As it’s a relatively new technology, practical applications for distributed ledger technology (DLT) are still emergent and being iterated on. Two sessions at Innovate4Climate last Thursday explored the current—and potential—role of DLT for climate action.
People sometimes use the terms ‘distributed ledger’ and ‘blockchain’ interchangeably, which is incorrect. A distributed ledger is a database that’s spread across several computing devices. Each network participant replicates and saves an identical copy of the ledger and updates itself independently. The updates are voted—and agreed—on during a process referred to as ‘consensus’. Blockchains are a form of DLT where data is organised in blocks and linked to one another.
DLT and blockchain have gained somewhat of a bad reputation in the environmental sector due to the widespread coverage of the popular cryptocurrency, Bitcoin, and its problematic high energy consumption. Blockchain is used to record Bitcoin transactions and this record-keeping service—known as ‘mining’—is done through the use of computer processing power. A new study estimates this process consumes at least 2.6GW of electric power—almost as much as Ireland.
However, distributed ledger technology doesn’t have to consume this kind of energy and alternative consensus mechanisms do exist. How, then, might DLT be used in the service of climate?
“On one hand, DLT is an excellent tool to enable more effective implementation of the decentralised climate action approach taken by the Paris Agreement. In this area, DLT can work as a ledger of metrics and actions taken and agreed on by all partaking stakeholders. Several organizations, including the UNFCCC and the World Bank are active in this field,” said Robin Born, Emerging Technology Researcher, ETH Zurich.
He continued: “On the other hand, DLT-enabled systems are poised to bring disruptive change into the highest greenhouse gas emitting industries affecting all stakeholders. The power of DLT lies in decentralisation (i.e. redistributing power from central authorities to a wider network) and thus enabling a faster rate of open innovation. While industries like energy and mobility will be affected directly, the impact of DLT on finance will also drive stark changes in these industries.”
At the session “Blockchain to Drive Climate and Development Impacts at Scale,” Cecilia Repinski, Executive Director, Stockholm Green Digital Finance, raised trust as a potential driver for green market development. And, a transparent decentralised ledger could indeed be a more trustful way of recording impact and validating delivery on environmental commitments for various stakeholders.
Nick Beglinger, CEO, Cleantech21, Climate Ledger Initiative, Hack4Climate Innovation Program, emphasised the need to scrutinise the feasibility of decentralised ledger initiatives, specifically as it relates to scalability, technology, and regulation. Discerning this requires collaboration between varied actors.
“The community of developers, they are in the centre,” said Beglinger. “But we also need really strong partners who know their industry as well as regulatory actors.”
Destroying forests releases as much carbon dioxide as the global transit sector. Developed in close cooperation with Cleantech21, REDD-Chain exemplifies how DLT might be used in forest conservation. It posits a global forest ledger where every square meter of land is identified using remote sensing, satellite, and/or drone technology. Then, the forest can be monitored using images taken at different time intervals—to determine whether it’s still intact. Recorded on a publicly accessible distributed leger, this data could be used to stimulate climate finance. For example, countries could be paid to keep their forests intact and plant new trees.
66 per cent of consumers are willing to pay more for credibly climate-friendly goods and services, and digital ledger technologies including blockchain could offer a solution to key issues hindering effective climate action. Marion Verles, CEO, The Gold Standard Foundation, Climate Ledger Initiative, stressed the need for data integrity when it comes to these applications.
“You can only have credible data at the point of sale if you have credible data throughout the supply chain,” said Verles.
Jeff Cohen, Executive VP, Standards & Policy, xpansiv, raised some current challenges with distributed ledgers. For one, it’s still a very early stage technology, with a lot of hype around it. Thus, it’s important to understand the role of governance for efficient verification. xpansiv is using a digital ledger to track externalities in pricing and procurement of commodities to enable downstream users to select ‘low-impact’ gas, for example.
“The green bond market makes up less than one per cent of the global bond market, but has potential with this technology,” said Cohen.
The second session, “Creating a Blockchain Infrastructure for New Carbon Markets under the Paris Agreement” explored how distributed ledger technologies and the Paris Agreement are aligned on many values, such as the importance of transparency, decentralisation, impact and accountability, review processes, and private sector players.
What kind of climate information might exist on a distributed ledger? National policies and actions, country greenhouse gas inventories, nationally determined contributions, and international climate finance are just some examples.
Adrian Jackson, Research Architect, University of Edinburgh, posited a distributed ledger for climate that could connect different markets together: Companies/organisations, a single market, and a networked market. This ‘federation of markets’ could avoid issues such as homogenisation. However, Jackson cautioned against using distributed ledgers simply because they’re en vogue and emphasised the need to build software that will be easy for future developers to work with.
“My mantra is: Can you do this through a central database? If you can, you don’t need a distributed ledger,” he said. “I’m also concerned about legacy. Design well from the beginning.”
Dr. Harald Rauter, Innovation Lead, Climate-KIC, echoed these sentiments and elaborated: “There needs to be an increased effort around how technology and problem-solving align. Both sides are areas of high complexity and thus very information intensive. There is a lack of platforms that convene this relationship.”
He continued, “As the technology is very young, it is still developing. Thus, the decisions taken today will impact the architecture, the potential, but also the degree to which technological decisions culminate in legacy problems in the future. As a consequence, there is plenty of hesitation from the demand side to avoid betting on the wrong horse. The situation is comparable to the established car manufacturers knowing about e-mobility, but being unsure about when the right moment is to jump on the bandwagon—and how.”