On 3 November, INATBA hosted a roundtable discussion on Blockchain for Climate Action and the Governance Challenge.
Several members of INATBA’s Climate Action Working Group have been working closely with the Climate Ledger Initiative (CLI) that is managed by INFRAS and is a member of the Climate Chain Coalition to gain insights into governance challenges in blockchain applications for climate action. This topic was chosen based on the observation of use cases in developed and developing countries that deal with similar governance questions. The cases could profit from a knowledge piece and best practice solutions for various governance issues that emerge on the level of (i) the technical blockchain system, (ii) national and sectoral legislation and (iii) international cooperation under the Paris Agreement.
The panel was moderated by Jürg Füssler, member of the Programme Management Group of the CLI, and managing partner and member of the Board of Directors at the research and consultancy group INFRAS.
Anik Kohli, Senior Project Manager at the research and consultancy group INFRAS and manager of the governance project of the CLI, presented governance challenges on the international level with a focus on the Paris Agreement and possible related blockchain applications. She pointed out that blockchain has the potential to accelerate climate action in the context of market mechanisms under the Paris Agreement by supporting next-generation registries and tracking systems, noting, “The rules set by the UNFCCC and by the Paris Agreement could be integrated into the blockchain in order to ensure that over the years they are consistently applied.” Moreover, she stated that “The decentralised nature of the Paris Agreement and its governance structure requires new approaches to registries and tracking systems to handle heterogeneous information and data for accounting and reporting.”
Marianna Belotti, Blockchain Engineer at Group Caisse des Dépôts and Co-Chair of the Governance Working Group at INATBA, presented the governance challenges related to consensus mechanisms and technical interoperability: “We tend to think that blockchain is not climate action compliant because it is perceived as a technology that uses a lot of energy.” She explained, “We see that the blockchain user is asked to participate more and more in the validation, in the monitoring of certain transactions or in both.” At the same time, we see more efficient technical solutions: “On the on-chain governance, we see a sort of evolution toward consensus algorithms that consume less energy.” With regard to off-chain governance, she continued by noting “We are using layer 2 protocols, protocols that allow us to process more and more transactions that also have a lower energy consumption than the original blockchain implementations such as Bitcoin.”
Jörn Erbguth, Head of Technology Insights at Geneva Macro Labs and Lecturer at the University of St. Gallen, University of Lucerne and Geneva School of Diplomacy, gave an overview of legal aspects related to verification and transparency of transactions as well as privacy and data protection.
There is a need to “ensure that double counting of carbon units can be excluded.” Double counting includes double issuance (two units are created for a single reduction), double selling (a unit is sold twice), double claiming (the same emission reduction is accounted toward two different countries’ NDC, Nationally Determined Contribution). He continued, “Blockchain can provide a solution to interlinked registries and help avoid double selling and double claiming. Additionally, blockchain could also reduce double issuance of carbon units by an increase of transparency. Privacy-enhancing technology can be used to fine-tune transparency with privacy requirements.”
The roundtable discussion confirmed the importance of being aware of governance challenges on different levels when using blockchain for climate action. There is no “one size fits all” solution to the various governance challenges mentioned and the potential options often include trade-offs that need to be considered when implementing a project.
A Q&A session followed the speakers’ presentations. The main questions attendees asked include:
“Is there actual mistrust between actors and a lack of a potential central entity that requires DLT under the Paris Agreement?” and “What problem would blockchain solve for trading under Article 6 that cannot already be done with the technical tools currently available?”
The Climate Action Working Group Group is currently working on drafting a knowledge piece on governance issues for blockchain projects with climate relevance. The paper should be finalised and published by the end of Q1 2021. The authors mainly address practitioners from both the climate policy and blockchain ecosystems.
The knowledge piece aims to provide an overview of the most relevant governance challenges by developing the discussion over three main chapters: (i) the Paris Agreement and possible blockchain applications, (ii) governance challenges on the blockchain level, and (iii) governance challenges on the national and regulatory level. The paper will also present use cases and how they address different governance questions.