By Ingo Puhl, Co-Founder of South Pole AG*
*: The writing of this article was inspired by numerous conversations, presentations and other interactions with a number of visionaries in the DLT and climate space during and after COP 23. I would like to recognize a few: Nick Beglinger from the Foundation Cleantech 21 and founder of the climateledger initiative whose efforts made the hack4climate event possible, Alexandre Paris from the UNFCCC Secretariat (and former colleague) who made sure that the hack4climate event interfaced with COP 23, Michael Casey, Senior Advisor of the Digital Currency Initiative at MIT Media Lab, whose understanding of DLT as social technology is mind-changing, and Tom Baumann from Collaborase/Standards 2.0 Initiative whose focus on piloting the development of DLT-powered rule-making will make a substantial contribution.
I have followed the climate policy debate since COP 1 in various capacities — most importantly and as an entrepreneur interested in disruptive innovation to accelerate the transformation to the low carbon economy. I have made it my business to track a) the technologies and b) regulatory incentive frameworks most likely to drive this transition.
As a result, I have become interested in the use of distributed ledger technology (DLT) (also sometimes referred to as blockchain technology) to organize renewable energy (RE) powered distributed energy systems and overcome key barriers to the widespread implementation of energy efficiency (EE) in many sectors.
My increasing understanding of the applicability of DLT has convinced me that its use is not only important within the context of accelerating climate actions in a variety of sectors but that DLT could also accelerate the implementation of governance-related aspects of the Paris climate agreement.
Coming to this conclusion requires an understanding of the nature of DLT that goes beyond the current appreciation of this technology. The purpose of this article is to share related insights with both the climate policy community and the DLT developer community with the objective to band together these two communities, which are, at present, very disconnected from each other.
There is a small (and growing) community of visionaries and entities who share this vision and have started collaborations to contribute towards this objective.
The DNA of DLT in relation to the international climate policy process
I attended COP 23 to track the progress of negotiations on the implementation of the Paris Agreement. I also participated in the #hack4climate — a gathering of 100 blockchain application developers and DLT advisors on a hotel ship docked in Bonn during the second week of COP 23. Engaging in both parallel events led me to compare how the UN-process and DLT-based methods approach solving climate change:
1. Managing the Tragedy of the Commons
The climate crisis is possibly the ultimate “Tragedy of the Commons” application:
“The tragedy of the commons is an economic theory of a situation within a shared-resource system where individual users acting independently according to their own self-interest behave contrary to the common good of all users by depleting or spoiling that resource through their collective action.”
The Paris Agreement manages a variety of common goods:
- the total permitted amount of GHG in the atmosphere to avoid catastrophic climate change (currently defined as a 2 C increase compared to pre-industrial levels), and
- a reporting system for GHG inventories (consisting of GHG emission sources and sinks) that serves as the basis for a) measuring the contribution of individual Parties (governments), non-state actors, groups of Parties and all Parties combined to stay below the total permitted amount of GHGs, b) measuring the impact of individual actions, or policies and measures on GHG emissions within the total system or subsystem.
Responsibility for the management of these common good is then transferred to national actors and from there to sub-national and non-state actors.
The current UN-level process seeks to resolve the conflict between the self-interest of the individual users (use of fossil energy) in relation to the common good (the atmosphere’s GHG absorption capacity) and the collective interest (to keep GHG concentrations below critical levels) via a complex, bureaucratic approach that has been ongoing for 23 years. This process is characterized by a lack of trust between the negotiating Parties (and other stakeholders), reluctance to disclose and create transparency around data that is critical to measure actual GHG emission levels. This observation applies to the negotiation between Parties, but also to the participation of sub-national entities:the private sector, civil society, and sub-national government entities also have diverging interests (, participate directly in the UN process, and seek to exercise influence on the position of Parties of the UN-level process.
So how does DLT tie into this? To start with, it is intrinsic to a distributed ledger system to create an economic incentive system that aligns the private interest of the individual user with a common good defined by the community that participates in protecting the integrity of the distributed ledge: they create a private incentive to contribute to the protection of a common good (i.e. the integrity of an asset managed by that ledger), thus solving the ultimate incentive problem associated with the tragedy of the commons. The incentive can be “staked” to ensure that the reward for the protection of the common good exceeds the private reward from over-using it for a broad range of applications. In other words, the incentive system of the distributed ledger would be conducive to achieving greater collective good — however that may be defined the greater the contribution of a user to the protection of this common good, the greater his/her reward will be.
In conclusion, adopting the use of DLT could resolve some fundamental design problems associated with the international climate policy process: it would provide the means to create “private” rewards for the protection of the commons that could not be gamed.
2. Book-keeping, consensus creation (around facts), trust building
The Paris Agreement consists of 29 Articles: 5 articles define “The Commons” that is to be managed by its users and 7 articles deal with compensatory transfers between Parties to address some special circumstances and to ensure their ability to fully participate in this process. The remaining 17 articles deal with governance and reporting to create, follow and enforce related rules. The development of these rule books, the detailing of contributions of individual countries to the management of ‘The Commons’ is and will be at the heart of the climate policy process in the years to come.
This process relies largely on human capacity, scientific insight and analysis, rules, regulations and the enforcement mechanisms that need to be established via legislative processes on the international, national and sub-national level to become effective.
DLT provides technology-driven means to create consensus around a set of facts using a highly decentralized approach. The disintermediation of centralized record keepers — who might have a private interest to “game” their reports, for example — increases the trust. How exactly? By showing that all Parties are willing to share insights and data to a global GHG inventory record keeping platform,thus reducing the need for a complex bureaucracy created for the sole purpose of ensuring trust between Parties.
How does DLT contribute to this? For example, the #hack4climate produced a proposal to de-centralize the compilation of national GHG inventories via a DLT based solution. This proposed blockchain-based solution would compensate (via a coin payment) citizens/activists to operate CO2 censors that would record and report GHG concentrations to a server, which would in turn apply algorithms to associate them to GHG emission sources in real time. Such data could not only be used for GHG inventory reporting, but it would also provide the basis (in conjunction with some additional data points (i.e. for calibration) to assess and attribute the impact of actions, policies and measures on CO2 emissions that are already third party verified and accessible in real time.
3. Representation and Reconciliation of Competing Interests
The most complex topic within the climate policy process is around the setting of Parties’ contribution to protecting the global commons. The Paris Agreement has defined that such contributions are to be made by way of national determination. It also encourages Parties to increase their ambition levels over time and invites sub-national entities to scale up their related efforts.
The willingness of Parties (and non-Parties) to undertake such efforts — or, in other words, their incentive to use ‘The Commons’ (= emit GHG) or contribute to its protection (avoid GHG) — varies. Agreeing on Parties’ anticipated efforts is complicated, as the costs and benefits of contributing to the protection of ‘The Commons’ are unevenly distributed between users (on all levels).
What would be the role of DLT: it could be used to decentralize the process by which ambition levels are expressed and incentivized. This could be done by increasing the private reward to those whoare willing to increase ambition levels — or, put simply, protect ‘The Commons’. The process ofincreasing and following up on ambition levels could be run autonomously on a smart contract, again replacing the need for complex negotiations about this topic.
For example, the #hack4climate event produced a proposal to introduce a smart predictive contract to resolve the tragedy of the commons problem around REDD+, addressing all of the above issues (i.e., rewarding the good management of ‘The Commons’, building trust & transparency, and harmonising competing agendas). It proposes to do so by creating financial stakes that incentivizes entities to act as caretakers. This proposal was developed by a team of AI, machine learning, and blockchain coding experts.
Moving Forward: Accelerating the Adoption of DLT Solutions
Recommendations for Policy Makers: I have been personally involved in the climate policy process and in the field of innovation for the low carbon economy transformation for more than two decades and in various capacities. I have never been more excited about the potential of one technology to create such transformative impact. I am convinced that DLT will make a substantial contribution to implementing the Paris Agreement and accelerating climate action.
My recommendation to policy makers therefore is to become familiar with the potential use-cases for this technology: nothing provides a better learning experience than to pilot it within the context of a limited use case.
This is already happening: #hack4climate was the kick-off event of the #climateledger initiative. Collaborase, together with IETA has launched a related project (with a focus on using market instruments), initially focusing on some Latin American countries. Over time, these use-case pilots and their stakeholders will be networked.
Recommendations for DLT developers: If you are already involved in tech and are looking for purpose: look no more. Humanity and the planet needs you to hack climate change.