Looking ahead to the COP26 summit due to be held in Glasgow at the end of October 2021, the issue of how to forge a clear path to meeting ambitious net zero targets is top of the agenda. A key issue for energy transition is how can consumers and businesses consume less and recycle more to reduce the impact of climate change.
The road ahead to decarbonisation:
It is not, of course, possible to reduce/re-use everything: we still need energy to power our homes and businesses, to keep us warm or cool, to grow and produce food and to transport us around. So, how can (and should) blockchain and other distributed ledger technologies (DLT) facilitate energy transition in order to achieve net zero?
Transition to clean/green fuels:
The soaring cost of fossil fuels over the past six months and the resulting supply issues (especially in the UK) have demonstrated the advantages of an increased reliance on alternative energy sources and the need for adequate clean energy reserves. From wind, solar, energy storage and hydroelectric power to green hydrogen, these low/zero carbon options are going to play the key role in the road to decarbonisation. One of the main challenges with offering customers green or clean energies is how to prove that the energy supplied is 100% from renewable sources. (i.e., how to differentiate these electrons on the grid from those produced by non-renewable sources). DLT could, in theory, allow users to track and verify the transportation of ‘cleaner’ energy from project site to final delivery, through the creation of a digital asset that replicates and tracks the physical resource as it progresses along the supply chain, thus ensuring complete traceability and transparency in the quality and regulatory compliance of the physical resource it represents. In particular, this issue is highly relevant for the corporate renewable energy Power Purchase Agreements (PPAs) as these agreements typically require certification that the energy supplied is from fully renewable energy sources.
Reducing carbon emissions of traditional energy production methods: When net zero is mentioned, most will think purely of renewable/clean fuels. However, there are obvious drawbacks with too rapid a shift to new clean / green energies. The infrastructure and networks are not yet in place to supply the current demand – construction of this new infrastructure will require large-scale investment and manufacturing (which, if not managed correctly, could cause heavy greenhouse gas emissions). Aside from the ongoing economic issues in the wake of the COVID-19 pandemic, private investment in new technologies will require raising funds that may not provide short
(or even medium) term returns for new investors, and boards will have to convince existing investors of the merit of the long-term strategy (and the prospect of receiving lower returns in the meantime) coupled with the ultimate ESG benefits. However, the processes are already in place for the extraction, refining, and supply of traditional fossil fuels. It may require less capital expenditure upfront and be more efficient from an economic and environmental perspective (at least for the transition period) to find ways of decarbonising these processes in order to reduce the amount of resulting greenhouse gases that are released into the atmosphere. Examples include:
• Carbon capture, utilisation and storage (CCUS) – CCUS will be vital to achieving net zero, as it can be retrofitted to reduce emissions from existing infrastructure and can remove carbon directly from the atmosphere for emissions that cannot be avoided or reduced directly. However, currently the options for re-purposing the recovered CO2 are fairly limited, but developments are currently underway to utilise DLT to enhance CCUS projects by efficiently and reliably tracking the CO2 capture, distribution and its re-use, thus proffering valuable visual insight into the entire carbon supply chain, with the goal of making CO2 a viable option for industrial input.
• On-site conversion of ‘wasted’ energy into power – certain production methods produce excess natural gas (that cannot economically be sold or repurposed and would otherwise have been wasted) and the problem remains how to deal with this surplus energy rather than emitting it into the atmosphere. Several environmentally unfriendly options involve flaring (i.e. the prolonged burning) or venting (i.e. the direct release into the earth’s atmosphere) of the gases (including methane, which has a far greater warming power than CO2). Cryptocurrency miners who have received much negative press on the amount of energy their operations consume (although this is being mitigated by (i) embracing an alternative protocol to the proof of work (PoW) concept for conducting the mining, such as proof of stake (PoS) or proof of authority (PoAu), or (ii) shifting to the use of renewable energies to power the mining operations), have created on-site mining centres in some countries (with others currently applying for regulatory approval to proceed) to utilise the ‘wasted’ gases into useful power to run their business.
Generally speaking, the processes required for the manufacturing of new equipment and components are heavy emitters of CO2, and these emissions must be balanced against the emissions produced by cleaning up the existing processes and infrastructure already in place. There are, however, methods for achieving carbon neutrality (as discussed above) which can provide assurance that materials used are ethically-sourced, sustainably produced and the DLT system can assist in verifying these processes and providing such assurance.
CARBON CREDITS AND OFFSETTING
It is a clear climate priority to facilitate an immediate reduction in the current level of carbon emissions. Complementing this goal is the use of carbon credits. In order to accurately and effectively offset carbon, the data input is critical: understanding in real time the carbon intensity of operations will ultimately provide an accurate baseline of total emissions. Carbon credits will only be environmentally effective if the amount of carbon
they purport to offset is genuinely offset (and not double-counted or double-sold), which is where DLT comes in. The transparency and trust delivered by the decentralised ledger makes it the benchmark technology to introduce traceability across the length of the supply chain. Other innovations in this area include businesses offering consumers the opportunity to purchase carbon offset tokens (the genuine offset having been verified by an independent carbon offset agency) that can be used, stored, or gifted to others.
PEER-TO-PEER (P2P) ENERGY TRADING
Once the processes for generating and delivering our power needs have been refined to a carbon-neutral (or thereabouts) standard, DLT could also allow the creation of micro-grids (there are many successful pilot projects currently in operation e.g. blockchain-enabled projects between neighbours with solar panels) whereby consumers can P2P trade surplus energy requirements rather than selling power back to the grid (i.e., smart contracts could automatically sell at pre-agreed triggers). By removing the intermediary, this process is quick, energy efficient and ultimately saves money for the end consumer.
Beyond the energy production process itself, companies will be coming under increasing scrutiny by regulators to disclose their ESG credentials: from ensuring fair working conditions and remuneration of workers across the lifecycle of production (from source to supply to delivery) to maintaining environmental protections and controls across operations (including clean-up). If a business needs to adhere to a particular set of ESG standards or requirements – e.g. a required set of data to be input into the network, such as the emissions associated with a specific source controlled or owned by a company, or the ethical sourcing of a material in the production of a battery for an electric vehicle – DLT could be used to securely (by cryptography) pass the verified (by the decentralised network) data along the supply chain with the end user/reporting standards agency, or relevant regulator, having a specific key to access it.
As work evolves on the creation of global regulations that could standardise the measure, calculation and disclosure of ESG risk and impact, the power of DLT and its benefits to this area of ever-growing importance should be harnessed to complement this process. DLT’s
tamper-proof method of storing and transferring data across the decentralised network in a way no other digital technology can, and the inherent principle of trust (evolved from a situation where a large community comprised of multiple stakeholders with different, and sometimes conflicting, needs can reach consensus on a transaction across the blockchain network) means that transactions are verified, secure and can be relied upon to boost sustainability credentials and assist with disclosure requirements.
If we are going to achieve net zero in this half of the century, it will require unprecedented global cooperation by governments, businesses and consumers alike. Embracing DLT is a positive next step on our journey to carbon neutrality. DLT’s immutability can create standardisation and accountability in coordinating an efficient network to streamline operations and track, manage and mitigate climate impact. Blockchain and associated technologies should be seen as complementary in order to accelerate the coordinated effort of reducing greenhouse gas emissions.
Net zero is an ambitious target, so we will need to embrace and utilise all of the technological advancements in our arsenal. Ultimately, it will be a team (aka the whole world) effort, and what could be better to unite the countries of the world in this shared goal than a decentralised system? 2050 is achievable with the right parameters, regulatory oversight and technological advancements. And we can do this together: one block[chain] at a time.