“Bitcoin isn’t environmentally friendly – it uses as much electricity as Sweden!” This is one of the common objections to the new technology of cryptocurrency. It is an over-simplification. Bitcoin is the first-generation crypto: other more recent projects in the sector use far less energy[1] . Bitcoin miners are also using renewables: and if miners created all BTC with zero-carbon energy, there would be no problem.
Any new technology comes with advantages and disadvantages as well as teething troubles. Slow connections plagued the early internet – that was even if you could get online: you needed to be a geeky whiz sometimes to boot up the user-unfriendly systems just to send an email. So we should expect that cryptocurrencies will have hiccups as the sector matures.
Blockchain – The Backbone Technology
Distributed Ledger Technology (DLT), commonly called the blockchain, is the facilitating system that makes crypto possible. It is simply a digital ledger or Rolodex of index cards that hold information in a transparent, unbreakable, and decentralized way. This doesn’t sound much, but it heralds a data revolution. Every computer on the network validates each piece of the blockchain so there can be no error. It is a highly ingenious way to assemble and validate information. It has considerable application to the biggest issue of our age: climate change[2] .
Smart contracts and complete transparency
Starting with the second cryptocurrency, Ethereum, a programmable layer was added to the blockchain. Confusingly called “Smart Contracts” – it means that an application can be triggered from the blockchain and have something happen in the physical world.
For example, imagine that a wastewater processing company has sensors linked up to its pipes and wastewater treatment plant. Previously it used to have people reading the sensors and inputting data into a spreadsheet, which was then sent to the official industry regulator. So if a waste parameter exceeded a legal level, an alarm went off, this was recorded, and some days or weeks later, the regulator might take action. Of course, the alarm could be turned off, and the spreadsheet faked to cover up the pollution incident.
A blockchain-based system linked to the sensors would record the alarm, alert the regulator, and issue a fine in cryptocurrency immediately. The public would know, and the transparent record could not be faked. Why would anyone do this: it will be very much cheaper to operate and more flexible than the older method. The blockchain will be essential to a “Smart City” future where numerous data flows are monitored in real-time to improve all sorts of negatives like emissions, energy consumption, waste and recycling, pollution, traffic gridlock; the list is endless.
The blockchain is transparent, unfakeable, and does not need “Trusted Third Parties” like banks, insurance brokers, or real estate agents. In particular, tracking carbon emissions and other climate events like deforestation or reforestation will be facilitated by blockchain technology.
The UN has identified four areas[3] where blockchain could help fight climate change:
- Improved carbon emission trading
- Facilitated clean energy trading
- Enhanced climate finance flows
- Better tracking and reporting of emissions reduction
Improved Carbon Emission Trading
Although there are critics of “carbon trading” – where polluters buy carbon credits off low emitters, it does have a place in any carbon reduction system. Energy Blockchain Lab and IBM created a blockchain platform to trade carbon assets in China, which was a significant improvement on the previous design.
Facilitated Clean Energy Trading
Blockchain technology is being used for the development of peer-to-peer platforms for renewable energy trading. Consumers would be able to buy, sell or exchange renewable energy with each other, using tokens or digital assets representing a certain quantity of energy production. If you have solar panels on your roof or own an Electric Vehicle (EV) which can sell electricity from its battery back to the grid, then this will be coming your way sooner than you think.
Enhanced Climate Finance Flows
Financing ecological projects can be challenging for conventional lenders, e.g., banks. A new peer-to-peer lending system called DeFi or Decentralized Finance could be used to create capital for green projects. DeFi projects have only been around for a few years but skyrocketed in popularity in 2020 as the sector blossomed.
Better Tracking And Reporting of Emissions Reduction
As discussed above, blockchain technology can ensure more transparency around pollution and greenhouse gas emissions and make it easier to track and report emissions reductions, including addressing data quality issues. Massamba Thioye, a co-Chair of the Climate Chain Coalition and Manager, Regulatory Framework Implementation sub-division, Mitigation division at UN Climate Change, says: “In climate policymaking, transparent measurement, reporting, and verification of climate action is important. It enables policymakers to understand where they need to incentivize greenhouse gas emission reductions while being confident that they comply with the requirements set in its standards.”
Use Cases
Another criticism of crypto-token-powered blockchain schemes is that they are impractical or have little real-world benefit, as opposed to lovely brochures and PowerPoint presentations. Here are a few actual projects which point the way forward:
Supply Chain Initiatives
The pandemic has clearly shown how much we rely on complex global supply chains. Much of the West’s manufacturing comes from the Far East. This involves the carbon emissions of physically shipping things, but also massive amounts of paperwork as cargo transits the customs systems of different countries. It’s a nightmarish and wasteful process. As Brexit Britain is finding out, not ticking the correct checkbox on a customs declaration is the ticket into a world of costly frustration. Blockchain-based documentation will be a step-change in efficiency, increasing productivity and reducing costs, and therefore emissions.
Unilever has a pilot project working with a tea retailer, a packaging company, and several banks. The consumer goods giant is developing a system to track and reward tea suppliers for sustainable farming practices. Data about their produce, including tea quality, ecological impact, and price, is stored on the blockchain, enabling them to be rewarded by banks with lower charges.
Food safety and security is a serious concern for both consumers and retailers. Walmart, JD.com, IBM, and Tsinghua University tested a blockchain program for leafy vegetables in 2017-2019. The outcome was improved tracking of shipments from suppliers to retail outlets.
Electricity Supply, DER, and IoT
Power generation is going through its technology revolution. Previously, energy was generated centrally at large power stations, then distributed through a national grid to arrive in your home or business when needed, as electricity is difficult to store. A central control room ran everything and could bring backup power stations online if required – perhaps a flood or fire took down part of the network. It’s just the flick of a switch, and a giant power plant can “spin up.”
Nowadays, things are much more complex. Intermittent renewables make up an increasing part of the grid. Anybody can generate their own electricity: solar panels are popular, wind turbines can be erected in many locations, and EVs have the potential to be a huge battery on wheels. In Virginia, Dominion Energy is rolling out a fleet of 50 electric school buses. Twice a day, they will take schoolchildren to school and back. The rest of the time, the vehicles are intended to sit in the depot linked up to the power grid as a large battery reserve! Each bus saves 24,000 kg of CO2 over a diesel bus.
These technologies are known as “Distributed Energy Systems” or DERs. They will need complex computer and payment systems to work well. You need to track everything, ensure that incentives exist if the system needs more (or less) power, and pay fairly. Artificial Intelligence and Machine Learning are integral to this future Internet of Things (IoT). It involves a lot of bi-directional machine negotiation. One of the biggest household users of power is the washing machine. Usually, it’s a small chore to load it up and start it washing. But what if you put the dirty clothes in and let the machine decide when to run, under various parameters. It could begin at 3 am when electricity was cheap, for example. Or the smart grid might have an excess of wind power, so ask the washing machine to commence immediately so as not to waste it. Such systems will be more energy-efficient in a leaner grid but need the tracking, low transaction cost, and transparency that only the blockchain can provide.
Local energy systems have a great potential for anti-climate change innovation. EnergyWeb.org[4] estimated that there were 100 pilot projects worth over $320 million in 2018, and there will be more each year.
Automate and Incentivize Sustainable Practices
There are a lot of issues with fighting climate change globally. Particularly in the developing world, there are monitoring difficulties. Not to mention the simple fact that a massive number of people do not have bank accounts: 1.7 billion adults remain unbanked in 2021. If they are the poor of the global south, paying them to do something green or sustainable has a double benefit: diminishing their poverty as well as reducing climate change. Many have smartphones now, so conventional banks are not essential. Let’s imagine a scheme that pays subsistence farmers to plant trees on their land. Satellites monitor the planting. The farmers get paid through a smart contract in a cryptocurrency token app on their phone redeemable for organic seeds or farming equipment. This will subsidize them to move to an organic or “no-till” emissions-reduced form of agriculture, which they couldn’t do otherwise because the loss of productivity in the changeover period would result in their starvation.
More advanced blockchain-based systems will enable many types of sustainable practice, and we are at the beginning. Some systems will fail because we are at the early stages of a learning curve. Many, however, will succeed. They will set the standard for global “Best Practice” in their field, encouraging similar projects elsewhere.
Decentralized blockchain systems are the future[5] . In five or ten years, they will likely amaze us with their potential.