Towards a Blockchain for Global Climate Accounting

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Source: Whitepaper: Open Climate. Leveraging blockchain for a global, transparent and integrated climate accounting system. By Martin E. Wainstein.


Six project pillars: guidelines for success in the application of blockchain for global climate accounting

By Martin Wainstein:

"We propose the Open Climate platform and system based on 6 key pillars. These pillars constitute critical insights derived from a landscape research and analysis of what constitutes success in the blockchain and climate intersection, briefly presented in section 1. These insights have been translated to the main design guidelines and features of the system. From these 6 pillars, we have defined the 5 climate dimensions that the project’s scope encompasses, and the 4 integrated layers that the software development effort comprises. This section describes the pillars, dimensions and layers of the project.

Figure 2 provides a graphical abstract of this outline

These pillars can be understood as the underlying assumptions of the project based on our accumulated research, as well as their accompanied resulting guidelines that have been considered in the project’s scope and architecture. The pillars are therefore presented here as a set of pairs; the insights about what the system should have the capacity to do, and the resulting features that our current prototype development includes.

These pillars are:

1. Consensus on the physical state of the planet

> Earth Ledger

The main insight of this pillar has already been laid out above in section 1.1. There needs to be a clear distinction between the physical planet and the political world. The need for consensus of the Earth’s ecosystem state and key ‘vital signs’ are three-fold. First, a robust and scientific consensus needs to dispel any post-truth or climate skepticism from the general public, it needs to clearly record ‘the facts.’ Second, this data sets the baseline for all science-based climate targets from state and non-state actors. It also facilitates the evaluation of the aggregate effect of climate actor’s collective efforts. Finally, an established immutable value on a distributed ledger can be used for smart contracts to automate certain processes that need to be based on physical metrics. For example, a smart contract can deterministically tie carbon pricing to the remaining planetary carbon budget relative to a 1.5oC target using on-chain records.

This pillar is translated in the concept of an Earth ledger. Section [3.1] describes the architecture and process flow to operate a decentralized carbon budget accounting mechanism, involving global CO2 internet-connected sensors, multi-source oracles, integrated assessment models, and Earth system governance to manage uncertainty ranges. While we focus here on the carbon modules of the Earth ledger, this is but one of many modules to consider. A natural extension of it could include the tracking of all planetary boundaries (Rockstrom et al., 2009)." ([2])

2. Seamless inclusion of state and non-state actions

> Nested accounting

Also outlined in section 1 is the importance of the capacity of a global climate accounting system to combine both commitments, actions and politics pertaining to nation-states, as well as those from all NSAs. This feature needs to be achieved without any risk of double counting, which happens to be one of the main values of distributed ledger technologies. This integration should be designed to take advantage of positive feedback loops involved in a win-win dynamic between state and NSA. Namely, accounting the actions of NSAs lessens the climate burden of the national governments, thus fostering federal incentives to support NSAs actions and the capacity building to utilize the same accounting methodologies. With incentives and motivation, NSAs can mobilize the lion share of capital required in finance the climate transition. Conversely, if an elected government from a nation-state loses track of scientific facts and shows minimum signs of planetary stewardship, a mechanism that incorporates NSA accounting can enable a country to maintain a paris-consistent track irrespective of the federal position. A clear example of this dynamic is seen with the Trump administration of the United States of America in regard to the potential pullout of the Paris Agreement, which lead to the immediate NSA backlash in the form of the #WeAreStillIn coalition.

This pillar is translated in a proposed protocol to automate nested accounting of climate actions. This means that, for example, the mitigation certificates generated and retired by a forest conservation project developed by a private actor would automatically be included in the fulfillment of climate commitments of the subnational actor (eg. the province or region in which the project or company is located), and subsequently the nationally determined contribution of the involved country. If the mitigation certificates are sold from the private developer to a company incorporated in a different jurisdiction —and are retired by the buying actor— then, subject to countries approval, the accounting of those actions would fall under the nested scopes involved in the buyer’s jurisdiction. A nested accounting mechanism essentially operates the guidelines laid forth in article 6 of the Paris Agreement. Section 3.2.2 describes the architecture and process flow of this proposed features.

3. Linking of all climate related information with financial value mobilization

> 5 integrated climate domains

One of our analysis’ main insight is that one of the most important values of blockchain and related technologies to climate accounting is the capacity to integrate multiple climate-related records with financial capital. Leveraging the financial technology aspects of blockchains and smart contracts can automate rules for deploying financial capital under positive feedback loop dynamics. In other words, different climate accounting aspects —which includes Earth data records, commitments of actors, the tracking of their progress, the minting of certificates attesting to their tracked action, and the transactions associated to the trading of these certificates— have dynamic influences between them, and the collective supply chain of this climate value information must inform and directly drive climate finance. This allows the application of smart contracts and digital finance to directly link capital with climate value in a low-cost a frictionless way.

This can either take the form of tax burdens or pricing associated to negative climate value, and capital financing and rewards for positive climate value creation.

This pillar is translated in a significantly broad scope of the project, involving the proposed direct linking of 5 different climate domains. These domains are: the Climate System (the physical dimension), Climate Agreements and their Actors (the political dimension and required registries), Climate Assets (the certifications of actions), Climate Markets (the networks and rules for transacting those assets) and Climate Finance (the mobilization of capital to finance climate value).

Figure 3 shows a metadiagram of this multi-domain integration of climate aspects that can be associated to ledger records. This concept supports the proposition of using a ‘ledger of ledgers’ and smart contracts to orchestrate a positive system dynamic of finance and information flow. In fact, the metadiagram in figure 3 conveys the scope of the open climate project and the incorporation of pillars 1 to 3.

4. Intuitive and accessible user interface covering all aspects of the system

> Open climate portal

Blockchain, distributed ledgers and smart contracts are intricate concepts for the general public. Key climate data and actor’s action progress and accountability are scattered in different platforms, making it hard for both key stakeholders and general public to keep track of. As such, this pillar’s main insight is the value of a one-stop-shop portal that can connect all meaningful climate accounting records and functions under the same user interface.

A single portal does not necessarily go against the decentralized nature of the project. Front-end software technology through the use of APIs, block explorers and secure credentials, can act as portals to an underlying network with multiple platforms and blockchain ecosystems, and allow logged in users to operate climate functions (eg. accounting, reporting, trading) hosted in different platforms but accessed through the same interface. Having the capacity to do this reduces reporting fatigue from actors that require compliant processes, simplifies user experience through intuitive processes and provide a main function for climate transparency and visibility. As an example, technological improvements in user experience have made the preparation and filing of annual tax returns an accessible process for layman citizens in the United States (eg. with the use of the Turbo Tax software).

This pillar is translated in the creation of an open source frontend platform with special focus on intuitive user experiences in the whole array of climate accounting functionality.

Figures 5 and 6 shows examples of the growing number of screens with multiple functionalities in the project’s front-end efforts.

5. Capacity to interoperate between legacy and emerging technology climate platforms

> Platform of platforms

As mentioned in section 1, blockchain applications in the climate space should not try to replace existing climate accounting frameworks but rather build on top of them to drive higher levels of efficiency. Furthermore, the distributed ledger technology space is characterized by a high levels of entrepreneurial spirit and initiatives. If these are to directly compete against each other with a zero-sum mindset, then the capacity for having a unified climate accounting system is reduced. In other words, the world would not benefit from multiple carbon ledger systems that cannot interoperate with one another. The planet’s atmosphere is still a single limited space where all free greenhouse gases reside. Therefore, an open climate system needs the capacity to involve both existing legacy climate registries, platforms and databases, with blockchain based environments that subsequently should interoperate and reconcile records between each other.

This pillar is translated into the effort of generating a platform of platforms (or PoP). Figure 4 shows the role that this PoP has as a middle layer between legacy and blockchain system, integrating them through protocols and APIs, and representing the collective in the user’s interface.

6. Open source and radical collaboration

> Consortium initiative towards a decentralized autonomous system

Last but certainly not list, the sixth pillar guiding this project posits that the most important innovation the project should focus on is not just what needs to be built, but how. This points to the social innovation of driving software and solution architecture development through a mindset of radical collaboration, which puts forward a paradigm of unity among all planetary stakeholders, rather than a mindset of competition, which strengthens a paradigm and illusion of separation. This is perhaps the most challenging aspect of the project since modern innovation and technological progress has been driven by the latter mindset and zero-sum dynamics. The challenge of climate change and its irreversible erosion of planetary resilience is perhaps the ultimate opportunity to mobilize our mental structures. As such, a global climate accounting system needs to have a strong foundation on open data and open source software. A shared platform and its constituent parts need to represent an ecosystem of digital public goods for the global commons. This does not negate, yet indeed challenges, the use of commercial business models. Open source protocol layers can be compatible with proprietary software built on top of it, but innovative business models need to be introduced to allow developers and organizations to have the financial sustainability to operate and maintain such a system. This pillar translates not only into the open source publication of the Open Climate platform’s software, but on the development of a growing network of constituent platforms that can use a consortium model and open innovation framework to govern the initial development process. Part III fully focuses on this aspect and pillar. Furthermore, once an Open Climate PoP and system achieves the technological readiness to operate at a global level, the project has the intention to be released as a decentralized and autonomous organization.

Perhaps one of the most powerful inventions underpinning the bitcoin network, which catalyzed the blockchain movement, is the fact that what was created was fully emancipated from the hand of the creator (i.e. Satoshi Nakamoto). This motivates the development of truly decentralized systems that require innovative governance schemes. An Open Climate platform and system, should be driven by a mechanism of Earth system governance that can tap into collective intelligence, rather than one centrally managed by a powerful few." ([3])

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