By : Devyansh Atharv

Abstract

Blockchain has surfaced as a viable solution to deal with the ever-increasing harms of carbon emissions. Its decentralized, transparent, and immutable nature provides for a promising tool to combat and mitigate emissions in a way that has not been tried before.  From being envisioned as the backbone of cryptocurrencies, it has come a long way and sees regular usage in healthcare, media, security, and much more. Today, multiple MNCs have recognized the potential that blockchain holds in revolutionizing their industries by monitoring supply chains, ensuring compliance with contracts – and most importantly, in a way that is accessible and transparent. This article explores the transformative capabilities of the blockchain network in combating climate change and underscores the need for strategic solutions to overcome current barriers of accessibility and standardization, so that its full potential can be unlocked. 

Introduction

Activism around addressing and mitigating carbon emissions is something we encounter very regularly, and we have perhaps gotten far too accustomed to it. Carbon emissions are nowhere close to decreasing, but we have found a very comfortable excuse in believing that unless the rest of the world wakes up to be more conscious about the environment, our individual efforts will not matter. The lack of any visible or quantifiable improvement, as well as no dynamic method to understand just how damaged our environment is, makes us ignore the real problem at hand. In recent years, blockchain technology has started being used as a platform to record carbon emissions in a decentralized, transparent, and accessible way for all – allowing us to foster greater accountability and take meaningful action. The potential blockchain applications are vast and include creating sustainable supply chains, facilitating waste management, and even regulating a carbon credit market – more of which will be discussed further. This paper explores the capability of blockchain technology to enhance transparency, overcome current inefficiencies, and create new mechanisms to change and improve our approach to sustainable environment practices. 

What is blockchain?

The concept of a blockchain network was first envisioned in 2008 by Satoshi Nakamoto, when he laid out the functioning of the Bitcoin cryptocurrency. In the coming years, this would take the world by storm as its open-ended and transparent nature in an area involving huge amounts of money was baffling – raising the question: how could everyone monitor everything? Simply put, blockchain is essentially blocks of data linked closely together in an accessible and unchangeable manner. To explain in terms of Bitcoin, any transaction made by person A to person B would be recorded as a “block of data”, and this would be displayed in an open-source online platform. This would mean that any user at any place in the world could see that specific transaction, the amount involved as well as the wallet addresses of the transacting parties. Another one of its most attractive features is the concept of ‘decentralization’, meaning that no single government or private entity is in control of monitoring the market. This, coupled with the virtual impossibility of any forms of hacks or breaches in this system and no single-point of failure made blockchain a very attractive setup for all those who wished to interact with it. 

Fast forward to 2024, blockchain has gone beyond being the backbone of cryptocurrencies – it now finds regular usage in healthcare, media, security, and much more. Its features have even led to national governments adopting it as the backbone of newly developing decentralized finance systems, namely India, which was ranked first in the Global Crypto Adoption Index. The broad acceptance of blockchain highlights its capabilities in solving problems that extend well beyond finance. Recently, blockchain has come to be put in increasing use by governments and multinational-corporations around the world for its utility in managing and reducing carbon emissions. Its decentralized and immutable nature make it a unique and previously unexplored solution to combat the problem of largely uncontrolled and unmonitored carbon emissions, which are a massive threat to our planet’s biosphere.

Challenges in managing carbon emissions 

It is hardly surprising to read about the devastating effects of the current state of carbon emissions. Unsustainable production and consumption patterns are producing massive amounts of carbon dioxide which is tipping the greenhouse effect out of balance. The result of this is aggravated climate change which harms ecosystems all around. More importantly, the biggest driving factor of these emissions is unchecked and unsustainable industrialization – as per a published report, just 100 companies are responsible for nearly 71% of the planet’s emissions. Huge multinational corporations are a significant source of carbon emissions, but effectively combating and reducing these emissions remains a challenge without the implementation of appropriate systems to accurately record and monitor them. Different methodologies for recording are accompanied by their own sets of benefits and flaws, the biggest being lack of transparency and over-regulation. A single private entity prescribing standards for companies around the world to follow leads to a glaring lack of clarity from the perspective of an average voter. Regulations, reports, inspections, etc. all of these were processes whose intricacies remain in documents and files locked away in these companies. However, the introduction of blockchain as a system for recording and reporting emissions has revolutionized the process of carbon accounting.

Right from the early stages of production, blockchain has come to play a very important role in building transparent supply chains. In traditional contracts and supply chains, producing a single unit goes through multiple rounds of auditing and monitoring to ensure compliance with contracts. Suppliers, retailers, and consumers all go through individual levels of recording and this results in multiple issues – mistakes in inventory data, missing shipments, duplicate payments, etc. These problems stem from multiple invoices incurred during the supply stage, all of which are generated by different entities throughout the supply process. However, blockchain, a system not controlled by any one overarching entity and available to all makes the process significantly easier and without any leakages. Orders are placed on the blockchain, taken up by the supplier/retailer, and purchases are made by the consumer – all of these are stored as chronological blocks, available to all the entities present in any part of this series of transactions. A prominent example of this is exemplified by International Business Machines (IBM), which has been a pioneer in incorporating blockchain into production and supply mechanisms. Their idea of a blockchain-based supply utilizes smart contracts that automatically trigger themselves when predefined conditions of the previous transactions are met. This achieves almost real-time recording of transactions all whilst maintaining transparency as any single point in any of these transactions can easily be drawn up.

Carbon markets and Blockchain Integration

Any form of state regulation to curb carbon emissions has mostly always been met with disgruntled corporations. This is due to the unrewarding nature of complying to emission limits, filing reports, verifying these reports and so on. Carbon markets, however, offer an alternate route – they offer monetary incentives for compliance to emission limits and have shown promising results so far. A carbon credit, which is the functional unit of these markets,  represents the removal of one ton of carbon dioxide (or an equivalent greenhouse gas) from the atmosphere. Companies can purchase and circulate these carbon credits, and the entire functioning of this market is recorded and displayed immutably on the blockchain. This means that everyone who is a stakeholder in reducing global emissions – companies, compliance bodies, regular consumers can inspect and monitor the transactions on this market, and see the amount of carbon dioxide that has been offset. 

To put it simply, an entity can ‘issue’ carbon credits when they offset certain amounts of carbon dioxide from the atmosphere by shifting to more sustainable methods of production. These carbon credits are then sold to other entities who can then effectively emit that amount of carbon dioxide without harming the environment, as it has already been accounted for earlier. The benefits of this extend beyond simply having cleaner production, it also serves as a significant reputational boost to companies who want to be perceived as environment-friendly. 

Moreover, blockchain lowers the entry barrier into carbon markets as even small community-based groups can enter the market since there are no intermediaries and users on the network can trade amongst themselves. As discussed earlier in the example of IBM, automated contracts are also often utilized to further speed up the process of trading carbon credits. 

Future prospects and challenges

Greater transparency, accessibility, and impact of change – all of these are metrics of betterment that the usage of blockchain can (and has) brought about, but far too much of its potential remains unrealized. The unsupervised and unregulated nature of blockchain has attracted several problems, many of which remain unaddressed. For instance, the lack of standardization in carbon markets often leads to uncompetitive pricing, since there is no central body to regulate the value of carbon credits. Although the fundamental concept of a blockchain is accessibility to all, it remains challenging for individuals from disadvantaged or less technologically literate communities to fully understand and engage with the technology. Widespread adoption of blockchain in production, supply and trade systems is still lacking and thus does not invite enough innovation to drive out some of its persistent problems. 

There are multiple solutions which need to be discussed and implemented as soon as possible to make the usage of blockchain more efficient, in mitigating global carbon emissions. Entities in the blockchain must be made to feel more secure, as there is a general fear of interacting with systems that are beyond the purview of governmental regulation due to instances of cyber-fraud and cheating. Blockchain could also use a certain degree of standardization or universally set criteria to ensure that all its users interact with it in a uniform way. Most importantly, it needs to be scaled up so more and more companies, big and small, adopt its usage as this will gradually weed out the biggest problems in the usage of blockchains.

In conclusion, blockchain technology holds immense potential to revolutionize carbon emission tracking by ensuring transparency, reducing inefficiencies, and creating accessible platforms for carbon markets. Its decentralized and immutable nature offers benefits that were absent in previous forms of manually recording and managing carbon emissions.It is still relatively new, as challenges like lack of standardization, security concerns, and limited scalability must be addressed for blockchain to fully transform environmental practices. Regardless, there is immense potential in blockchain as a means to revolutionize global efforts in minimizing emissions, and with the correct strategy, it will translate into tangible reductions in carbon footprints across industries.

Author’s Bio  

Devyansh Atharv is a second-year law student at Jindal Global Law School, pursuing his B.A. LL.B. (Hons)  degree. His area of academic interest revolves around environmental law, legal frameworks to mitigate  social inequality, and international relations.

Image Source : https://brightnode.io/blockchain-and-environmental-use-cases/