Abstract
This paper evaluates the suitability of blockchain technology for the Article 6.2 carbon market mechanism of the Paris Agreement. The bottom-up approach of the Paris Agreement causes challenges to the robust accounting of mitigation outcomes and information asymmetry, both of which result from a high number of heterogeneous emission accounting systems. Blockchain is an innovative technology that can act as an aggregation platform for these fragmented systems while enhancing transparency and automating accounting processes. However, this new technology is not a panacea for all problems, and the trade-offs of applying blockchain technology need to be assessed case by case. We create and apply an eight-step decision framework for testing the applicability of the technology for the Paris Agreement Article 6.2 carbon market mechanism. The analysis shows that, under current mechanism specifications, a blockchain application can enhance transparency and increase automation, thereby eliminating information asymmetry. We outline a system architecture that allows the linking of the heterogeneous systems, the integration of an Article 6.2 exchange mechanism, and the progress tracking of climate targets. This blockchain architecture offers national Parties the opportunity to co-create a decentralised system in line with the bottom-up ethos of the Paris Agreement.
Highlights
Cost-effective mitigation of greenhouse gas (GHG) emissions is crucial for limiting the global temperature increase to well below 2 ◦C, the target set by almost 200 national Parties of the Paris Agreement [1]
All transactions are placed in sequential order on the blockchain, the history is immutable, and each internationally transferred mitigation outcomes (ITMOs) can be traced from the origination project to the ultimate usage towards an nationally determined contributions (NDCs) target
In the decision framework evaluation, we show that a blockchain application for an Article 6.2 market mechanism is promising: classifiers 1 to 3 confirm the applicability of a blockchain, as the carbon market network consists of a heterogeneous group of actors that will use the network to transfer digital ITMO assets and benefit from a permanent and immutable transaction record
Summary
Cost-effective mitigation of greenhouse gas (GHG) emissions is crucial for limiting the global temperature increase to well below 2 ◦C, the target set by almost 200 national Parties of the Paris Agreement [1]. In contrast to present carbon market mechanisms, Article 6.2 moves away from centralised accounting, comprehensive rules and standardisation for the issuing and transferring international units by offering decentralised cooperative approaches [5] This bottom-up approach requires Parties unilaterally to ‘ensure environmental integrity and transparency’ and to ‘apply robust accounting to ensure, inter alia, the avoidance of double counting’ (Articles 6.2 and 6.3) [1,5]. We had multiple discussions with subject matter experts from the World Bank Technology and Innovation Lab (ITSTI) and the Carbon Markets and Innovation Practice (CMI) team These experts provided feedback on and insights into Article 6.2 accounting challenges, the proposed blockchain architecture, and the co-creative development process.
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