The potential negative environmental impact of cryptocurrencies such as Bitcoin has been widely discussed due to their energy consumption.
However, the underlying blockchain technology can play an essential role in sustainable development and addressing climate change. Here’s why blockchain technology is necessary for the climate space.
The issues plaguing the market
Before founding a tech company that uses blockchain technology to help enterprises with climate-relevant data, we identified several areas for improvement in creating and using environmental, financial products—products from emission reductions to renewable energy certificates, green and sustainability linked bonds and loans.
These products are only relevant and meaningful if the underlying data supporting them is measurable, verifiable, and ultimately can be relied upon by independent third parties. With typical current processes, there are some issues in the creation of such environmental, financial products.
First, data collection is a challenging process. It often involves one or more site visits to conduct manual data collection, third-party verification, periodic inspections, report generation, and other steps that typically result in lengthy and highly unpredictable timelines, high cost, and human error potential.
Another issue is the inability to permanently link data to products. Conducting data collection, verification and reporting in the traditional manner mentioned above, it is difficult to consistently and transparently tie non-digitised data to a product, making it more complex to verify environmental claims and use that data in future carbon accounting, green ratings and other value-added processes.
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Finally, there is the potential for double counting. The lack of highly referenceable data sets or other universal systems linking underlying project data to claims over emission reductions (i.e. environmental, financial products, carbon accounting)—and ultimately to regional and national targets—means it is more challenging to ensure that multiple actors have not claimed an emission reduction or mitigation outcome.
For these reasons, we looked to blockchain technology as a potential tool in the efficient and effective monitoring and use of underlying data that defines these products.
So what is blockchain technology?
A blockchain is essentially a digital ledger—each block of transaction data on this decentralised growing list of records contains information about the block previous to it, thus forming a chain that is resistant to modification.
It is secure by design.
This technology is well-known for its use in cryptocurrencies like Bitcoin. Still, it can be used with less energy-intensive mechanisms for achieving consensus in a host of other applications, particularly where transparent and permanent information is essential.
How a blockchain-based platform boosts climate action
Provenance
We saw a blockchain-based system as a way of ensuring that data captured from devices and other carbon-relevant sources retained a high degree of provenance.
A verifiable and direct methodology for extracting and recording data directly can materially accelerate processes that are often entirely manual and open to human error, only requiring manual inspection where and when necessary.
This results in greater predictability, reduced time and cost, and vastly improved verifiability and auditability.
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Permanently linking digital financial products to data
Blockchain technology allows us to construct a cost-efficient scheme able to quickly, reliably and consistently link underlying data to a digital environment, financial product, a carbon accounting exercise, a green rating or other products and services.
By permanently tying underlying data to environmental claims, you move closer to a more versatile system that doesn’t require traditional tools for trust, providing far more significant optionality to project owners but still allowing for third party collection, reporting and verification where it is necessary or value-added.
The avoidance of double-counting
A blockchain-based solution encompassing source data and digital products tied to that data makes it easier to track the provenance of a product—where and how it originated, where it was traded and who retired it, thus reducing the chance of multiple claims over the same underlying source data and allowing for easy and efficient audit.
A secure system to finance positive environmental impact
To summarise, we saw blockchain technology as the best way to enable parties to custody and transfer environmental, financial products themselves while allowing easy reference by carbon registries, government and other relevant stakeholders.
It also allows for the cheap and reliable fractionalisation of products that would otherwise be difficult for a broad spectrum of buyers to access and access to environmental finance opportunities with minimal friction costs, vastly reduced third party fees.
While potentially not the only solution available, a blockchain-based platform currently provides all stakeholders in the environmental, financial product market with an enhanced underlying product, vastly reduced and more predictable time and costs, increased efficiency in allocating value to participating parties, and more significant optionality and reporting—ultimately contributing to the acceleration of positive climate action.
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This article was first published on October 25, 2021
The post Blockchain technology for climate action? Here’s why it works appeared first on e27.
