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The Next Economy
Blockchain Will Make Carbon Visible for Everybody

To understand, and report on, an organization’s carbon footprint is a complex undertaking — to say the least.

To understand, and report on, an organization’s carbon footprint is a complex undertaking — to say the least.

First, you must determine what drives your carbon footprint. For most multi-site organizations, these influences are vast, including both direct impacts from company-owned facilities and indirect impacts from suppliers and distributors. Then you must run a scenario analysis to model and account for potential environmental changes, such as increasing water scarcity, and identify opportunities for resource reductions. If these tasks weren’t difficult enough, every business should also prepare for the costs of carbon, including how carbon taxes could disrupt existing business strategies.

According to the World Bank, there are 40 countries and more than 20 cities, states and provinces that have either established or will soon implement a carbon pricing system, which includes cap-and-trade or a carbon tax. Further, nearly 13 percent of annual global greenhouse gas (GHG) emissions are now covered by carbon-pricing initiatives.

While carbon reporting remains a significant hurdle for organizations on the path to achieving the Sustainable Development Goals, one nascent technology offers a solution to this challenge. Blockchain — a communal record of information maintained by a computer network — cuts out the middleman, such as a company monitoring all transactions, to ultimately provide more efficiency, transparency and control.

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As an opportunity to amplify transparency and dramatically change the way we view and install trust in companies, blockchain is rooted in validation, not just claims. The technology presents a significant shift in accountability for businesses, particularly for carbon reporting across the value chain from suppliers to consumers. Many companies traditionally self-report on sustainability claims, but blockchain reverses this process by enabling the participation of all stakeholders in a more sustainable economy.

Businesses should anticipate blockchain to transform carbon reporting in three important ways:

1. Tracking carbon emissions

Blockchain presents a compelling solution for better data control across organizations and their suppliers. Until 2011, companies prioritized measuring emissions solely from their own operations and consumption. These reports, however, only tell part of the story regarding an organization's carbon footprint. Beyond the corporate office, organizations have goods and services that continue to leave a carbon imprint and eventually require disposal. The emissions beyond company walls — known as scope 3 sources — actually make up the majority of total corporate emissions.

The Scope 3 Standard published in 2011 provide an international protocol for carbon reporting on these value chain emissions. And while these standards reflect an important step forward for increased accountability and accuracy, they still present challenges for companies attempting to assess their entire value chain emissions impact and identify where to focus reduction activities.

Blockchain helps organizations track the massive data inputs that inform the carbon emissions analysis and benchmarks. From warehouse inventory activity to the delivery of payment from customers, blockchain has an unbreakable chain of command that leaves no data point behind.

Starbucks, for example, uses blockchain to keep track of coffee beans in Costa Rica, Colombia and Rwanda. The traceability technology is designed to help connect coffee drinkers directly to the farmers and to impact farmers directly within their supply chain. Unilever, Nestle, Tyson and Dole also use blockchain for similar purposes. Earlier this year, mining giant BHP Billiton announced it will use blockchain to track and record data throughout the mining process with its vendors.

Blockchain not only drives process improvements and efficiency, it also enables organizations to have more effective and transparent lines of communication with third-party sources impacting corporate emissions.

2. Creating supply chain traceability and value chain visibility

What if carbon emissions and credits were transparently measured, tracked and traded across the whole value chain? Blockchain has the power to do just that.

One of the most promising blockchain applications is its ability to maintain renewable energy certificates (RECs). These RECs can provide standard details about each megawatt-hour (MWh) of renewable energy generation, including how, where and when power is generated, and from whom the MWh originated. The “green attributes” for each MWh can be transferred, bought, sold or retired.

Born from a collaboration between utility-scale system builders, large energy customers, the energy finance and trading community, Swytch is a blockchain platform that seeks to verify and reward the production of sustainable and renewable energy through the issuance of a Swytch token. GTM Research expects RECs trading will be one of the first use cases of revenue streams by providing an auditable system that eliminates double counting.

Blockchain offers an opportunity to record and monetize carbon reporting. For example, IBM and Energy Blockchain Lab are collaborating to develop a blockchain platform for trading carbon assets in China. Blockchain not only enhances carbon reporting by standardizing and recording all relevant emissions data, it also ensures all value-based transactions are valid and settled automatically.

3. Engaging consumers (finally!)

As consumers, our daily choices have direct implications on carbon emissions, but there are limited ways for us to know the carbon footprint of our purchases. The demand for this increased visibility is rising, and as a result, organizations are beginning to try and fill this gap. Nearly three-quarters (72 percent) of people between the ages of 15 and 20 are willing to pay extra for environmentally and socially responsible products and services.

Ant Financial provides an app for consumers that provides carbon footprint tracking to support sustainable development. A report by the Green Digital Finance Alliance found almost half of Ant Financial Services Group’s 450 million users joined the novel app in just nine months.

By promoting an open, decentralized carbon reporting infrastructure built around blockchain technology, we can connect with consumers directly and drive real value in the energy sector. Blockchain will enable a near real-time and immutable version of truth for transaction records and will issue in a new era of green finance. It’s crucial for executives to not only closely examine the external disruption blockchain will set in motion, but also prepare for and embrace the impact it can make in driving sustainability and reducing GHG emissions.