The blockchain climate fix

In the heady aspirations of blockchain-biased social entrepreneurs, what could be a better blockchain application for the good of the planet than fixing the global climate problem?

Last year, energy analyst Edward T. Dodge pitched the idea of using the blockchain for carbon pricing:

An alternative carbon pricing instrument could be developed in the financial markets that is simple and fair, and designed to be transparent and traded internationally. A carbon deposit and redemption system could be built using new internet based financial accounting technology called blockchains or distributed ledgers, best known as the foundation for Bitcoin digital currency. In this system a deposit would be paid for every ton of fossil CO2 created and the deposit recorded in a blockchain digital asset, call it a carboncoin. The deposit funds would be held in escrow until they are redeemed by a party anywhere in the world who successfully sequesters a ton of CO2 underground through either reforestation or industrial CCS (carbon capture and sequestration). In this system every ton of CO2 is individually accounted for and financial incentives are created to sequester the CO2 in a safe manner. When all the accounts are balanced then zero net emissions of CO2 will have been achieved.

In short: Every time you emit carbon, you pay for it with a kind of carbon coin. Every time you sequester carbon, you get paid in carbon coins. When all carbon coins have been redeemed, the world is running at net zero carbon.

Of course, Dodge wasn’t the first person to pitch a pairing of carbon trading with the blockchain. As early as 2014, Joe D’Angelo pitched Sno-Caps—what he called the People’s Cap-and-Trade platform. His big insight was to use Regulation by Reputation rather than highly politicized government legislation:

By allowing users to rate each other’s actions, RBR provides the necessary carrot & stick for companies like Uber, Airbnb, Amazon, eBay, LinkedIn, etc. Combined, these companies govern billions of users (and trillions of transactions) with minimal need for authorities. Better still, RBR is apolitical and inexpensive, providing ultra-scalable regulatory power…

Sno-Caps aims to bring RBR to carbon emissions by pairing it with a global cap-and-trade. This combination solves a number of thorny issues not only with cap-and-trade but also with government oversight. Most importantly, through RBR, we can incorporate the one group that climatologists continue to marginalize – the people. With Sno-Caps all 7 billion people on earth will gain ownership of carbon and enjoy full and instant access to trading.

A BitTrade proposal in 2015 took exception to the no-government approach of Sno-Caps and proposed a private organization that contracts with the government (either state or nation) to run a fair and inexpensive Cap and Trade program:

Relating this [Bitcoin] technology to Cap and Trade provides complete transparency of all transactions of carbon shares. This allows a fair system of bids, and can allow ‘miners’ to confirm that corporations have the proper amount of shares relative to their emissions. By legislating that corporations must publish their emission numbers, miners will carry out proof of emissions calculations, and be rewarded for each block of transactions they chain to the blockchain.

The number of carbon shares is determined by the number of citizens under the government’s jurisdiction, plus additional shares for miners’ rewards. The process of distributing the shares is done entirely by the software.

Companies can later exchange shares between each other to match emissions needs. When the trading for the year is finished, the profits are divvied out so that each share is equal in value. This system is not unlike what Alaskans receive for oil.

The sole purpose of the government is to randomly audit corporations to make certain they are being honest with their emissions reports. This will make it an inexpensive and attractive investment.

To date, however, the various fledgling organizations that have already attempted to issue coins linking trade to carbon emissions are disappointing. The Little Green Token is an offering by an Australian venture that appears to be more of a social marketing platform—a pyramid scheme—than a carbon management strategy.

Earth Dollar is an Ethereum-based “digital fuel” linked to natural capital—the value of ecosystem services inherent in living trees, clean air and water, even beautiful landscapes. The Earth Dollar organization claims that the “Earth Dollar is the world’s first currency using Natural Capital to support its value. The accounting system for Natural Capital is being steered by The Economics of Ecosystems and Biodiversity (TEEB) and is still in the early stages of implementation.” It appears that that the value of Earth Dollars is ultimately to be indexed to the state of the natural environment, including the climate. At this point, however, it’s not clear how spending Earth Dollars to buy computing time on the Mother Earth Network might lead to adjustments in global carbon emissions.

And this is perhaps the heart of the matter: no matter how transparent and incorruptible the records in a blockchain might be, the relationship between the data in those records and the physical reality they represent is difficult to prove. That means that, in Dodge’s scheme, it’s hard to know for sure if the deposits paid in carbon coins are sufficient to cover actual emissions and if the coins redeemed represent the actual carbon sequestered.

Today, many organizations function as trusted third parties in carbon exchange markets. They offer carbon auditing services for sequestration projects, using a variety of standards, such as the American Carbon Registry Standard, the Climate, Community and Biodiversity Standard, Gold Standard, Plan Vivo Standards, and Verified Carbon Standard. Like the organizations that issue various fair trade labels, these services provide the credibility of third-party certification. But whether we’re talking about fair trade or certifiable carbon, the standards come with built-in measurement biases, and the third-party auditors themselves are subject to possible corruption.

This is where so-called oracles might offer a solution for a blockchain-based system. Oracles are software entities that store data or perform calculations to verify data and then pass it to a smart contract. In effect, an oracle is a trusted third party that can provide or certify the data.

In the case of carbon emissions, the solution to trustworthy data may be a consensus of oracles—third-party evaluators of emission and sequestration claims—using multiple data sources and approaches to measuring carbon. These sources might include self-reporting, audits, government analyses, and even sensor-based direct measurements as the Internet of Things comes online. They could even include self-reporting by products that have a positive or negative carbon footprint over their lifetimes. Such a network of oracles would still need a way to resolve differences and disputes about emissions reporting, of course.

The question is whether these oracles can be automated to provide qualified consensus data to a carbon coin blockchain at the right moment—that is, could they reduce the friction in the measurement system enough to make it the foundation for a viable exchange?

This is perhaps an example of where the blockchain will meet artificial intelligence. The blockchain by itself is probably not going to be sufficient to manage a carbon trading system. But combine it with machine learning and a robust IoT linked to a network of oracles and it may well be not only feasible but essential to the future of the planet.

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