Blockchain and Digital Commodities to Help Battle the Climate Crisis

There’s nothing new about our home planet getting heated up and causing massive disruptions in nature, as well as our own lives. Just a small reminder that in the middle of March, one can unexpectedly wake up to see the streets and buildings covered in snow is a proof enough that something is changing, and it’s changing radically.

Yet while global warming is doing its own thing, it seems we haven’t really come up with a solution that can effectively face this challenge. Sure, some governments have environmental regulations on CO2 emissions and some companies turn to more eco-friendly solutions, however, in a global scale, these steps aren’t enough to make significant progress.

In search for a solution, I think technology should be our main bet. To bring but one more example, Robert Downey Jr, a famous actor and our beloved Iron Man, has recently announced that he’s going to use robots and nano-technology to clean up oceans. That’s what we should be focusing on. And that’s where blockchain can also prove beneficial.

One such initiative that involves the blockchain technology is carbon markets. Within carbon markets, there are these digital tokens called carbon credits. One carbon credit represents a cubic meter of Carbon Dioxide. According to estimates, carbon markets gear up at around $100 billion every single year.

Carbon credits and their surrogate carbon markets are an innovative way of reducing carbon emissions in the atmosphere. Both governments and corporations - both big and small - find this solution a lot more effective to battle the climate change. But how exactly do carbon credits/markets work?

In economics, there’s this very simple, while also very intrinsic, idea that people react to the signals and incentives coming from the market. For example: when the supply of a product/service increases, the price on it falls because people have the ability to compare different prices and choose the most efficient one.

In terms of climate change, the effectiveness of such signals also cannot be overestimated. Companies, as well as governments, all over the world put a certain price tag on a cubic meter of emitted CO2, which then directly puts this issue under the influence of market forces.

Now, on the one hand, market forces can be thought as contributors to the increased carbon emissions and deteriorated climate crisis. That’s because companies often neglect their negative influence on the environment and maximize their production potential, further increasing the carbon footprint. 

On the other hand, however, if such CO2 emissions were to be turned into economic signals, the situation could improve drastically. Here’s how: imagine you’re the owner of a company that produces a certain amount of carbon dioxide. According to the Paris Agreement created in 2015, you have to lower that amount to a certain level.

Trading digital carbon commodities

Now, without carbon markets and their digital commodities - carbon credits - you would have to straight-up reduce the emission, otherwise you would get fined from the government. However, the same Paris Agreement agreed on a very specific cornerstone: participants would be able to operate in the carbon markets and act according to its rules.

And rules aren’t too complicated. Basically, participants have two options: they can either reduce carbon emissions and receive carbon credits (that can be sold) or buy those credits from someone else, who has already reduced their emissions, and maintain their current (or a bit lower) CO2 levels. It’s basically trading with the carbon emission license.

Blockchain as a guarantor of this system

In all this, blockchain works the crucial part. You see, current digital platforms are malleable to manipulations and alterations. If the above-mentioned system were to use that system, there would be no guarantee that the countries and/or companies have actually reduced the emissions; they could easily enter anything in the system and trick other participants.

That is not possible in the blockchain. The structure of this digital ledger makes sure that whatever enters the system cannot be amended unless the whole system, that is, all participants, agree to it. Here’s the short technical description of how this works: when an information is inscribed in a block, some pieces of it are interwoven with adjacent blocks, making some sort of root system that is difficult to modify. Therefore, the information is much more secure on the blockchain than in any other ledger.

Not only that, blockchain also offers transparency that is far higher than anywhere else. This way, the whole system will have a clear idea as to which member does what with their carbon credits. Therefore, it’s no wonder that the participants of the Paris Agreement are heavily discussing the prospects of adopting blockchain in carbon markets.

And to be fair, digital carbon commodities created within the blockchain have already become quite popular i some places. In Europe, for example, the price on carbon credits has increased by 400% in the last two years, now being sold at about $26. And as economists suggest, the price can increase to climb as high as $100 per credit.

So, this goes to show that modern technologies are, and should be, in the forefront of our fight against climate change. From RDJ’s individual ocean clean-up initiative to the collective carbon markets, the possibilities are virtually endless!