How Blockchain Technology Can Support Clean Energy Plans

November 24, 2022

In the area of clean energy and offsetting carbon emissions, there is a general perception that blockchain technology contributes to the environmental problem, as it is known to use exorbitant amounts of energy around the world to validate transactions and run the network. But as chains spearheaded by Ethereum are starting to adopt the environment-friendly proof-of-stake model, chain emissions are cut way down, which give way to the path of using blockchain to help push forward clean energy and carbon removal initiatives.

The path to climate neutrality and achieving climate targets is surrounded by complex systems and challenges such as transparency, accountability, accessibility and traceability, data integrity and credibility, and greenwashing (making false or insincere environmental claims to uplift brand image). Blockchain can help simplify, reduce the costs and improve clean energy markets through automated and more efficient tracking and trading of carbon credits, data collection and storage, ESG (environmental, social and governance) reporting, and other efficiencies and innovations that the technology can bring.

As the cost of carbon offsetting is expected to surge tenfold by 2030 – $50 to $100 per metric ton (MT) of carbon versus current prices – businesses are becoming more motivated to lower their carbon emissions. Some have already adopted net zero carbon emission targets, while some used blockchain technology to advance their operations and contributions to world climate goals.

Here, we will talk about how blockchain can be used and integrated into the clean energy industry to bring about developments and innovations in this segment.

Creating Carbon Markets & Tokenizing Carbon Credits 

After the industrial revolution, the world has adopted a carbon market with a cap and trade system to reduce carbon emissions and stop climate change. Companies and industries are given an allotment of carbon credits that they can spend, or for those who have spare, can sell to companies to be compliant and to avoid getting penalized.

At present, there are two kinds of carbon markets: the compliance and voluntary markets. There are only a few compliance carbon markets, the largest of which are in Europe, California, Eastern United States, and the United Kingdom. Meanwhile, examples of voluntary markets are aviation, nature-based, and tech industry carbon offset markets.

First-world movers may be all-in to make a difference, but the rest of the world sees carbon regulations, targets and markets only as an afterthought. This is due to the challenge of creating infrastructure and standards that are aligned globally, while the measurement, collection and verification of carbon credits data are often done manually through convoluted systems bombarded by various middlemen.

Blockchain can untangle this messy roadblock by empowering the global energy community to create a holistic and synergized world carbon market, with a corresponding system to accurately measure, record, track and monitor, and verify carbon credit data and eventually trade them seamlessly with anyone around the world. Blockchain can provide a platform where there is transparency, accessibility for the public or market participants, as well as streamlined and efficient data storage of carbon credits, and even trading them in a consolidated global marketplace. When all mechanisms are clear and running fluidly, only then will the intended result of the carbon regulations be felt.

The Web3 technology can produce innovation for the industry. An example is the tokenization of carbon credits to have a more captured representation, and therefore understanding, of carbon credits – making it easier to trade.

Nori, an innovative carbon removal marketplace, has used Ethereum and Polygon in creating and selling NFT tokens, each one representing one MT of removed carbon dioxide in the atmosphere. The concept is that farmers are paid for adopting regenerative agricultural techniques — while other stakeholders, including consumers, can purchase tokens to reduce their carbon footprint.

Improve, Streamline and Innovate Systems of Clean Energy Markets 

The clean energy industry is currently facing a transformation as utilities, microgrids, power generators and suppliers are thinking out of the box on how to maximize their potential through blockchain.

Power utilities Acciona Energy and Iberdola in Spain integrated blockchain in their large-scale operations, enabling certification of the origin of energy sources – data which is available to consumers, encouraging them to use renewable energy. A decentralized chain can help trace their energy source, see available supply provided by which company, as well as the allocation, distribution and many others – all of which will benefit producers and consumers.

Specific to energy trading, Australia-based Power Ledger is using a permissioned blockchain network to enable peer-to-peer trading of solar energy given the rising supply generated by Australian households. Compared to sourcing from the grid, this is a win-win setup where solar power is cheaper and more accessible for consumers, and there are more chances for power-generating homes to be profitable, due to the bottom-up model.

In the same respect, blockchain helps initiatives of companies like WePower. The blockchain network provides a transparent platform for Estonia’s nationwide energy grid, making clean energy sources accessible and traceable to consumers. Consumers can monitor energy output, prices and trading, and they have the option to choose their energy supply source and buy using cryptocurrency.

Another example of chain-based innovation is the initiative of Dutch company Waste2Wear. They launched the world’s first wardrobe collection made from recycled ocean plastic fabrics, all fully traceable on the blockchain system. They get transparency and efficiency for their supply chain and chain of custody which raises trust from customers. 

Encourage Small Farms and Landowners to Participate in Clean Energy Initiatives

Not only big companies, but other entities such as small farmers, ranchers and landowners can also benefit from carbon markets. They can earn additional profits by optimizing their operations to produce, and eventually sell carbon offsets. They can get as many carbon credits as possible by maximizing their land and planting trees or regenerative crops.

The majority of the farms in America are small and it is not worth it for them to sell carbon credits, as middlemen take most of the profits made. With blockchain technology, small farmers and landowners can record their carbon credits themselves on the network, sell it directly to buyers within voluntary carbon markets, and receive the full amount from the sale.

These kinds of efforts show how impactful blockchain integration can be in the clean energy and environment sector, and how it can potentially be the next big thing for the industry to come up with new developments on the horizon.

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