Carbon Incentives: Using Blockchain to Verify Energy Use

Using the words “blockchain” and “energy” in the same sentence has been known to cause quite a stir. Some environmental organizations point to blockchain’s presumed high energy consumption as part of the problem. While there is a known history of high energy consumption for some transactions, it’s worth noting that blockchain has undergone a significant and more energy-friendly shift as many networks have transitioned from “proof-of-work” to “proof-of-stake” models. For example, Ethereum decreased their carbon footprint by a whopping 99.988% after changing their transaction model.

As governing bodies strive to reach their net zero goals, more requirements are being put in place that demands transparency from businesses. For example, the Integrity Council for the Voluntary Carbon Market has created standards aimed at increasing transparency within the system. Blockchain can ensure companies are being honest in their carbon reporting because the technology itself is inherently transparent because its decentralized and immutable ledger prevents tampering and false data. This means organizations — or nations — can share the relevant data with all required parties for verification and certification.

Using blockchain’s immutable ledger prevents organizations from falsifying their carbon output.

The use of blockchain technology for carbon tracking can be seen in SIMBA’s work with the U.S Department of Energy (DOE). With the help of SIMBA, the DOE was able to utilize a blockchain system that lets users keep a cloud-based distributed ledger that’s both anonymous and precise.

One way governments are incentivizing better energy practices is through carbon credits. Carbon credits—sometimes called carbon offsets—are projects that reduce or remove carbon dioxide emissions, such as preserving forests or building wind and solar farms. But while corporate entities are taking steps in the right direction to decrease their carbon footprint, some climate experts believe blockchain will encourage organizations to offset their emissions beyond current requirements. Alexandre Gellert Paris, Associate Program Officer at the United Nations Framework Convention on Climate Change, said “Blockchain could contribute to greater stakeholder involvement, transparency, and engagement and help bring trust and further innovative solutions in the fight against climate change, leading to enhanced climate actions.”

Tokenizing carbon credits and trading them on a blockchain-backed platforms is attracting more investors to participate in climate preservation and restoration projects. One such example comes from Luis Felipe Adaime, founder of the ReFi company Moss. After buying carbon credits from forest preservation projects, Moss incorporates them into the token MCO2, which is listed on major cryptocurrency exchanges like Coinbase In an interview with CoinDesk, Adaime advocated the positive impact of this process:

“Carbon credits have become a way to make forested land expensive. People who were considering, you know, burning the [forest] down to plant soy start thinking ‘Oh, wow, I can actually make more money protecting the forest than by burning it down to raise cattle.’”