Blockchain technology has emerged as a powerful tool in the fight against climate change. In recent years, blockchain has been used to develop new ways of mitigating and adapting to climate change.
Although blockchain technology is key to advancements in fields like energy and climate, very few people have paid attention to its potential uses in developing countries. The United Nations Environment Programme (UNEP) and the Social Alpha Foundation (SAF) hope to change that with a new report outlining various opportunities for blockchain application.
Blockchain for Sustainable Energy and Climate in the Global South: Use Cases and Opportunities delves into how this technology has the ability to transform developing countries’ energy sources to clean energy, as well as help prevent climate change. With global temperatures on the incline, it is more important than ever that we investigate every possibility of mitigating climate change. With a predicted temperature increase of at least 2.7°C by 2100, per UN Secretary-General António Guterres, this information is more critical than ever before.
In order for the world to stay on track for a 1.5°C increase, UNEP’s Emissions Gap Report 2021 states that we need to almost halve emissions within the next eight years. Also, hundreds of millions more people need access to energy sources. Blockchain technology has the potential to help by making it possible for accurate load monitoring, as well as generation and distribution in an efficient manner through data collection.
Blockchain and Climate change
Australian technology company Power Ledger is one of the businesses that have started to explore blockchain’s potential. They set up a pilot project in Uttar Pradesh, India which permitted homeowners with solar panels on their rooftops to sell power to others who were connected to the grid. Prices were set and transactions were executed in real time via the blockchain platform.
Estimations from the United Nations Development Programme state that in order to meet Sustainable Development Goal 7 on energy, up to $650 billion per year will need to be put into renewable energy financing. Systems such as these can help immensely by speeding up the process of deploying renewable energy sources in developing countries and encouraging states to move towards sustainability rather than continuing with harmful subsidies.
However, renewable energy projects are often encumbered by financing shortfalls, high investment costs, and a lack of liquidity. These problems work together to create a shortage of bankable projects. The UNEP/SAF report found that blockchain technology can help improve the renewable energy industry by providing a platform for developers, investors, and purchasers to collaborate and communicate. This would create international standards for due diligence and compliance.
As an example, Sun Exchange permits individuals from anywhere with internet access to buy solar panels online and lease them to companies, hospitals, schools, and other organizations in Africa. Sun Exchange employs the Bitcoin blockchain for cross-border payments so that there are no third parties between investors and beneficiaries.
In 2015, the business installed its initial solar energy panels at a school located in the Cape Town district, financed entirely by private individuals through cryptocurrencies. By 2020, the platform had 18 000 users across 162 countries.
Although Sun Exchange’s solar installations have proved themselves by reducing energy costs for organizations by 20-30 percent, blockchain technology still has some barriers. Namely, a lot of computing power and electricity are needed to complete certain transactions. This isn’t feasible in countries where energy already prices are expensive.
The report highlights that rewriting current regulations surrounding electricity will be integral to decreasing power costs. Tariffs would ideally be changed so consumers are encouraged to sell their surplus energy through blockchain platforms. However, these types of regulatory structures do not yet exist.
The report’s findings show that blockchain technology needs to improve if it wants to maintain a positive environmental impact as it grows more popular. To do this, digital infrastructure must be improved- including expanding affordable broadband internet and smart devices. In addition, as digital technologies rapidly develop, policymakers need to change regulations surrounding them in order to encourage the development of future energy systems while reducing environmental risks.
How do smart contracts contribute?
Some experts say that smart contracts—which are built on blockchain technology—could be groundbreaking in solving big problems like climate change. This is because smart contracts are fully traceable, transparent, and irreversible, which makes them very effective in combating climate change.
Smart contracts give us the power to make automated, worldwide available, reward systems that can compensate people, businesses, and governments directly for getting involved in sustainable projects like regrowth carbon offsetting agriculture, and crop insurance plans. These contracts are an excellent way of encouraging international green project participation because combating climate change requires a huge transformation of global consumption habits.
The chainlink-operated smart contract applications can be useful in agriculture, consumption, and even crop insurance. Sergey Nazarov of Chainlink explains the effective use of smart contracts in crop insurance. He states that crop insurance (that runs on a set of pre-defined conditions aka smart contracts) can actually help farmers receive proper compensation – even if they face 2 seasons’ worth of drought!
If someone wants to start a reforestation project, the smart contract will give that person a tokenized carbon credit. This carbon credit can be sold to companies who want to show they’ve made an eco-friendly impact.
Smart grid management
Although some say that the digital asset industry consumes a lot of energy, this allegation is inaccurate. It’s important to differentiate between cryptocurrencies and blockchain platforms. The latter is more energy efficient and often supports climate initiatives. However, few climate initiatives use cryptocurrencies at this time.
Algorand’s blockchain is entirely carbon-neutral; Kickstarter is developing a crowdfunding platform on Celo, a carbon-negative blockchain platform; and SavePlanetEarth is setting up certified Carbon Credit Smart nonfungible tokens (NFT) on Phantasma, a green blockchain for developers to build decentralized applications.
With the race to uncover more sustainable energy practices and secure consensus mechanisms, it’s no surprise that Polkadot has been thrust into the spotlight as a blockchain option that is friendly to the environment.
Blockchain technology can help manage smart grids and promote power trading in decentralized energy markets. Power ledger enables consumers to buy, sell, or exchange excess renewable electricity directly with one another. Solstroem focuses on speeding up the adoption of solar power in developing and emerging countries by providing off-grid solar systems and micro-carbon credits that individuals or companies can purchase.
The United Kingdom’s Electron is planning to use smart contracts on the Ethereum blockchain in order to develop a smart grid that will be able to consistently deliver energy. Grid Singularity is focusing on creating a decentralized energy marketplace and an energy data exchange platform. TransActive Grid is also working on a blockchain-based energy marketplace, but their emphasis is placed on local peer-to-peer home-produced energy trading.
The decreasing price of solar technology and the expansive use of mobile phones in underdeveloped nations has created an opportunity for solar panels to be connected to the blockchain. In this way, consumers can gain from distributed generation.
This can transform the lives of off-grid rural citizens by making them owners of cutting-edge technology. This will in turn build a healthier, safer home environment and support additional sustainability initiatives.