & Climate Institute. Retrieved from: <https://blockchainclimate.org/>

[13] ClimateTrade. Retrieved from: <https://climatetrade.com/>

[14] Nori. Retrieved from: <https://nori.com/>

[15] CDP (2021). Engaging the chain: driving speed and scale. Retrieved from: <https://www.cdp.net/en/research/global-reports/engaging-the-chain>

GreenBiz (2022). What does it mean to hold businesses accountable for climate change? Retrieved from: <https://www.greenbiz.com/article/what-does-it-mean-hold-businesses-accountable-climate-change>

UN Environment Programme (2022). In the battle against climate crisis, don’t overlook the blockchain. Retrieved from: <https://www.unep.org/news-and-stories/story/battle-against-climate-crisis-dont-overlook-blockchain>

Written by Mariana Chapouto Lopes