Finance & Investment
Blockchain and the Climate Crisis:
Beyond the Hype

Blockchain’s full potential cannot be forecast with certainty. Yet, in a messy world where various parties struggle to gain enough good faith to work together on solutions, systems that engender trust will lay the foundation for progress.

Unless you're a member of the current US administration, you likely agree that climate change is one of the most pressing threats to humanity. The transition to net zero emissions by mid-century will require collaboration on an unprecedented scale. This tremendous global challenge coincides with the emergence of blockchain technology — or, more generally, distributed ledger technology.

Blockchain has been touted by some as a panacea for the climate crisis. This is overblown. What it can do is bring transparency where it's most needed, providing a strong scaffolding for climate solutions — from where action happens to how outcomes are tracked, reported and rewarded.

Certainty of climate impact

Blockchain can play a crucial role in an ecosystem of digital technologies that includes remote sensors, internet of things, big data and artificial intelligence that can revolutionize how climate mitigation and adaptation outcomes are measured, reported and verified (MRV). Used in conjunction with rigorous standards and requirements, these technologies can provide assurance of impact in real time and at lower costs.

However, it’s critical to maintain high standards for measuring climate impact in the first place. New blockchain platforms that lean on the mystique of blockchain yet take short cuts on environmental integrity might provide an immutable record, but is the impact they’re tracking credible?

Transparent carbon accounting and trading

Registries and tracking systems are key to assessing progress toward global climate goals. The decentralized nature of the Paris Agreement — compared to the Kyoto Protocol — requires new, transparent tracking systems to handle heterogeneous approaches to accounting and reporting for carbon emissions and reductions; and to allow for trusted, networked carbon markets.

Traceable, decentralized climate finance

With the urgency and scale of the climate crisis, every dollar invested needs to be channeled as effectively as possible and reach those most affected by climate change. As data records on a blockchain are immutable, the technology can bring trust to peer-to-peer transactions, particularly in weak regulatory settings where investments were previously considered too risky. Smart contracts — applications that can automatically execute the terms specified in a contract on a blockchain — increase efficiency and reduce transaction costs.

Blockchain technology combined with new fingerprint, iris or face recognition technology can allow individuals who lack identity documents or bank accounts to access climate finance in micro credits, subsidies or other payments, for mitigation or adaptation. In the developed and developing world alike, blockchain systems can serve as the backbone of new, decentralized markets for clean energy, where individual “prosumers” are empowered to produce and store their own renewable energy and trade with their neighbors.

Despite its myriad applications, blockchain technology is not the silver bullet to put the world on track to meet a 1.5° target — a digital ledger cannot disabuse climate deniers of their positions or convince fossil fuel states to accelerate a move to renewables. We need more information from use cases on the ground and to solve challenges such as high power consumption, limited storage space and time lag, where progress is being made but not resolved.

As an emerging, disruptive technology, blockchain’s full potential cannot be forecast with certainty. Yet it's clear that, in the messy world where various parties — north and south, financiers and implementers, climate polluters and those suffering climate casualties — struggle to gain enough good faith to work together on solutions, systems that engender trust will lay the foundation for progress.

Gold Standard is a member of the Climate Ledger Initiative, working to accelerate the momentum for climate action under the Paris Agreement by systematically strengthening the intersection between the field of climate change and blockchain / distributed ledger technology.