Three ways blockchain could get the world to act against the climate crisis

Bernhard Reinsberg
Lecturer in International Relations
University of Glasgow—School of Social and Political Sciences

Synopsis: Climate governance is said to be in crisis. New mechanisms to get the world to act against climate change are necessary. By facilitating a novel decentralized climate organization, blockchain technology holds promise to foster global cooperation. It can do so by boosting transparency and tapping new information sources; enforcing climate commitments more effectively; and increasing climate ambition by allaying distributional problems. The breakthrough of a decentralized climate organization may be hampered though by technical challenges, power politics, and normative concerns.

Keywords: Blockchain, climate change, smart contracts, international cooperation

Climate change is one of the greatest challenges facing humanity. To stem this challenge, states have been experimenting with a range of governance mechanisms—from the UN Framework Convention for Climate Change, to the Kyoto Protocol, and the Paris Agreement, in which states committed to non-legally binding national contributions in an effort to limit global warming to at most two degrees Celsius. States have further encouraged transnational climate governance initiatives which bring together states, international organizations, civil society groups, firms, and cities.

Despite this apparent hyper-activism, the world has failed to halt global warming. Four years after the signing of the Paris Agreement, most experts predict global warming will exceed the collectively agreed thresholds, with disastrous consequences. As much as the world faces a climate crisis, it also faces a climate governance crisis:  We know what must be done to halt climate change but we do not know yet how to get there.

In a recent article, I probe the potential of blockchain technology to boost global cooperation for climate action. Blockchain essentially is a data structure that stores information as a series of cryptographically linked blocks, which are distributed simultaneously to all participants in the network. The information stored on a blockchain is tamper-resistant. This is useful for generating a single source of truth, without the need for central intermediaries. Blockchain is not only a data structure: it also facilitates so-called smart contracts—pieces of computer code that run on top of the blockchain. Smart contracts execute autonomously when pre-defined conditions are fulfilled and thereby establish a new form of governance, which may benefit climate policy. I propose a blockchain-based decentralized climate organization in which all relevant stakeholders participate and whose interactions are facilitated by smart contracts. A common token—let us call it greencoin—allows for linking the climate commitments by states with the flourishing ecosystem of transnational climate initiatives and individual climate action. This organization will help get the world together to act against climate change in three ways.

Coordinated action against climate change requires better information. One important information-related task is to ensure that different stakeholders do not claim carbon credits for the same carbon-offsetting activity. To avoid double-counting, a publicly shared digital ledger of carbon credits, as currently piloted by the Pacific Alliance nations, would offer a more cost-effective solution than a central agency settling transactions of carbon credits.

Another (more challenging) task would be to verify that carbon-offsetting activities have actually occurred. Blockchain technology, combined with information feeds such as Internet-of-Things (IoT) devices, can tap new information sources. IoT devices have become increasingly widespread. Since they feed important information into the system, they are prone to manipulation; but this challenge can be addressed by relying on the aggregate report from multiple devices, along with rewards for detecting malign reporters. Smart contracts offer an efficient way to reward information feeds for critical tasks like verifying emission reductions and adaptation measures at the local level.

Climate change is an area ripe with broken promises. Consider the decision by US president Donald Trump to withdraw from the Paris Agreement, motivated by expected job losses among US carbon-intensive industry workers. In other countries, worries have grown that the COVID-19 pandemic will thwart government efforts to honour their climate-related commitments.

Through smart contracts, blockchain technology could mitigate the risk of backsliding, provided that stakeholders underpinned their commitments with a monetary deposit. For instance, if states fail to comply with their emission reduction targets, their deposit will be taken and redistributed as greencoins to individuals that have abated carbon emissions, for example by planting trees, or other climate action.

This example shows that more effective enforcement of commitments through smart contracts is only possible where actors have staked resources upon their commitments. An added benefit of eliminating uncertainty around enforcement is to entice more ambitious climate commitments from those actors who are concerned about being cheated upon by powerful actors.

Business as usual will not be enough to confront the impending climate crisis. A decentralized climate organization would allow progressive transnational actors to “buy” pro-climate transformation in laggard countries. For example, transnational corporations including Apple, Google and Walmart, ExxonMobil, BP, Shell, and other firms outside the US criticized the US decision to withdraw from the Paris Agreement. Under a decentralized climate organization, they could have devised smart contracts offering compensation to affected workers in exchange for more robust commitment by the US government to decarbonize the economy.

A related benefit of this approach would be to make their demands transparent, which would help less powerful actors to hold corporations to account on their climate-related pledges. For example, Microsoft announced it would invest $1 billion to become a carbon-negative enterprise. This pledge does not need to remain mere rhetoric: If Microsoft underpinned its pledge by a smart contract with an appropriate stake, it would become inevitable, with huge benefits for everyone whose fortunes depend on powerful players like Microsoft to follow through on their promises.

A decentralized climate organization would combine the resources of billions and unite their efforts in combating climate change. Imagine that anyone in a blockchain network connected to the system can earn greencoins by planting trees (like ‘mining’ in the Bitcoin system). This would be profitable because greencoins have real value—they are linked to the international commitments by states that have staked monetary resources on them. Individuals could also purchase greencoins to support climate action. By increasing the exchange value of greencoins, these individuals would provide incentives for more rapid tree-planting. Blockchain technology is ideally suited to settle these transactions automatically, provided appropriate systems for verification and the incentive system underlying effective decentralized verification are in place.

Blockchain-based climate governance has undeniable theoretical benefits, but there would be significant obstacles to its realization.

First, while the blockchain ensures that once-recorded data is tamper-resistant, it can do little to ensure that the data that is brought onto the blockchain can be trusted. Start-ups like Chainlink have proposed decentralized oracle networks as a promising solution to this problem, but for some applications, suitable oracles are hard to find.

Second, a blockchain-based climate organization may not come to fruition because key players decide to stay outside. Powerful actors may be especially unwilling to participate in a system that makes broken promises immediately transparent and that automates the punishment process.

Third, a virtual entity for climate governance would require individuals to accept to be governed by algorithms. At the moment, this might be the hardest challenge of all, but it might be one that must be overcome if the world is to take effective action against climate change.