Blockchain has been illustrated as a growing inefficiency on the world’s fight to reduce the effects of climate change and environmental degradation. Such descriptions are often characterised by references to the growing energy usage of networks such as Bitcoin, and large warehouses filled with computers for the purposes of “mining” cryptocurrency. However, there is a much wider picture to present as to the interactions between blockchain, society, and the environment. Within this article the potential for blockchain technology to form part of a technological solution to reduce emissions is explored. These possibilities include using NFTs to prevent the double-spending of carbon credits, and using DAOs to prevent the centralisation of climate change technology with the Global North, among many other proposals.
Environmental Investing, web3, and Carbon Credits
Consensus Mechanisms in the Anthropocene
PoW, PoS, and Renewable Energies
Blockchain Solutions to Environmental Degradation
Tokenisation, Carbon Sequestration, and Zero-Emission Goals
Crypto-Colonialism, DAOs, and Layer 2
Does Proof-of-Work have a negative impact on the environment?
While unsatisfactory implementations of Proof-of-Work backed by unsustainable infrastructure can be potentially very costly to the environment, this isn’t necessarily guaranteed. Innovative blockchain networks such as Ethereum have implemented technologies to discourage large-scale “mining” facilities and to allow for many more transactions to be performed at a lower energy cost. Additionally, many networks such as Bitcoin have openly encouraged and supported the construction of renewable energy grids, especially in contexts where such energy is cheaper than fossil fuel usage.
Does Proof-of-Stake have a positive impact on the environment?
An increasing reliance across blockchain networks on the total monetary assets controlled by a given user in contrast to the total computational resources controlled has supported the development of more energy-efficient networks. In the case of Ethereum it is theorised that the transition to Proof-of-Stake will result in a reduction of energy usage by a magnitude of 2000. This reduction will bring energy usage down to levels comparable with VISA payments (though any direct comparison is difficult).
What are NFTs?
NFTs are Non-Fungible Tokens. Most currencies (i.e. USD) or assets (i.e. shares, natural resources) are typically fungible, meaning there is no meaningful difference between having, for instance, one 10c coin or another 10c coin. However non-fungible would imply that each individual 10c coin has a different value (i.e. perhaps one of the 10c coins is a collector's coin). NFTs are generally applicable on blockchains, and allows for the creation of any one-of-a-kind tokens (any message such as a video or a timestamp) that can be provably owned by a single user.
What are carbon credits?
Carbon credits are issued in either mandatory markets (typically by governments) or in voluntary markets (typically by individuals and organisations) for some agreed upon price (controlled by supply-demand properties). If an entity is releasing pollution or performing an action that contributes to pollution they can offset these actions by purchasing a credit in one of these markets. Each credit is typically equivalent to a tonne of CO2 pollution, and the money spent on these credits may go to programs such as carbon sequestration or other zero-emission programs.
What is the double-spending problem in climate action?
Since the Kyoto Conferences and even more so since the Paris Conferences, a majority of the world’s economies have opened carbon markets. These markets allow for entities to sell the right to release emission to other entities who need to perform polluting activities (i.e. for energy production). Typically a fixed number of credits, each one equivalent to a tonne of CO2 pollution, will be released in a market purchasable at some market-set price for polluting entities to purchase. However, without proper tracking of the usage of these credits there have been cases of multiple organisations using the same credit for their emissions.
What is crypto-colonialism?
Some scholars have pointed to the notion of crypto-colonialism as a new wave of colonialism brought about by the Global North onto the Global South. These theories suggest that control over blockchain networks, the resources needed to operate these networks, and collection of data from the Global South brings about a new form of potential control over historically under-privileged nations. However, the presentation of DAOs as a supportive mechanism for the existence of decentralised governance may present one tool to reverse these historical societal consequences.
How can blockchain help the environment?
Using NFTs as a carbon credit that cannot be duplicated or created without authority that are saved immutably to a blockchain network can prevent double-spending attacks and other malicious attacks to avoid accountability. Additionally, the consensus mechanisms used by blockchain networks can be applied to allowing committees to adjudge in a decentralised manner if environmental action is being taken honestly and inline with expectations.
Environmental Investing, web3, and Carbon Credits
The blockchain ecosystem has experienced an unprecedented explosion of green projects that aim to tackle climate change. Some of these projects utilise web3 protocols to facilitate green bonds and carbon credits tokenization. This implementation has allowed more transparent systems in the carbon market and has attracted new users/investors to participate in the green finance trend. However, challenges persist regarding the implementation of systems to prevent double-counting; most of these systems are ineffective in measuring, tracking, and guaranteeing these projects' constant state and whether they are actively sequestering GHG (greenhouse gases).
Blockchain companies have become active participants in the current green trend as “green crypto” has become the vox populi (i.e. Crypto Climate Accord). Web3 organisations are actively innovating on climate actions within the crypto ecosystem and global movements. Despite environmental commitments, traditional mainstream media usually labelled blockchain technology and the "crypto space" as environmental threats.
On average a single Bitcoin transaction and a single Ethereum transaction require 1,707 kWh and 162 kWh respectively. Under proposed adaptations to the consensus mechanisms used by Ethereum (transitioning from Proof of Work to Proof of Stake) it is theorised that a single Ethereum transaction will only require 0.008 kWh. While this reduction is substantial, by some comparisons it will require 50 times the energy of a standard VISA transaction. However, these comparisons solely on their own are not fair and cannot be considered in isolation of the numerous other variables influencing the environmental impact of a financial system. Such variables may include considerations of the use of renewable energy, and of the ability of blockchain networks to support entire currency systems.
Images source: Ethereum's energy usage will soon decrease by ~99.95%
It is unclear in the literature the extent of these technologies' impact on contemporary anthropogenic ecological degradation. This gap is especially evident in the academic literature since the growing adoption and implementation of less energy-consuming technologies such as Layer 2 applications, new consensus mechanisms and new sources of electricity to power blockchains, such as thermal energy i.e. El Salvador case (Subacchi, P., 2021). Besides this lack of clarity, the evolution of the crypto ecosystem into web2 and web3 has facilitated the transition to more energy-efficient consensus mechanisms for blockchains such as the aforementioned Proof of Stake (PoS).
Most models that estimate the total electrical power consumption are especially focused on Layer 1 applications and Proof of Work (PoW) Bitcoin mining (i.e. CCAF index, 2021). Using these web2 focused metrics, it is clear that annual cryptocurrency transaction electricity consumption and potential carbon footprint has increased significantly in recent years, partly in response to the increasing difficulty of mining, but also to the large number of new market participants attracted by the rising prices of cryptocurrencies (Corbet, B. et al. 2021). In 2022 the annualised total Bitcoin footprint is 97.14 metric tons of carbon dioxide (Mt CO2), this is comparable to the carbon footprint of Kuwait. Also, Ethereum’s carbon footprint is 52.7 Mt CO2 which is similar to the carbon footprint of Sweden. Source: Digiconomist ; CCAF index, 2021.
Consensus Mechanisms in the Anthropocene
The proposal of the Anthropocene presents opportunities for a more comprehensive picture of the current environmental degradation. This proposal allows for the conceptual identification of how humans are fiscally influencing ecosystems on a global scale. This understanding of the anthropogenic responsibilities in the contemporary ecological crisis can help position Blockchain and web3 solutions to solve the same issues that the Anthropos has started and continues to provoke with everyday actions.
Among the contemporary academic debates regarding climate change, the Anthropocene concept arises as one of the most controversial concepts in the academic literature of the 21st century. The concept of the Anthropocene proposes that the human, "Anthropos" (in Greek), has become a major geological force (Simangan, 2020; Wu et al., 2020) as a result of increasing greenhouse gases caused by the burning of fossil fuels: coal, oil, and natural gas. Of these fossil fuels, more than 90% are carbon dioxide and methane (Blok et al., 2020). Environmental degradation caused by agriculture, deforestation, and manufacturing are also factors in the proposal of the Anthropocene. The Anthropocene suggests that the impact of human activity on planet Earth has profoundly changed Earth's geology and ecosystems.
There is a significant debate regarding the precise beginning of this new geological epoch as proposals vary among scholars from social sciences and geology. Even though several start-dates for the Anthropocene have been proposed, ranging from the beginning of the First Agricultural Revolution around 10,000 BC after structurally modern humans spread beyond Africa and Eurasia to Australia and the Americas, then domesticated a diversity of plant and animal species (Erlandson & Braje, 2013), to the Industrial Revolution starting approximately around 1760 AD (Zalasiewicz et al., 2015). The International Geological Congress favours the proposal that the Anthropocene started during the 1950s when atomic bomb testing peaked radionuclides fallout. From this perspective, scholarship has placed the development of human technology as the core driver of the current ecological catastrophe. This paradigm might also present opportunities for discovering ways to revert our detrimental footprint by leveraging technologies to enhance sustainability.
PoW, PoS, and Renewable Energies
PoW blockchains have been widely conceptualised as unsustainable despite a general integration of potential shifts towards renewable energy. PoW works by introducing an external cost to a system by requiring computational effort to perform actions. The “work” required by PoW consensus mechanisms is of a nature such that it cannot easily be forged. This is despite a network where an individual can learn anything about a given system, and an individual can maintain multiple anonymous identities. Therefore their very nature almost predicates the need for large energy usage - one motivating reason for the transition away from PoW.
PoW blockchains are environmentally ill-suited to massive-scale tasks unless they implement Layer 2 protocols. However, it is not clear in the literature their direct and indirect implications over contemporary environmental degradation as concerted efforts towards clean energy consumption are a norm over several projects. Schinckus (2021) argues that the use of renewable energies to fuel the energy consumed by blockchain technology is widely underestimated in the contemporary academic debate. Several PoW supporters usually promote the development of large-scale renewable plants to support the crypto mining industry. Therefore, this presents a paradoxical way of solving the problem; since PoW consumes considerable energy, PoW supporters suggest creating more renewable energy plants to ensure a higher energy consumption in the future assuming that these plants will not have environmental impacts. Nevertheless, scholars argue that this model presents scalability and long-term sustainability concerns.
PoS is a different approach that presents solutions to this energy consumption problem, among many others. The ominous energy consumption of PoW-based blockchains has made the PoW model increasingly controversial and unsustainable (Tsabary et al., 2019); this has facilitated the emergence of new approaches such as the concept of PoS as the main alternative to PoW. PoS works by requiring users to stake the currency to become a validator in the network. As part of its plan to switch from PoW to PoS, Ethereum is designing a full PoS protocol called Casper, this protocol aims to guarantee a smooth transition with minimal impact on its users (Buterin et al., 2020). However, this is a theoretical model that requires real-world testing before jumping to conclusions. Estimates indicate that Ethereum will use at least ~99.95% less energy post-merge. According to (Beekhuizen, 2021), In total, a PoW Ethereum transaction will consume approximately 2.62 megawatts. Which is the equivalent of around 2100 American homes.
Also, the PoS model (one of its many variations) has inspired new theoretical and experimental consensus mechanisms claiming to be more efficient and sustainable than the originally proposed PoW, including Robust Proof of Stake (RPoS) which is a new consensus protocol for sustainable blockchain systems. These two competing consensus mechanisms often interchange official names as there is no definitive standard as to what constitutes a PoS or RPoS system. According to Li et al., (2020), the main improvement is that the RPoS protocol uses the number (amount) of coins instead of the age of coins (as is attributed to PoS in Li’s text) to reduce the risk of coin age accumulation attack in the system. Also, they claimed that the RPoS protocol adds a greater number of rollbacks, which can effectively prevent Nothing-at-Stake (N@S) attacks which may occur in the system. While Ethereum defines their new proposed consensus mechanism as Proof of Stake, using Li’s definitions it would be more similar to Robust Proof of Stake. Following from this definition, Proof of Stake would be more akin to that of Peercoin, which allocates incentives to individuals that have maintained an investment for a longer period of time.
Comparison of Proof-of-Work (PoW), Proof-of-Stake (PoS), and Robust Proof-of-Stake (RPoS).
Blockchain Solutions to Environmental Degradation
Tokenisation, Carbon Sequestration, and Zero-Emission Goals
Blockchain technology presents an unprecedented opportunity to solve the lack of transparency and double counting problems the carbon credit market has experienced. A blockchain-based carbon market can benefit from transparency, immutability, smart contract and disintermediation. This implementation can provide assurance and credibility to carbon offsets as currently, it is challenging, if not impossible, to track and verify carbon offsets at a global scale accurately. There are proposals for a new and more responsive carbon market that considers data transparency through blockchain, smart contracts, IoT, and Measurement Reporting and Verification (MRV) databases (see: Woo et al., 2020).
There are also several complaints about the existing carbon market's centralisation. These concerns include the possibility that a few powerful entities may control the carbon credit system and the possibility of a central authority engaging in fraudulent behaviour with no consequences. According to Patel et al. (2020), a decentralised and transparent carbon market prevents such situations by making data publicly available. Many market frauds, such as central banks turning a blind eye to theft, might be easily identified, and a fair punishment can be imposed on the offending party by following the path to the source of the carbon credits. Similarly, the time-consuming process and high cost associated with recording, reconciling, and auditing carbon credits in the current centralised fiat market is problematic. These issues are evident in the accounting and management systems that prevent these socially and environmentally beneficial schemes from reaching their full potential (M. J. Ashley & M. S. Johnson, 2018).
The tokenisation of green bonds allows blockchain companies to develop new assets based on carbon sequestration projects. Web3 can help organisations offset carbon emissions by staking green assets that promote carbon sequestration initiatives to achieve zero-emission targets by tokenising green bonds and green projects. An organisation can utilise well established green projects and international carbon offset credits to create a token-based project to help companies offset their carbon footprint. The organisation can become a service provider for sustainability, offering more transparency through blockchain.
Multiple market failures, such as high transaction costs for certification and monitoring, and large minimum investment quantities, limit green investment vehicles (Adamson et al. 2020). The tokenization of green bonds and green credits presents plausible solutions to most of these problems. The market for green bonds is growing exponentially. Only about 2% of the total \$119 trillion (2021) bond market share is green. According to a GDFA report, this leaves room for an exponential increase in issuance to meet the annual deficit in funding for the Sustainable Development Goals at USD 2.5 trillion per annum. As issuance costs on the blockchain are minimal compared with centralised fiat, there is a significant opportunity to disintermediate some players by using blockchain.
This will make the green bond market more accessible to a wider range of investors. By providing an open-source, immutable context in which environmental data can be submitted, the classical “Oracle Problem” can approach a solution. This is due to being able to employ multiple individuals and organisations to submit what they claim is the truth; if more than half of all participants are honest then all submitted data will be honest. When Blockchain is used in the energy sector, more precise data on energy generation and consumption is available, energy sources can be evaluated more accurately and all stakeholders benefit from more equitable prices (Marke, 2018).
How oracles and organisations can cooperate to verify zero-emission goals.
The carbon credits market is expected to follow the trend of green bonds. Overall, green investments have led to a new fiat and crypto markets explosion. In 2019 voluntary carbon credits corresponding to 104 MtCO2e were traded, with a market value of US\$320 million. This was almost triplicated by 2021, 298.4 MtCO2e and a market value of US\$1.0062 B (EM, 2021). According to Sadawi et al. (2021), blockchain's security, immutability, transparency, traceability, and trust properties make it a stable and reliable solution for the carbon trading market. Their research proposed blockchain technology as a robust solution for the corruption, ineffectiveness, and lack of trust (among other issues) that the carbon emission scheme suffers from. Web3 provides solutions to tackle these issues. It facilitates the creation of a trustworthy, advanced, unified, global, effective, and practical carbon emission trading market.
However, the tokenization of carbon credits is problematic when it only relies on third-party validators. As stated previously these concepts are predicated primarily on the notion that half of all contributing actors would be honest, which is not inherently guaranteed especially when considering the prospects of corruption involved with malicious incentives. Such an assumption would generally be considered simpler than the typically required assumptions of an honest governing organisation, but honesty is not the sole concern either. The majority of actors in a blockchain network would lack the technology or access to data required to pronounce accurate assertations of the state of an environment. Most of these actors are, in general, incapable of guaranteeing that double-spending is not occurring (one of the detriments to current carbon markets that a blockchain solution would be expected to solve).
|Carbon Market Price Data||Price||Token is backed|
|New Zealand (NZD)||\$75.00||Yes|
|Aviation Industry Carbon Offset||\$7.45||Yes|
|Nature Based Carbon Offset||\$15.65||Yes|
|Toucan Protocol: Base Carbon Tonne BCT||\$5.30||Yes|
|Moss Carbon Credit MCO2||\$11.26||Yes|
- Verified Carbon Standard (International)
- Gold Standard (International)
- The American Carbon Registry (ACR) (Operates in the US)
- Climate Action Reserve (Operates in the US)
- Clean Development Mechanism (CDM)
Also, verified carbon credits can be acquired through the Australian Government’s Emissions Reduction Fund (see: Australian Carbon Credit Units).
Anthropogenic climate change constitutes a threat to humanity and ecosystems (Beard et al. 2021) To accelerate the transition to more sustainable energy sources, a globally motivated market mechanism was proposed in the Kyoto Protocol and reinforced by the Paris Agreement as a potential method for reducing Co2 emissions by allowing nations and organisations to offset their carbon footprint. Carbon offsets are reductions in GHGs emissions in one location used to offset emissions in another. This instrument is divided into two main global carbon markets:
Mandatory offsets are offsets that companies have to buy to stay under the maximum amount of carbon they are allowed to emit per year. This market is regulated by mandatory official carbon reduction schemes such as the Clean Development Mechanism, the European Union’s Emissions Trading Scheme (EU-ETS), and the California Carbon Market.
Private investors, governments, non-governmental organisations, and corporations can purchase carbon offsets to offset their emissions through the voluntary carbon market. Private companies that acquire carbon offsets for resale or investment make up the largest group of buyers. Voluntary markets are primarily unregulated, with no unified standards or governance. They present a significant opportunity for innovation in terms of new frameworks, governance standards and technologies.
Carbon offsets initiatives include: afforestation, reforestation and avoiding deforestation, investing in renewable energy, and carbon capture and sequestration projects, among other projects. Both markets described here can be utilised or revamped by the application of blockchain technologies as described above. For mandatory markets it would allow government and supergovernment organisations to assure their citizens that pricing of carbon is really what has been claimed, and that there is an appropriate strategy in place to reach net zero emissions (among other goals).
For voluntary markets it will allow greater expansion of stakeholders and individuals participating in the global carbon market - which blockchain is especially positioned to provide. Especially in nations where the citizenry is distrustful of the approach a government is taking to reach these environmental goals, they can provide the service instead. It may be possible that this takes the form of towns, companies, or NGOs who are committed to such goals.
The IPCC (2021) has reiterated the importance of carbon offsets to achieve zero emissions goals and transition to a more sustainable economy. These credits, or offsets, allow companies to pollute at 'home' in exchange for funding in greener projects elsewhere. Carbon offsets are reductions in GHG emissions in one location used to offset emissions in another and one offset credit is given for every ton of greenhouse gas that is reduced, stored, or avoided. However, Offsetting has a long and well-documented history of problems regarding the validity of carbon offsetting projects. Projects and bonds issuers are susceptible to data manipulation and corruption. Especially the double-counting problem is prevalent.
Double counting is concerning as no two countries or actors should be counting the same emission reduction towards their emission reduction goals. Unless double counting is prevented, the purchase of a carbon credit makes no difference to global emissions. Thus Blockchain-based alternatives have been proposed to mitigate/solve these problems. The carbon market has been heavily criticised due to a lack of transparency in the issuance, use and life cycle of carbon credits, as well as double-counting, meaning when two different parties claim the same carbon removal or reduction credit (Patel et al., 2020). Also, most validators cannot guarantee that their green projects are still sequestering carbon after the verification phase (i.e. Amazon forest).
It can be noted that platforms such as Ethereum have been required to find robust solutions to double-spending attacks throughout their histories. Alternative to these architectural solutions also exist technologies including NFTs. While NFTs are most widely known as allowing for the transfer of art, they are more appropriately defined as a block of data that cannot be applied in two separate contexts and can only be held by one individual or organisation at any moment. In the example of carbon tokens, an issuing organisation would be able to create an NFT representing a single tonne of greenhouse gas which could then be provided to an organisation in requirement of an offset in exchange for a cost. The described organisation would be unable to spend the token twice, or spend it and share it with another organisation. It should be emphasised that NFTs would be only one of a variety of possible technological solutions to the specific challenge of double-spending attacks.
Most of the tokenization of carbon credits is dependent on external validators such as Verra to verify the authenticity and validity of carbon offsets. Most of these “well-known” validators are, in general, incapable of guaranteeing that double-spending is not occurring. Despite several efforts to create a tokenized version of the carbon credit market, challenges persist in terms of transparency and accuracy of green projects that issue carbon credits. Most of the crypto-projects promoting on-chain carbon credits replicate the fiat carbon market mistakes. This logic is especially evident in the dependence of off-chain validators that cannot guarantee the validity of carbon credits over time. Also, most of these projects are choosing to tokenize fiat-native carbon credits instead of utilising verification mechanisms to issue carbon credits directly on-chain.
Crypto-Colonialism, DAOs, and Layer 2
Some scholars argue that the contemporary climate crisis enables new forms of “crypto-colonialism”. This is supported by the idea that blockchain technology facilitates new forms of “green grabbing” for global carbon markets that legitimise North-South disparities using climate finance instruments and enable data colonialism through humanitarian assistance for climate refugees (Howson, P. 2020; Klein, N. 2019). However, this argument ignores the contextual implications of decentralised, bottom-up approaches emerging in the Global South. For example, the emergence of Decentralised Autonomous Organisations (DAOs) and the implementation of smart contracts and Layer 2 technologies have facilitated the inclusion of the epistemologies of the South in a new, digital and decentralised way. The Global South is a metaphor that refers to those who have suffered the consequences of Global North colonialist frameworks of power and dominance. Blockchain technology can be considered as a Global South response to tackle the old, rigid and capital centric economic system that is based on exploitation and expropriation of resources to obtain economic benefits. This technology has inspired bottom-up frameworks such as the DAOs that are usually flat and fully democratised. Decentralised environmental governance is becoming more popular in most of Latin America, as well as in developing countries in general (Hohbein, R.R. et al., 2021)
Layer 2 solutions to Blockchain allow solving scalability issues in communities (Subacchi., 2021). The revolutionary concept of decentralised organisations has the potential to dramatically transform the way that we understand institutions, governments and trust. Similarly, Smart contracts that are the “heart” of the Ethereum platform have been used across a diverse range of communities in the Global South to implement the back-end of applications such as decentralised applications (ÐApps) (Oliva, G. A., et al. 2020) that are challenging Global North/traditional institutions. Also, DeFi (decentralised finance) facilitates the inclusion of previously marginalised groups to participate in new financial markets, which can provide economic security in several regions (Matyskevic, Y., et al. 2021). DeFi is democratising opportunities for historically marginalised communities in terms of access and exposure to new financial instruments with autonomy and transparency (Morocho, N. et al., 2020). This is especially relevant to the context of Latin America where the adoption of Layer 2 technologies is expanding rapidly (Cuadrado-Avilés, D. et al. 2021).
The Global South is usually referred to as an underdeveloped physical or theoretical place and there is a tendency to disregard southern epistemological contributions. Nevertheless, a significant number of decentralised solutions to current global issues are emerging from Global South frameworks. The emergence of DAOs and smart contracts on the Ethereum ecosystem is providing plausible solutions to contemporary problems such as corruption.
While great resources and dedication has been made to ensuring the proliferation of more environmentally-friendly blockchain networks there is an increasing opportunity to yield environmental action through the existence of said networks. By taking advantage of the tools provided of this data structure and potential economic framework, projects can be implemented in a trustless manner potentially without centralisation of authority to perform actions to benefit the environment. In accordance with removing the opportunity of centralised authorities, the patterns of exploitation by some Global North organisations of some regions of the Global South can be removed. Increasingly communities from such regions of the world are taking the opportunity to reverse environmental and societal degradations where other organisations ignore the opportunity to take action. Therefore, by approaching blockchain as a multi-purposed tool to be shaped by its users’, blockchain solutions can be presented to solve challenges of our time rather than become a new challenge itself.