- WEF highlights in a white paper the potential of blockchain in managing the impact of climate change.
- The paper presents the benefits of blockchain technology for climate action.
- WEF recommends climate blockchain organizations concentrate on addressing actual problems and delivering evidence-based solutions.
Blockchain technology, if used effectively, can provide an efficient and secure way to manage the impact of climate change, according to a white paper published by the World Economic Forum (WEF). The report highlights the benefits of blockchain technology and its potential for managing and accounting for global climate action with integrity and efficiency. The value propositions of blockchain technology can be categorized into four areas, according to the paper:
- Strengthening trust and ambition in climate negotiations.
- Improving market transparency and credibility.
- Channeling more money to project developers.
- Democratizing access to climate action.
The WEF paper notes that the climate crisis has become the “tragedy of the commons,” where responsibility for managing shared resources like biodiversity and the environment is transferred to national actors. After the federal government sets climate goals, it is up to sub-national and non-state actors to implement them. However, these actors often prioritize their interests over the common good. To address this issue, the United Nations Development Programme proposes using a climate-focused digital public infrastructure that is interoperable and open-source. This infrastructure would enable transparent measurement, reporting, and verification of climate contributions. It would help overcome the challenge of inconsistent data systems and measuring methodologies that hinder setting and accurately measuring global progress toward ambitious climate goals.
The WEF paper cites a recent impact study that estimates that According to a study, implementing a digital monitoring system that can be replicated across countries, with interoperability between reporting mechanisms and climate finance platforms, could result in a reduction of carbon emissions by at least 3-4% of low and middle-income countries’ targets by 2030.
The WEF stated:
“Web3 tools like blockchains, decentralized data systems and identifiers, and verifiable credentials provide the underlying data infrastructure and interoperability standards needed to build such systems and coordinate progress against NDCs at a global scale.”
The decentralized and secure nature of blockchain-based climate accounting could unite government stakeholders by aligning their incentives and overcoming trust issues. This could solve the underlying problems of accountability and incentives commonly observed in global climate negotiations.
The paper also points out that digital technology can help corporations counter climate change more effectively. The value of carbon markets has grown tremendously from $2bn in 2021 to $50bn in 2030, but there are concerns about their transparency. To fulfill their potential, corporate buyers and the public need to have confidence in their reliability and honesty. Carbon offsets must demonstrate that they bring about genuine and long-lasting changes to greenhouse gas levels and should not be doubted for issues like double counting or leakage. The use of blockchain technology can provide a transparent and trustworthy foundation for a large and reliable voluntary carbon market. By building carbon registries on a blockchain, participants in the market can access an acceptable digital record of every credit across standards and locations, which can help facilitate global coordination of price and supply.
The WEF paper notes that digital carbon markets can reduce the need for intermediaries who advise, broker, and manually collect and process data in conventional carbon markets.
The WEF states that:
“Blockchain technology can therefore help disintermediate the carbon value chain and reduce transaction costs, ideally with more financing reaching project developers on the ground. These developers are the actual stewards of the underlying environmental assets.”
Digital markets can also improve access to financing for project developers. Project owners often use pre-purchase agreements to attract funding for their work. Still, without explicit price signaling in conventional markets, sellers can be forced to offer their credits at a steep discount. Project owners may have more negotiation leverage if smart contracts can access publicly available pricing data on public ledgers. Such price availability can also make buyers more comfortable because smart contracts can auto-execute pre-purchase agreements once credits have been developed, thereby reducing counterparty risk.
The democratization of access to climate action is made possible through tokenization, which allows individuals and smaller organizations to participate in carbon finance markets previously limited to large institutions. This is expected to inspire a new wave of climate action, particularly among younger generations.
WEF highlighted that the white paper aims to curate an evidence-based, balanced, and research-driven narrative on the relationship between blockchain and climate action, document examples and use cases of blockchain applications, and offer recommendations to deepen connection and collaboration across current and emerging climate solutions and stakeholders. It explores the critical facets of the current climate challenge and what needs to take place to meet the Paris Agreement climate targets, which blockchain technology can help the world achieve.
It also recommends the next steps towards responsible climate innovation and action for three core groups, including policy-makers and lawmakers, other climate sector stakeholders, and climate blockchain organizations.
For climate blockchain organizations, the WEF recommended:
“Climate blockchain organizations need to stay laser-focused on solving real-world problems and providing evidence-based, measurable impact to ensure industry momentum and credibility. Staying committed to scaling real, high-quality, verifiable climate action will ensure that the industry stays true to its mission – and plays a value-additive role in the fight against climate change.”
Blockchain adoption and implementation across decarbonization sectors will require thoughtful coordination, meaningful action across layers of society and industry, education, and balanced regulation.
