We often hear about applications of technology bound to alter the status quo. Blockchain, notably, has had its fair share in the limelight with much focus on cryptocurrency, tokens and mining. But this is misplaced idolatry, and while several crypto-enthusiasts have made bank (pun intended) on decentralized electronic currencies, the real near-term value of blockchain is in tethering the technology to the mitigation of climate change.
How does one get from the current hopped-up non-fungible token craze to a net-zero world in less than 30 years or less? It may start with the Biden Administration. With steep targets to slash greenhouse gas (GHG) to reach net-zero emissions economywide by no later than 2050, global businesses and industrial companies are deeply amid a flurry of churning nerves and strategies aimed at tackling the crisis at hand. Megacompanies — including prominent tech companies — are hot-to-trot to tout progress with emission reduction programs, but there are numerous obstacles. One of the largest issues is that of unreliable or inaccurate data. Another significant obstacle: environmental, social and governance (ESG) disclosure requirements from the Securities and Exchange Commission (SEC), which is expected this fall and is already making ripples.
The precipitous rise of ESG has reinvigorated participation in carbon offsetting programs as a steppingstone to make headway on sustainability targets. With this renewal, near-term applications of blockchain can provide immutable veracity (a much-needed and previously missing component) to offsetting practices — and in doing so, can aid in achieving progress on the path to net-zero.
Issues With Offsetting
Carbon offsetting is employed by many companies to balance emissions, including GHG, by investing in clean renewable energies like wind, solar or hydroelectric or by purchasing credits to compensate and counter equivalent emissions. Offsets are bucketed into two categories: voluntary or compliance, with the global carbon offset market on track to be worth somewhere between $40 billion and $120 billion, spurred much by carbon-neutral demands.
A relatively controversial practice, issues with offsetting exist due to the indirect nature of offsets and in difficulties surrounding measurement and verification. Just take the “Wild West” of carbon offsetting in tree planting, pursued by many hard-to-abate sectors, where satellite and drone images are being deployed to “prove” offsetting claim validity.
There’s an overarching lack of transparency in unregulated carbon offset marketplaces that’s further exacerbated by problems that include an absence of auditable proof that offsets are, in fact, real and aren’t sold in a duplicate fashion. This is where blockchain can come in.
First Emissions Knowledge, Then Offsets
To know how to offset, a company must first be able to capture its concrete and accurate emissions calculated from actual measurements, not estimates, across its supply chain, manufacturing and delivery processes. Obtaining an understanding of real-time sustainability impact to automatically calculate total emissions as well as carbon intensity of particular operations emissions on a daily basis is possible — and within reach with technology.
The approach is similar to moving invoicing from estimates and accruals to automated payments. When data is captured by industrial internet of things (IIoT) connected devices, real-time measurements and other information sources can be used to confirm pre-agreed contractual terms have been satisfied and thus trigger humanless transactions based on actual numbers and not guesswork.
The same technology used to do this — smart contracts secured by a distributed ledger — can be configured to access and aggregate operational field data throughout a supply chain to either directly measure or calculate emissions. This type of monitoring results in the ability to verify environmental performance in real time and provides a defensible claim to drive carbon offsetting programs. Smart contracts can also establish high-quality carbon offsets through distinguishing two key factors: provenance and uniqueness.
For companies looking to improve carbon offsetting efforts en route to net-zero, they must first be able to ascertain an accurate baseline of total emissions. It is key to access supply chain data to digest carbon intensity as a predicate to implementing change.
Short-Term Play, Long-Tail Game
Blockchain as an auditable system of record can create standardization and accountability in yielding a cost-effective and sustainable method to streamline operations and track, measure and manage environmental impact data across the Scope 1, 2 and 3 categories — critical for companies to manage their value chain accordingly.
While companies strive to create comprehensive change to reduce emissions, a plausible short-term play is to uplevel carbon offsetting practices by supplying transparency, integrity and real-time understanding to the equation.
This article, authored by Andrew Bruce, originally appeared at Forbes Technology Council.