Blockchain Tech Is Key to Combating Climate Change, Report Says

key takeaways

By storing carbon credits as digital tokens, they can be more easily tracked and traded
Companies using blockchains and smart contracts to advance climate change initiatives to become “industry norm,” according to Chainlink Labs

Blockchain technology will play a key role in combating climate change by managing clean energy solutions and enabling enhanced automation, a report by Chainlink Labs and Tecnalia says.

Chainlink Labs, which offers open-source blockchain interoperability solutions, and European research institute Tecnalia posited in a report Tuesday that the energy industry can make clean energy investments more efficient by leveraging blockchain technologies.

By tapping blockchains, the power business can better digitize and value clean energy investments, according to the report. That would likely lead to additional capital deployed to green investment opportunities, more transparency and stronger accountability when it comes to meeting climate-friendly commitments, the two companies found.

The report labels “hybrid smart contracts” as the new backend framework necessary for building clean energy solutions. The framework uses blockchains to track and settle multi-party processes and smart contracts to define the rules for involved parties.

It also uses oracles — or interoperability solutions for blockchains built on smart contracts — to integrate data and non-blockchain infrastructure into the contracts.

More than 140 research projects and startups had begun studying, testing and deploying blockchain-based solutions as of 2019 to improve energy industry processes, the report says.

“As more and more companies recognize how blockchains, smart contracts and oracles can advance climate change initiatives, we’ll begin to see a trend that will only grow with time until it becomes an industry norm,” a Chainlink Labs spokesperson told Blockworks.

Among the use cases outlined in the report are tokenized carbon credits, which companies buy to offset emissions. By storing carbon credits as digital tokens, the thinking goes, the tokens can be more easily tracked and traded, and oracles can then issue and audit them.

Oracles can use satellite and remote sensing data to measure the carbon sequestration in a certain region to verify a project’s stated carbon offset before issuing a credit.

Hybrid smart contract system Hyphen, for example, uses Chainlink oracles to bring verified greenhouse gas data on-chain and prove stated corporate climate commitments.

“We can now supply validated real-world measurements to dynamic carbon assets,” Hyphen CEO Miles Austin said in a statement. “This gives confidence to investors, capital markets, banks [and] regulators.”

Like the tokenization of carbon credits, climate bonds and green bonds — fixed income instruments that raise money for environmental projects — can also be tokenized on blockchains.

Ethereum-based climate risk solutions platform Arbol uses smart contracts to help energy businesses hedge power demand and revenue fluctuations around changing temperatures.

Individuals could also be incentivized to reduce emissions through rewards programs, according to the report. Consumers could be compensated with crypto or NFTs in exchange for meeting the requirements of a smart contract designed to minimize their carbon footprint.

Going forward, clean energy industry leaders must assign researchers to focus on the benefits of blockchain technology and how they can leverage smart contract and oracle technologies before competitors, the Chainlink Labs representative said.

“What they discover will motivate them to act,” the spokesperson added. “And that momentum on an industry-wide level will help facilitate the inflection point we need to realize a more sustainable future.”

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