Blockchain technology for climate good: A bird’s-eye view

Alastair Marke, Director-General, Blockchain & Climate Institute
Kieran Edwards, Research Officer, Blockchain & Climate Institute

The climate crisis is a product of distributional conflict as much as it is a substantive issue – should the burden of climate action be allocated based on prior emissions, population or capability? In this respect, the Paris Agreement has sought to appease all parties through nationally determined contributions (NDCs). This mechanism allows for differentiation but relies on strategic interactions at the state level to advance climate action.

Good faith, trust and reputation, however, all rest on the basis of transparency. Yet, transparency has not been well fostered given the complexity of the international climate governance architecture. Described as a ‘patchwork’ of domestic climate action by a 2018 World Bank report, the heterogeneity of domestic climate efforts will most certainly warrant a tremendous accounting exercise in the first global stocktake in 2023. This is the first of our series featuring the potential of blockchain technology to accelerate different areas of global climate actions.

The future of environmental solutions is digital

The success of the Paris Agreement will depend on political commitment and climate action, surely, but at a fundamental level also on information. Information on monitoring, reporting and verification (MRV) processes ensures trust and market efficiency. This is precisely the promise of blockchain and, more broadly, distributed ledger technology (DLT). Blockchain is essentially a digital accounting book – a data storage platform – of which all members have a copy.

Each block of information is chained to the previous one, which allows users to trace the information while guaranteeing the immutability of the system. These characteristics naturally make it attractive as a data storage system. For instance, blockchain-based carbon registries could arguably prevent cyber-theft (which happened at an enormous scale in the EU ETS in 2011) and strengthen market signals for enhanced climate investment flows through transparent accounting processes. Moreover, the rise of big data and improved computational algorithms offer essential ingredients conducive to the deployment of blockchain technology.

In terms of innovation, neither is blockchain technology new nor has it initially been well-received. In fact, this technology only floated to the surface in 2008, when “Satoshi Nakamoto” published his paper on the use of blockchain technology to track digital currency (although the term “blockchain” had not emerged until later days). Since then, blockchain has been predominantly associated with the cryptocurrency “Bitcoin”.

Accordingly, the discussion on the role of blockchain had been primarily restricted to the financial services industry until 2017 when the Blockchain & Climate Institute introduced the world’s first book on the application of blockchain for climate change policy implementation – “Transforming Climate Finance & Green Investment with Blockchains”. “However, blockchain and climate action were not an instant match.” In the climate change policy sphere, the technology has mostly been associated with excessive energy consumption, prohibitive costs of the digital infrastructure and technical limitations such as the interoperability of different digital platforms. Understandably, investor confidence has stagnated.

However, now the race is on. Technical problems such as energy intensity and scalability are being overcome, and entrepreneurs are continuously finding new ways in which to apply the technology. For instance, the UN World Food Program’s Building Blocks pilot allows for direct and secure cash transfers to Syrian refugees in Jordan by disintermediating unreliable local financial institutions. Refugees may purchase groceries by a scan of the iris, while security and privacy are ensured as the data is stored on the United Nations High Commissioner for Refugees’ (UNHCR) private blockchain.

Yet, a data storage system is only as useful as the data stored on the digital ledger. Blockchain and DLT promise transparency, efficiency and security. However, for all its technical complexity, ‘rubbish in’ amounts to ‘rubbish out’. For this reason, blockchain should rather be conceived as part of a much bigger digital engineering solution, comprised of, for example, artificial intelligence (AI) and an internet of things (IoT) ecosystem that guarantee data availability and accuracy.

Blockchain for forest and ecosystem conservation

“The Worldview Impact Foundation and EcoFriend World are using blockchain, AI and IoT to restore the cloud forest ecosystem in north east India and mangrove forest ecosystems in south west Myanmar. Specifically, satellite imagery collects vast amounts of data on land use, while AI is then able to predict where reforestation efforts will be most successful. By feeding this data onto the blockchain, this will incentivise reforestation and continuous forest

stewardship by ascertaining the annual economic value of ecosystem services delivered by the restored forests. Ultimately, the projects aims to plant one billion trees by 2050 in collaboration with the London-based company, Route2 Sustainability.” This standard will ascertain the annual economic value of ecosystem services delivered by the forests that are restored, which has potential to greatly increase the sustainability of the program and incentivise reforestation and continuous forest stewardship.

Blockchain for mobilising mitigation finance

In principle, this digital system of automated data collection, analysis and storage can be applied to any given project, providing regulators and investors with real-time monitoring capability and full transparency. Simultaneously, removing the need for costly intermediaries decreases the transaction costs for issuers of green projects. The Green Assets Wallet innovation project promises just this – to scale green debt supply by connecting investors with small-scale projects that were previously inaccessible to financial institutions. The transparency that blockchain affords can then ensure investors that the proceeds from their investments are being used appropriately.

Another example of innovation in sustainable finance is CleanTek Market, a global online marketplace for financing clean technology projects connecting project developers, funders/investors, advisors and end users with smart algorithms, machine learning and blockchain technologies. CleanTek Market has already successfully streamlined deal origination and transaction processes for over 1,000 renewable energy projects in 30 countries.

Blockchain for adaptation efforts

Blockchain technology has also seen a remarkable use case for drought risk insurance in Kenya, providing local farmers with access to affordable crop insurance through their mobile phone. High-resolution satellite imagery provides data on drought, unlocking automated insurance pay-outs when certain conditions of extreme weather are met. Streamlining the pay-out process of disaster risk insurance programs for the climate-vulnerable can be a “great leap forward” in global adaptation efforts.

THE ROAD AHEAD FOR BLOCKCHAIN

The more available and accurate the data becomes, the more valuable a blockchain-based information system becomes to ensure environmental integrity. However, the use of blockchain technology for climate action is still in its infancy. The private sector is largely at a stage of trial-and-error and public agencies foremost only engage in this sector through the provision of grants and regulatory sandboxes. There are some major policy and legal issues involved when it comes to mainstreaming blockchain in data and transaction processing. They include confidentiality, legality of smart contract, anti-competition behaviour and even a new regulatory approach, to name a few. However, it is only a matter of time before blockchain-based applications become more integrated with existing business models and products. As noted by the UN Climate Change secretariat:

“to fully and promptly mobilize the potential of blockchain, broad collaboration among stakeholders is needed to direct resources to priority areas, avoid duplication of effort, and help avoid the pitfalls of working on a new technology with countless unknowns”.

Technological innovation should aim to curb GHG emissions. Blockchain and DLT are both facilitators and accelerators in this regard. Blockchain and DLT promise to transform environmental governance in the next decade by providing a digital backbone to the information systems that underlie environmental solutions. As with any technology, blockchain is neither a ‘silver bullet’, nor a technological panacea as some blockchain evangelists claim. It is only part of a digital solution.

Indeed, forest and biodiversity conservation, adaptation infrastructure monitoring, renewable energy trading and sustainable finance are just some of the low-hanging fruits for adopting blockchain. We will visit one climate change policy area at a time in each one of our regular contributions.

Contact: Kieran Edwards
kieran.edwards@blockchainclimate.org

 

About Blockchain & Climate Institute

The Blockchain & Climate Institute is thus far the world’s only not-for-profit think tank specializing in supporting governments on the application of blockchain and emerging digital technologies in climate change policy implementation and regulatory enforcement.

 

Alastair Marke

Alastair Marke is currently the Director-General of the Blockchain & Climate Institute (BCI), which is a think tank supporting governments in the deployment of blockchain and emerging digital technologies to achieve climate change policy goals.

He is a co-drafter of the ISO 14097 climate finance standard and a UK representative on ISO 22739 blockchain and distributed ledger technologies standard (use case, smart contract and governance) working groups. In the UK, Alastair serves as an ad hoc Expert Advisor (Environment & Climate Change) to the
All-Party Parliamentary Group on Blockchain.

Alastair is a seasoned climate change and innovation policy advisor in the field of international development. Seeing the dire need to accelerate global efforts to fill the current climate finance gap, Alastair co-founded the BCI composing over 80 experts from 30 countries. The group has produced the world’s first book on blockchain and climate change issues – “Transforming Climate Finance & Green Investment with Blockchains” released in July 2018. Alastair is a recognised speaker and strategist of a series of innovation projects that apply blockchain to renewable energy, green finance and disaster risk insurance, etc. His forthcoming book will be on blockchain and emissions trading law.