Abstract
This paper examines the benefits and constraints of applying blockchain technology for the Paris Agreement carbon market mechanism and develops a list of technical requirements and soft factors as selection criteria to test the feasibility of two different blockchain platforms. The carbon market mechanism, as outlined in Article 6.2 of the Paris Agreement, can accelerate climate action by enabling cooperation between national Parties. However, in the past, carbon markets were limited by several constraints. Our research investigates these constraints and translates them into selection criteria to design a blockchain platform to overcome these past limitations. The developed selection criteria and assumptions developed in this paper provide an orientation for blockchain assessments. Using the selection criteria, we examine the feasibility of two distinct blockchains, Ethereum and Hyperledger Fabric, for the specific use case of Article 6.2. These two blockchain systems represent contrary forms of design and governance; Ethereum constitutes a public and permissionless blockchain governance system, while Hyperledger Fabric represents a private and permissioned governance system. Our results show that both blockchain systems can address present carbon market constraints by enhancing market transparency, increasing process automation, and preventing double counting. The final selection and blockchain system implementation will first be possible, when the Article 6 negotiations are concluded, and governance preferences of national Parties are established. Our paper informs about the viability of different blockchain systems, offers insights into governance options, and provides a valuable framework for a concrete blockchain selection in the future.
Highlights
With the global gap between national emission targets committed and achieved emission reductions widening, there is a need for new incentive mechanisms to accelerate climate action [1]
Acknowledging the problem “that an UN-centralized governance resulted in a process that was too bureaucratic and not flexible enough to recognize the needs of individual parties” [2] a bottom-up approach was applied in the creation of the Paris Agreement
There are three possible designs for a blockchain-based solution: First, a public and permissionless blockchain system using Ethereum, second, a private and permissioned system with Hyperledger Fabric and, third, a hybrid approach by implementing Article 6.2 on a Plasma chain, which is connected to the Ethereum network
Summary
With the global gap between national emission targets committed and achieved emission reductions widening, there is a need for new incentive mechanisms to accelerate climate action [1]. Article 6.2 concerns projects between different Parties exchanging internationally transferred mitigation outcomes (ITMOs) [2,3] These ITMOs can be traded between Parties to achieve national climate targets, the so-called Nationally Determined Contributions (NDC). Criticism against the mechanisms under the Kyoto Protocol included the lack of transparency during the implementation and validation of mitigation activities [6,15,16,17,18] This led to the creation of the transparency framework— Article 13 of the Paris Agreement—an increase in demanded validation activities, and the discussion for a new record system to improve tracking and immutability of transactions [18]. A blockchain-based system seems overall suitable for Article 6.2
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