This blogpost is based on an open-access paper that we recently published in the Frontiers in Blockchain journal.
The 2015 Paris Agreement introduced a decentralized and bottom-up approach to climate action, enabling an increasing number of heterogeneous national, sub-national, and non-state actors (NSAs) to participate and drive global ambition – from the international levels, to national governments, to regions and cities, as well as corporations and other non-state actors. However, the current legacy climate accounting systems and mechanisms do not fit the task and have serious climate accounting and integration gaps (Figure 1), leading to information asymmetry among actors and the risk of double-counting.
In this paper, we present a nested climate accounting architecture that integrates several innovative digital technologies, such as Distributed Ledger Technology, Internet of Things (IoT), Machine Learning, and concepts such as nested accounting and decentralized identifiers to improve interoperability across different existing and evolving accounting systems (Figure 2). Examples of newly evolving accounting systems and applications: Climate TRACE, an independent group that collects and shares GHG emission data to facilitate climate action, the World Bank Climate Warehouse, a meta-registry that aggregates data from several inventories to identify double-counting risks. Other examples are our OpenClimate platform, which acts as an integrator of climate records and uses next-gen spatial web protocols to establish nested jurisdictional accounting, and dClimate, a data marketplace that uses machine learning to assign “skill scores” to climate data and create a distribution mechanism for data publishers and forecasting entities.
A nested accounting system integrates climate-related information from different data collection approaches and across all actors’ — nation-states and NSAs — commitments, actions, and policies. The nested accounting approach collects data at the smallest unit of analysis (i.e., the project) within nested jurisdictions and then rolls up into higher aggregation levels such as national inventories and submitted to international frameworks. Through this nested process, independent NSA action can be automatically included under a country’s respective nationally determined contribution (NDC; i.e., Paris Agreement pledge) or sold as an emission reduction certificate in a global climate market. A DLT-based architecture further creates a joint and open structure to distribute data ownership and access, thereby reducing information asymmetry (Cong and He 2019).
In addition, the nested architecture creates digital trust and interoperability by using a verifiable, decentralized, and digital identity (i.e., a decentralized ID (DID)) for each climate actor (Davie et al., 2019; Sporny et al., 2019). DIDs represent a digital “passport” that contains a subject’s intrinsic information (e.g., accounting methodology, vintage, serial number, and location), relational information (e.g., ownership and interactions), and operational information (e.g., price/schedule preferences) (Hartnett 2020). For example, the DID for a climate asset could contain meta-data such as the metric, issuing country, project name, and year generated (i.e., vintage) (García-Barriocanal et al., 2017; Franke et al., 2020).
Automating data collection and verification increases digital trust. The proposed digital architecture allows for vastly improved scalability and inclusivity of climate accounting systems, which is crucial for achieving our climate goals in this decisive decade of climate action. Scaling is an important consideration given the vast number of new actors contributing to the Paris Agreement, which has experienced substantial growth in the number and diversity of NSAs since its 2015 inception (Hsu et al., 2018). Such scaling of MRV processes through automation also substantially reduces the costs associated with climate action accounting. As a result, countries with currently low experience and capacities for climate accounting can comply with their reporting commitments without replicating the expensive and cumbersome self-reporting legacy systems of Annex-I countries and directly leapfrog into lower cost and more efficient innovative designs.
The contribution of this paper to DLT-based climate accounting is threefold: First, the paper describes a novel DLT-based architecture that adopts a holistic view to integrating all the currently fragmented data verticals into a shared and interoperable “internet of climate data” architecture. The internet of climate data concept comprises comparing and harmonizing data verticals, i.e. remote inventories, source data from NSAs, and country legacy inventories that follow the Intergovernmental Panel on Climate Change (IPCC) methodologies. Second, the architecture builds on DLT and other emerging technologies to ensure complete data traceability over the mitigation outcome lifecycle by creating and verifying digitally representative assets of real-world climate action. Third, the integrated data architecture and digital climate assets enhance global coordination and improve decentralized governance among heterogeneous and nested climate actors.
Governing climate accounting is not only a technical problem, but socioeconomic factors are equally important. Navigating highly diverging individual interests and capacities is essential to align the Paris Agreement’s ecosystem of heterogeneous actors who have diverse technical capabilities and resources towards a joint goal of limiting global warming. To achieve the adoption of a nested accounting architecture in such a complex ecosystem, innovative processes to develop and implement such systems are critical, such as:
- Designing processes that engage stakeholders from the outset to understand existing climate data accounting and reporting standards and protocols, user needs, barriers to implementation, and capacity.
- Establishing communities and innovation groups among relevant actors that do not commonly interact, such as technologists, project developers/practitioners, NSAs (corporates and investors), and (subnational and national) policymakers.
- Developing and co-creating open protocols and standards to enhance accountability, standardization, and interoperability is challenging, given the significant heterogeneity of climate actors. Transparency is critical to drive accountability and ultimately ambition, but there is also a trade-off regarding the need for privacy. Privacy in this context does not apply to protecting individual identities, but it also needs to cover companies and other entities concerned about their data confidentiality.
If we sparked your interest, you can read the full paper here.
Cong, L. W., and He, Z. (2019). Blockchain Disruption and Smart Contracts. Rev. Financial Stud. 32 (5), 1754–1797. doi:10.1093/rfs/hhz007.
Davie, M., Gisolfi, D., Hardman, D., Jordan, J., O’Donnell, D., and Reed, D. (2019). The Trust over IP Stack. IEEE Commun. Stand. Mag. 3 (4), 46–51. doi:10.1109/ MCOMSTD.001.1900029.
Franke, L., Schletz, M., and Salomo, S. (2020). Designing a Blockchain Model for the Paris Agreement’s Carbon Market Mechanism. Sustainability 12 (3), 1068. doi:10.3390/SU12031068.
García-Barriocanal, E., Sánchez-Alonso, S., and Sicilia, M.-A. “DeployingMetadata on Blockchain Technologies,” in 11th International Conference on Metadata and Semantic Research, MTSR 2017, Tallinn, Estonia, November 28 – December 1, 2017, 38–49. doi:10.1007/978-3-319-70863-8_4.
Hartnett, S. (2020). Accelerating Decarbonization with Digital IDs for Distributed Energy Assets. Energy Web Insights. Available at: https://medium.com/energy- web-insights/digitalization-means-decarbonization-4e4b1af21d63 (accessed August 12, 2021).
Hsu, A., Amy, W., Feierman, A., Xie, Y., Yeo, Z. Y., Lütkehermöller, K., et al. (2018). Global Climate Action from Cities, Regions, and Businesses. Data Driven Yale. Netherlands: NewClimate Institute, PBL Netherlands Environmental Assessment Agency. Available at: https://datadrivenlab.org/wp-content/ uploads/2018/08/YALE-NCI-PBL_Global_climate_action.pdf (accessed August 18, 2021).
Sporny, M., Longley, D., and Chadwick, D. (2019). Verifiable Credentials Data Model 1.0. Expressing Verifiable Information on the Web. W3C Recommendation 19 November 2019 Available at: https://www.w3.org/TR/vc-data-model/.
UNFCCC (2015). Decision 1/CP.21, Adoption ofthe Paris Agreement.’ UNDoc. FC. Bonn: UNFCCC Secretariat. accessed August 5, 2021).