At the Climate Ledger Initiative side event in Bonn, experts from the intersection of climate and IT discussed the opportunities and risks of using distributed ledger technology to accelerate implementation of the Paris Agreement.
The first major application of Blockchain technology was the digital currency Bitcoin, launched in 2009, allowing online payments to be transferred without an intermediary, catalysing an emerging shift from centralised to de-centralised financial systems.
Attention is increasingly turning to how this decentralised ledger technology can accelerate climate action. Earlier this year, the UNFCCC held an event showcasing how blockchain can boost climate action through carbon emission trading, climate finance flows, and more accurate tracking of greenhouse gas (GHG) emissions reductions by avoiding double counting.
Blockchain was also a major topic during the Innovate4Climate 2017 conference in Barcelona this May, organised by the World Bank Group and others.
The Climate Ledger Initiative, a partnership between the UNFCCC Secretariat, the World Bank Group and the Massachusetts Institute of Technology, kept discussion going with its side event on the first day of the COP23, sharing a crucial snapshot of global research activities and some of the very first use cases.
The hash algorithm
At the heart of distributed ledger technology is the hash algorithm, or a 32-digit number that acts as a digital fingerprint to identify the data that it is associated with. If the data is changed, even by a comma, then so too, is the 32-digit number.
Data files can be built on, and the previous hash fingerprint compared, creating a data trail that is a visible public record. It is this feature that gives blockchain its immutability, security and trust, explained Sven Braden, member of the CLI and co-founder of the Life Climate Foundation Liechtenstein.
Blockchain can contribute to greater stakeholder involvement, transparency, and help foster trust in areas where skepticism is high such as transferring mitigation options in Article 6 of the Paris Agreement.
“Right now, in terms of mitigation, everything goes through the UNFCCC and the CDM – it’s centralised. One of the major challenges is in synching databases to ensure all ledgers have the same information. With blockchain, you don’t have to check the datasets and that they all add up, you just have to check the hash.”
Climate-KIC, Europe’s biggest partnership catalysing innovation for climate action, has been one of the first public organisations to support the Climate Ledge Initiative and shared a number of early use-cases.
These included how blockchain can enhance the functioning of REDD, the UN’s Reducing emissions from Deforestation and Degradation programme, where conservationists are paid for their efforts to stop the emissions that would be created by deforestation.
In this instance, blockchain has shown potential in making the process more transparent through smart contracts, where private investors are connected with conservation initiatives, and satellite data and remote sensing helps ensure permanence and supports against leakage.
One of the major concerns around upscaling the use of blockchain is that the cryptocurrency has a particularly high energy footprint. Climate-KIC has supported the Climate Ledger Initiative in finding ways to offset the carbon footprint or exploring how renewable-powered labelling can help alleviate adverse impacts.
Research on ways to integrate blockchain into different sectors related to sustainable development is now expanding, and innovation at the intersection of blockchain and climate change is expected to further develop in the coming years.
Blockchain in Paris Agreement implementation
With this in mind, Jürg Füssler, managing partner and member of the INFRAS board of directors, discussed that while blockchain has emerged from the bottom-up, it can be used in top-down approaches such as calculating greenhouse gas inventories combined with INDCs (Intended Nationally Determined Contributions) and Article 6 mechanisms.
Blockchain can provide more transparency regarding greenhouse gas emissions and makes it easier to track and report emission reductions, helping avoid possible double counting issues. It also serves as a tool to monitor the progress made in implementing INDCs under the Paris Agreement, as well as in company targets.
One of the major challenges in bringing together a bottom-up tool with a top-down strategy is in applying “permissioned blockchain” instead of public ledger. Top-down INDCs will need government oversight, suggested Füssler.
Blockchain also shows potential in improving the system of carbon asset transactions, trading carbon assets, emissions trading systems, carbon taxes, or in corporate use such as ESG or greening supply chains. Recording carbon assets on a public blockchain would help guarantee transparency and ensure that transactions are valid and settled automatically.
The technology could also allow for the development of platforms for peer-to-peer renewable energy trade. Consumers would be able to buy, sell or exchange renewable energy with each other, using tokens or tradable digital assets representing a certain quantity of energy production.
Blockchain technology could help develop crowdfunding and peer-to-peer financial transactions in support of climate action, while ensuring that financing is allocated to projects in a transparent way.
Regulation needs to work with distributed technology
Those in administration, public policy and government are curious as to the potential of blockchain, particularly in how it can be used in adaptation and mitigation. But, the panel concluded, it is only when the appropriate legal and social parameters are put in place that Blockchain can be implemented for mitigation.
Regulators must understand that things are going “distributed”, and it’s from this intersection of regulation and innovation that different pathways and possibilities emerge.
Climate Ledger Initiative continues its focus on blockchain at the COP23 with Hack4Climate, a four-day hackathon organised by the government of Liechtenstein, Cleantech21, INFRAS and ETH Zürich, will take place next week (12-16 November) as part of the side events at COP23’s Bonn zone.