On 15 June, the INATBA Climate Action and Governance Working Groups joined Climate Ledger Initiative for a roundtable discussion on their recently co-published report, “Blockchain for Climate Action and the Governance Challenge.”
This report has been dedicated to one of the report’s authors, Sven Braden, who passed away shortly after the report’s publication.
The speakers included the report’s authors: Marianna Belotti, Blockchain Engineer, Blockchain et Cryptoassets Program, Group Caisse des Dépôts, Anik Kohli, manager of CLI’s governance project, INFRAS, Jörn Erbguth, Head of Technology Insights, Geneva Macro Labs, and was moderated by Juerg Fuessler, Director of CLI. Representatives from the three use cases mentioned in the report and the report reviewers were also present for the question and answer session.
The report was based on the application of one of the world’s most promising technologies, blockchain, to solve one of the world’s most pressing challenges, climate change. The authors presented an overview of the main theme of the report: governance challenges at the national, international and blockchain levels, in addition to highlighting key takeaways for blockchain and climate action practitioners.
Governance at the national level: There are a number of legal approaches to consider when looking at blockchain. Jörn noted, “The main innovation of blockchain is not technology. Cryptography is not that new. The main innovation is the way users interact and create trust in a decentralised way… This decentralised and autonomous system is new to the legal universe, leading to legal uncertainty.” Stakeholders need to take into account numerous legal aspects for blockchain projects, including whether it can be considered as legal evidence, the application of “technology-neutral” laws that are difficult to apply on decentralized technology, new blockchain laws and opportunities like regulatory sandboxes, and the set up of an appropriate governance structure that includes risk evaluation and management.
“The main innovation of blockchain is not technology. Cryptography is not that new. The main innovation is the way users interact and create trust in a decentralised way… This decentralised and autonomous system is new to the legal universe, leading to legal uncertainty.”
Blockchain also presents challenges related to privacy regulations such as the GDPR, including particularities related to the right to be forgotten, who is considered the data controller and transfer of personal data to third countries. To avoid legal challenges, it is key that project developers thoroughly discuss these when designing and implementing their projects.
Governance at the international level: The 2015 Paris Agreement provides a set of guidelines for countries to strengthen the global response to climate change. It is important to consider how blockchain projects contribute to the Paris Agreement as well as what role projects and developers play as non-party stakeholders. The decentralised nature of the Paris Agreement aligns well with the decentralised nature of blockchain technology, offering applications like digitising and verification of data, providing next generation registries and enhancing climate finance flows.
Anik remarked, “The different flows of the Paris Agreement could benefit from the use of innovative technologies including distributed ledger technology.” DLT can help reduce the time and cost and increase transparency and efficiency of managing international data flows that are key elements of the Paris Agreement, including on finance flows, Nationally Determined Contributions (NDCs), carbon markets and more.
“DLT can help reduce the time and cost and increase transparency and efficiency of managing international data flows that are key elements of the Paris Agreement, including on finance flows, Nationally Determined Contributions (NDCs), carbon markets and more.”
Governance at the blockchain level: When considering whether to use blockchain for climate action, it is necessary to analyse whether blockchain is the most suitable technology for a project, what type of blockchain (permissionless or permissioned) should be used and how the project should be governed (on-chain vs. off-chain). This governance also includes risk management aspects.
Blockchain offers decentralisation, transparency and immutability; Marianna noted, “The Paris Agreement has multiple actors in different jurisdictions that cannot trust each other and need verifiable data. Actions on the ledger need to be transparent to the reader, meaning blockchain makes sense [for the Paris Agreement].” Developers must also decide the technical interfaces of blockchain, including the use of oracles, interoperability with other blockchains, privacy concerns and more.
“The Paris Agreement has multiple actors in different jurisdictions that cannot trust each other and need verifiable data. Actions on the ledger need to be transparent to the reader, meaning blockchain makes sense [for the Paris Agreement].”
Representatives from the use cases analysed in the report also shared their insights on governance challenges they faced while developing their respective products:
Jan Stockhausen, Chief Legal Architect, Etherisc, noted that there are still some legal uncertainties for their use case, a blockchain-based weather insurance product for farmers facing climate change consequences in Kenya. It was difficult to get support from partners until they were able to present a live use case this season. Showing the activity on the ground really helped make partners feel comfortable to participate.
Piet Kleffmann, Head of TruBudget Task Force, KfW Development Bank, shared that not all users might be ready for the new standards of governance, increased transparency and accountability that their tool offers. The TruBudget platform provides donors, fund managers and project implementers with transparent information on a project using a “logbook” approach on a permissioned blockchain. Because of these new technology standards, it is important to show the advantages of the tool to the individual users.
Susan David Carevic, IT Officer, Carbon Markets and Innovation, World Bank, remarked that they are in the prototype stage and are using this phase to help define governance for a future operational system. Some of the design decisions for the Warehouse were put in place to avoid future governance challenges, such as using public data.. The World Bank’s Climate Warehouse provides a blockchain-based, shared data layer of information supplied by participating registry operators. In their experience so far, it is clear that unfamiliarity with the technology can be a real barrier for the use and application of the tool.
Paolo Giudici, INATBA AAB Member and report reviewer explained that the biggest governance challenge in his work as a statistician and AI expert, that risk management must be considered. For example, in climate change blockchain can help to understand the achievement of ESG goals, however, there must be clear standards and thresholds to operationally assess whether the goals are reached and/or which further efforts are needed to reach them.
In closing, the contributors shared key takeaways and pieces of advice for climate action and governance practitioners. Anik shared the broad advice that legal, technical and climate change communities should be convened for project processes from the very beginning to help advise on the main governance challenges. Marianna noted the importance of not being too ambitious too fast, and thoroughly considering all decisions related to the usage of blockchain. Jörn emphasised how starting with the business or use case can be beneficial as opposed to starting with technology. Implementation of privacy and security by design through the inclusion of respective experts throughout the design and development phases can help avoid legal difficulties in later stages.
We invite anyone interested in how blockchain can be applied to solve the crucial topic of climate change to join our Climate Action Working Group here.