How can blockchain help slow down climate change?

Governments around the world have been introducing policies to reduce the impact of climate change, one of the most popular ones is carbon pricing, but it is broken in many ways. Let's explore how blockchain can help fix some issues.

Posted on the 27/06/2020
Photo by the World Bank

Most people (but sadly not everyone) will agree that climate change is one of the most pressing problems our society currently faces. While every little contribution we make individually is important, we would be fooling ourselves by thinking we can prevent climate change by recycling, buying an electric car and going vegan. The following chart shows that most of the emissions come from industry and energy generation.

EPA Graph

There's still plenty of oil around

Current oil reserves are expected to last until 2052, but this doesn't account for new oilfield discoveries and new technologies that would make currently unprofitable oilfields profitable, such as fracking. In the case of other fossil fuels the global reserves are even bigger. Therefore, if we are to meet the goals set in the Paris agreement, we need to make it more attractive for corporate polluters to use cleaner processes and energy. This can be done through carbon emissions pricing.

Carbon pricing makes the polluter pay for the emissions it generates. Therefore, if the cost of emitting is greater than that of a cleaner technology, the polluter will be compelled to make the switch.

A great example of this kind of scheme is Europe's ETS (Emissions Trading System). The ETS is effectively a 'cap and trade' system. In principle this means that the EU sets a total amount of greenhouse gases that can be emitted in a year, and then polluting companies purchase emission allowances in an auction. In practice at the early stages of the scheme firms were given allowances to cover most of their costs for free, but allocation has been steadily reduced over time.

A 'cap and trade' system leverages the power of the market to reduce emissions in the most cost efficient way. It encourages companies to cut emissions quickly so that they can sell their remaining allowances to firms that need them.

Carbon Maths

Carbon pricing and other alternative policies suffer from the same problem. Calculating emissions is very difficult and there is no standard way of doing it. For example, the UK has pledged to be carbon neutral by 2050, but carbon neutral refers only to the production of the UK, it doesn't account for the emissions generated by a product produced in another country but consumed in the UK.

Let's say you live in Glasgow and buy a laptop produced in China, in a production based accounting, the only emissions that will be counted are the ones generated to bring your laptop from the port to your flat, a tiny fraction compared to the emissions generated in manufacturing and overseas shipping.

This makes rich countries look "green" as they produce little but consume loads and encourages them to outsource production to other countries. The difference between production carbon emissions and consumption ones in the UK is 40% as you can see in the following graph.

Consumption vs production emissions

Another common pitfall is double counting. This happens when two organisations or countries claim ownership of the same emissions reduction. Double counting tends to be more common when doing carbon offsetting. Carbon offsetting consists in a company or country compensating for its carbon footprint by reducing emissions elsewhere, usually in a cheaper way than if emissions were reduced directly in the company.

Let's see an example of this, imagine Ryanair decides to buy carbon offsets to reduce its emissions. The money is used to build a solar power plant in South Africa, to replace an existing coal plant. Then, Ryanair compensates some of its emissions from the reduction in South Africa. The problem is that if not properly monitored, South Africa may also claim this reduction for itself. Thus, leading to accounting the reduction twice.

Moreover, this is a form of Neo-colonialism, where rich countries profit off the lower costs of carbon reduction in less developed countries, leaving them in a worse position to comply with the international agreements. In addition, a very popular form of carbon offsetting, protecting forests may just be an undercover way of doing land grabs in underdeveloped countries (this Vice article gives a chilling view of the problem).

The Data Democracy

Not all hope is lost though. Blockchain, a technology that you might have heard about in relation to Bitcoin, may be of great help to solve some of the challenges we've seen above. Blockchain as its name conveys is a bunch of blocks connected by a chain. The blocks contain the data that we want to store and every block contains the signature (a cryptographic hash) of the previous block, effectively linking them together and creating a chain.

Blockchain Diagram by Slalom

Blockchain is in essence a distributed database, or what is the same, a place to store data where everyone has a copy of it and no user is trusted more than the other. This makes the system effectively a data democracy. The most widely adopted version of the data in the network is the true one. To tamper with the data, you would need to change 51% of the nodes in the network. With the size of most blockchain networks it is unfeasible to do this kind of attack.

A global blockchain network used to track carbon emissions could solve many of the problems stated above. First of all, by integrating an emissions calculation algorithm into the blockchain, companies would only need to enter their raw data and emissions would be calculated automatically. Moreover, consumers would be able to look up emissions data on companies and make better informed purchasing decisions. The inherent transparency of the blockchain would also make double counting much more difficult, as carbon credit purchases would get stored for everyone to see. Finally, by cutting the middleman the blockchain would make carbon accounting cheaper.

Nevertheless, the blockchain is not the one stop shop to solve the problems with carbon accounting. Technologies like IoT (Internet of Things) will need to be used for accurate data collection.

TLDR: Current carbon pricing schemes are obscure and don't have a measurement standard. Blockchain may prove to be an essential tool to make carbon pricing more transparent and prevent fraud.