How Blockchain Technology is Helping the World Fight Climate Change
In 1988, in Connecticut, USA, Applied Energy Services (AES) was building a 183 MW coal-fired power plant. The 14.1 million tonnes of carbon dioxide that would be released over the power plant’s 40-year lifespan would have to be ‘offset’ by a forestry project, so AES hired the World Resources Institute to locate one. . The following year, AES and the non-profit organization CARE forged a partnership to fund an ongoing agroforestry project in Guatemala.
This is how the world’s first “carbon offset” financing mechanism was born and became part of the environmental economy. The projectaccording to CARE, was a “success” because it provided “a plethora of direct and indirect benefits for the people of western Guatemala”.
Since then the world has been striving to achieve carbon neutrality and has had many initiatives such as the Kyoto Protocol of 1995, the EU Emissions Trading System of 2005 and the Paris Agreement of 2015.
Today, environmental economics is growing exponentially. Companies spend billions to buy carbon credits.
Economics of carbon credits
One approach for a company to manage the emissions it is unable to eradicate is to purchase carbon credits. Carbon credits are documents that show the amount of greenhouse gases that have been reduced or removed from the atmosphere. Despite the fact that carbon credits have been around for a while, the voluntary market for them has grown considerably in recent years.
Demand for voluntary carbon credits may continue to grow as efforts to decarbonize the global economy intensify. According to McKinsey, the annual global demand for carbon credits could reach 1.5 to 2.0 gigatonnes of carbon dioxide (GtCO2) by 2030 and up to 7 to 13 GtCO2 by 2050, depending on the amount of negative emissions needed to reduce overall emissions online. with the 1.5 degree warming target and the reported demand for carbon credits.
According The Working Group on Scaling Voluntary Carbon Markets (TSVCM), the demand for carbon credits could be multiplied by 15 by 2030 and by 100 by 2050. In 2030, the global market for carbon credits could represent more than 50 billion dollars.
Since the world pledged to tackle climate change, new-age technology has given impetus to the whole process. The development of blockchain technology in recent years has opened a new path to climate change.
How blockchain fights climate change
Experts say smart contracts, based on blockchain technology, are transparent, fully traceable and irreversible, which can be revolutionary when it comes to solving big problems like climate change.
This has been the huge potential for smart contracts—fully traceable, transparent and irreversible, self-executing, blockchain-powered contracts—to help fight climate change.
Smart contracts allow us to create fully automated, globally accessible incentive systems that can directly reward people, businesses and governments for their commitment to sustainable initiatives such as regenerative carbon offsetting, agriculture, crop insurance, etc. These contracts are a great instrument for promoting participation in international green projects because the fight against climate change fundamentally requires a significant change in global consumption patterns.
Environmentally friendly smart contract applications can be introduced in agriculture, consumption and crop insurance.
Chainlink’s Sergey Nazarov explains the use of smart contracts in crop insurance. Crop insurance based on smart contracts can help farmers sustain themselves with appropriate compensation, even if they face two drought seasons.
Similarly, if an individual starts a reforestation project, the smart contract will pay them a symbolic carbon credit, which can be sold to companies that prove they have had an ecological impact.
DAO: a link that connects companies to the environment
Carbon credits can be issued and tracked with confidence through the Blockchain’s immutable distributed ledger that is cryptographically secure. Small and medium enterprises can easily use public blockchains, which lowers the barrier to entry for the carbon trading industry.
In addition, the data provided by the companies is open to the public and transparent. Free automated market makers (AMM) based on the blockchain have recently been developed, allowing direct trading of digital assets without intermediaries and with low algorithmic costs. They allow all stakeholders to access the infrastructure needed to build a digital ecosystem of carbon credits.
There are several climate-based Decentralized Autonomous Organizations (DAOs) that are now part of the carbon credit ecosystem. Klima, Solid World, Thallo and many other blockchain powered platforms are solving the problem of climate change with carbon credits.
Klima is one of the largest carbon credit DAOs. It removes carbon credits from the regular market, thereby increasing the price of other carbon credits still on the market.
Last year, Kilima announced that it had accumulated more than 9 million tons of carbon offsets, amounting to $100 million.
Thallo is a blockchain-based carbon credits marketplace, powered by Polygon, that allows businesses and individuals to purchase high-quality carbon offsets.
“At Polygon, we support efforts to scale impact based on the needs of the global climate crisis,” said Stefan Renton, Chief Sustainability Officer, Polygon Technology talk to Analytics India Magazine.
He added that while Polygon recognizes the importance of carbon credits and plans to purchase high-quality, high-permanence credits, they also see the potential for this technology to create underlying infrastructure that can help push the global economy from its current highly extractive model to something far more regenerative and alleviating the stress that we as a species place on the planet. Polygon plans to support these innovative efforts within its ecosystem.