Introduction to Carbon Transactions with Blockchain Technology

Carbon Offsetting Hurdles

Carbon offsetting is used by organisation to balance their own emissions, and investing in clean renewable energies or by purchasing credits from primary producers, but they need to be tracked independently and accurately. There is also a significant lack of transparency in some areas of unregulated carbon offset markets and an absence of auditable proof that offsets are real. The applications of blockchain can provide immutable accuracy to offsetting practices.

What Is a Blockchain Technology?

A blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format, in a secure and decentralized record of transactions. The main innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party. Blockchains technology are best known for their crucial role in cryptocurrency systems.

What are the advantages of Blockchain Technology?

• Blockchains store data in blocks that are then linked together via cryptography.
• As new data is added , it is entered into a fresh block. When the block is filled with data, it is chained onto the previous block, which makes the data chained together in chronological order.
• Different types of information can be stored on a blockchain, the most common use is a ledger for transactions. 
• blockchain is designed in a decentralized format so that no single group has control, and all users retain control collectively.
• In decentralized blockchains the data entered is irreversible, where transactions are permanently recorded and viewable to anyone.
• Improved accuracy with minimal human involvement in verification
• Provides a banking alternative and a way to secure information for organisations from countries with unstable or underdeveloped governments

 Technology Supporting Offsets Process

For organisations to know how to offset, management must be able to access their accurate emissions captured by IIoT (industrial Internet of Things) devices from across their supply chain, production and delivery processes. Understanding this real-time sustainability impact will provide the carbon emissions. 

Blockchain’s auditable system of record then provides smart contracts secured by a distributed ledger, with the ability to verify environmental performance and provides a defensible claim to drive carbon offsetting programs. Blockchain technology can also boost and strengthen an organisations commitment to:

• Transparency: Every emission offset transaction is visible
• Cost reduction: Intermediaries are avoided.
• Improved trading of carbon emissions: It facilitates the control and compliance with carbon quotas.
• Speed: Steps are reduced in the execution of transactions.
• Improved climate finance flows: It facilitates the development of platforms for renewable energy exchanges.
• Improved tracking of reports: Help in managing the audit trail of policy development and measurements on gas emission

 Blockchain Carbon Credit Exchange

Historically, carbon trading schemes have been criticized because of their volatility. Technology companies are already investigating the blockchain-based platform for carbon credits trading, where organisations have a limit to the emissions they can produce. If a they need to exceed its limit, they just purchase a carbon credit, where these carbon credits serves as a permit to exceed their emissions. This concept already exists where organisations can trade on markets such as the European Union’s Emissions Trading System (ETS).

Some steps the European Union is taking to harness blockchain for climate action include:

• promoting the development and adoption of blockchain technologies best suited to incentivise organisations to reduce their carbon footprint
• developing technical assistance and investment programs that support blockchain-based digital innovations
• accelerating blockchain-based solutions that establish a network between suppliers and consumers,
• supporting sustainable finance initiatives and promoting the use of blockchain-enabled technologies for financing climate actions through green bonds, fintech solutions and alternative finance mechanisms;
• supporting EU countries and national government agencies to collaborate in the development and adaptation of blockchain-based solutions
• developing partnerships with strategic partners, including UN agencies and international financial institutions, such as the World Bank, the European Investment Bank, and the European Bank for Reconstruction and Development;