How Blockchain Technology Helps the World Fight Climate Change

In 1988, in Connecticut, USA, Applied Energy Services (AES) was building a 183 MW coal-fired power plant. The 14.1 million tons of carbon dioxide that would be released over the power plant’s 40-year lifespan would have to be “offset” by a forestry project, so AES contracted with the World Resources Institute to locate one. The following year, AES and the non-profit organization CARE partnered to finance an ongoing agroforestry project in Guatemala.

This is how the world’s first financial ‘carbon offset’ mechanism emerged and became part of environmental economics. The projectaccording to CARE, it was a “success” as it provided “a plethora of direct and indirect benefits for the people of western Guatemala”.

Since then, the world is racing to achieve carbon neutrality and has had many initiatives such as the 1995 Kyoto Protocol, the 2005 EU Emissions Trading Scheme, and the 2015 Paris Agreement.

Today, environmental economics has been growing exponentially. Companies are spending billions to buy carbon credits.

Carbon credit economy

One approach for a company to deal with emissions it cannot eradicate is to purchase carbon credits. Carbon credits are documents that show the amount of greenhouse gases that have been reduced or removed from the atmosphere. Even though carbon credits have been around for a while, the voluntary market for them has expanded dramatically in recent years.

Demand for voluntary carbon credits may continue to rise as efforts to decarbonize the global economy intensify. According to McKinsey, the annual global demand for carbon credits could increase to 1.5~2.0 gigatons of carbon dioxide (GtCO2) by 2030 and up to 7~13 GtCO2 by 2050, depending on the amount of negative emissions needed to reduce total emissions online. with a 1.5 degree warming target and stated demand for carbon credits.

A projected graph showing carbon dioxide reduction 30 years from now

According to The working group on expanding voluntary carbon markets (TSVCM), the demand for carbon credits could increase 15-fold by 2030 and 100-fold by 2050. By 2030, the overall market for carbon credits could be worth more than $50 billion.

As the world is committed to fighting climate change, new age technology has given a boost to the whole process. The development of blockchain technology in recent years has opened a new path to climate change.

How blockchain combats climate change

Experts say smart contracts, based on blockchain technology, are transparent, fully traceable and irreversible, which can be groundbreaking when it comes to solving big problems like climate change.

This has been the enormous potential for smart contracts— fully traceable, transparent and irreversible, self-executing contracts that run on blockchains — to contribute to the fight against climate change.

Smart contracts give us the ability to create fully automated and globally accessible incentive systems that can reward individuals, businesses, and governments directly for participating in sustainable initiatives such as regenerative carbon offsetting, agriculture, health insurance, etc. crops and more. These contracts are a fantastic instrument to encourage participation in international green projects because the fight against climate change fundamentally requires a significant change in global consumption patterns.

Environmentally conscious smart contract applications can be introduced in agriculture, consumer and crop insurance.

Chainlink’s Sergey Nazarov explains the use of smart contracts in crop insurance. Smart contract-based crop insurance can help farmers stay adequately compensated, even if they face two dry seasons.

Similarly, if a person started a reforestation project, the smart contract would pay the person a tokenized carbon credit, which could be sold to companies that prove they have made an ecological impact.

carbon credits can be reliably issued and tracked due to Blockchain’s immutable distributed ledger that is cryptographically secure. Small and medium-sized businesses can easily use public blockchains, lowering the barrier to entry for the carbon trading industry.

In addition, the data provided by companies is open to the public and transparent. Blockchain-based free automated market makers (AMMs) have recently been developed, allowing direct trading of digital assets without intermediaries and with low algorithmic costs. They provide all stakeholders with access to the infrastructure needed to build a digital carbon credit ecosystem.

There are several climate-based DAOs (decentralized autonomous organizations) that are now part of the carbon credit ecosystem. Klima, Solid World, Thallo and many other blockchain powered platforms are solving the climate change problem through carbon credits.

Klima is one of the largest DAO of carbon credits. It removes carbon credits from the regular market, thus increasing the price of the other carbon credits that are still on the market.

Last year, Kilima announced that it has accumulated more than 9 million tons of carbon offsets, worth $100 million.

Thallo is a blockchain-based carbon credit marketplace, powered by Polygon, that enables businesses and individuals to purchase high-quality carbon offsets.

“At Polygon we are supporting efforts to scale the impact as needed from the global climate crisis,” said Stefan Renton, sustainability lead for Polygon Technology. speaking to Analytics India magazine.

He added that while Polygon recognizes the importance of carbon credits and plans to purchase high-quality, high-permanence credits, they also see the potential for this technology to create an underlying infrastructure that can help transition the global economy from its current model. highly extractive to something much more regenerative and relieving the stress that we, as a species, are burdening the planet with. Polygon plans to support these innovative efforts within its ecosystem.