Wonderful World of Web 3.0.: How Web3 and Blockchain Can Accelerate Climate Action

Advancements in the New World of Web 3: A Look Toward the Decentralized Future offers a comprehensive exploration of Web 3's main aspects, regulations, risks, and challenges. Dr. Thomason's recognized expertise and authoritative voice make her the perfect guide to unravel the complexities of Web 3 and its implications for individuals and society.??

This week, we provide a summary of Chapter 12, How Web3 and Blockchain Can Accelerate Climate Action.?

INTRODUCTION

The UN Environment Programme (UNEP) identified transparency, clean energy, carbon markets, and climate finance areas where Blockchain technology can accelerate climate action. Blockchain offers several tools to support climate action, as outlined below.

GREEN DIGITAL ASSET SOLUTIONS

Green Blockchains: Blockchain technology has applications for carbon emissions trading and green certificates. Emissions Trading Systems (ETS), green certificates, or carbon offsets represent emissions saved through green technologies or CO2 removed from the environment.

Green Tokens: Using Blockchain technology, carbon credits can be easily tracked, traded, and stored as digital tokens.? Green Digital Asset solutions can be tokenized and used as commodities in a market system, including Green utility tokens - a reward for lowering carbon emissions; Green asset tokens - tokenized carbon credit or biodiversity offset; Green crypto - programmed only to be spent on green products and Green STO (Security Token Offering) issuance platforms - designed to enable green proof of impact reporting.?

Green Crypto: Cryptocurrency can help decarbonize unreliable power grids, optimize economic incentives for people to participate in clean energy, and help countries achieve climate goals. Crypto miners are unique energy buyers that offer flexible interruptible load capacity and are location agnostic. It makes crypto a strategic utility and an energy buyer of last resort that can be turned on or off at any point. This feature helps address the deficiencies of solar and wind energy supply as it is mostly either overabundant or nonexistent. Crypto mining can put the overabundance of such energy supply to good use.

Green STO Issuance Platforms:? Blockchain technology can be used for tokenized securities to decentralize and democratize the interaction of private (retail) investors with issuers of SME projects. Tokenized securities can be divided into three categories: asset-based tokens representing ownership of an asset like real estate or work of art, debt tokens representing a debt instrument like green bonds or real estate mortgages, and equity tokens representing the value of shares issued by companies. Such tokenized securities must comply with legal regulations and Blockchain technology for greater transparency and issuer-investor protection. STOs have the potential to increase the demand and supply of green assets. The transparency feature of STO increases investor and donor confidence in overseas investments on the demand side. STOs also increase financial inclusion by offering investor ticket sizes of a few hundred US dollars investor ticket sizes. It encourages retail investors and communities to participate and create a diversified portfolio.

CARBON MARKETS

A carbon credit reduces, avoids, or removes carbon emissions in one place to compensate for unavoidable emissions somewhere else through certified green-energy projects. Carbon credits represent one ton in carbon emission reduction. They include 1. Avoidance or reduction projects, e.g., renewable energy – wind, solar, hydro, biogas, and 2. Removal or sequestration e.g. reforestation, direct carbon capture, and aim at the voluntary carbon market (VCM). Carbon credits can be resold multiple times until it has been retired by the end-user who wants to claim the offset's impact. Carbon credits can also have co-benefits, such as job creation, water conservation, flood prevention, and preservation of biodiversity.

Carbon registries store the carbon credits issued by third-party independent, internationally certified auditors or verifiers following independent standards. The verifiers issue serial numbered credits, and the offset reduction claim gets converted to carbon credits that can be traded or retired. Carbon markets turn CO2 emissions into a commodity or tradable environmental asset by giving it a price.?

Carbon Compliance Markets: In the carbon compliance market, carbon allowances are traded. There are currently 64 compliance markets in the world, and pricing is determined by the emitters/polluters. The EU, or ETS, is the largest carbon market, with a 90% share in global trade. Entry into the EU ETS has been restricted to large polluters and the brokers the program's operators regulate. The supply of credits is also controlled to manage the pricing. Only the carbon prices traded in the EU ETS reflect the actual cost of polluting carbon, but access to the market is not equitable.

Voluntary Carbon Markets: Small companies and individuals can only access the Voluntary Carbon Market (VCM), where they buy credits at their discretion to offset emissions from a specific activity. Voluntary credits usually cannot be traded under the compliance market regime. A significant problem with VCM is that carbon credit prices have been low. The low costs of voluntary credits at $2-3 per credit do not motivate or incentivize project developers and do little to capture the actual cost of climate pollution compared to the compliance market.

While the potential exists, there is a need to rectify the problems in Voluntary Carbon Markets, including

1. Strengthening the incentives for decarbonization
2. Pricing carbon is urgently needed with improved price transparency.?
3. Reducing the cost of carbon credit creation
4. Reducing transaction costs and providing additional liquidity
5. Make the prices in the spot and futures market higher and more reliable.
6. Building carbon credits as a viable asset class by providing predictable returns on investment and including value protection for buyers and sellers
7. Create safeguards to protect the reputation and legal processes for dispute settlement.
8. Clarity on taxation exemption of carbon credits, moving from "polluter pays" to "polluter invests," and complete price discovery goes to the green owners on the ground taking direct climate action on their behalf.?

DECENTRALIZED ENERGY MANAGEMENT

Due to the rising cost of Smart Grid (SG) systems, their future in the energy industry is uncertain and complicated. Blockchain helps improve and manage smart grids in decentralized energy markets, allowing for the Peer-to-Peer(P2P) trade of power reliably and transparently. The P2P approach can also support renewable energies and provide economic benefits for both consumers and prosumers. The SG system has distinguished features integrating renewable energy systems, Internet of Things (IoT) devices, Electric vehicles (EV), and smart meters, requiring novel structural support that Blockchain technology can provide. Blockchain technology is helpful in SGs in nine areas: security, energy trading, decentralized energy management, Blockchain testbed, EV, IoT, smart contracts, and environmentalism.?

SMART GRID MANAGEMENT

Blockchain-based trading infrastructure enables P2P? energy trade between consumers and prosumers, with identity privacy and transaction security. The P2P energy trade has practical applications combined with IoT and micro-grid development for sustainable energy utilization. P2P energy trading utilizes technologies such as virtual currency using Blockchain to represent each unit of electricity. It will facilitate selling surplus energy available with the prosumer to other Blockchain network peers and transferring this electrical energy into the grid. Another technology used is credit-based transactions, which facilitate purchasing power without actual possession of virtual currencies. Finally, smart contracts associated with smart meters in grids accommodate the Blockchain. It helps ensure authentic data transfers between the smart meters and supervisory nodes and reports any unauthorized and malicious data tampering.?

NFTS, GAMIFICATION AND CLIMATE ACTION

NFTs and gamification can be leveraged for climate change initiatives. NFTs are being leveraged for climate change initiatives, ranging from awareness-raising to fundraising and an immutable record for impact and carbon credits. It is also possible to use the gameplay to incentivize widespread positive climate action and for people to understand their carbon footprint, and we can expect to see more games where people can play to earn for climate action.

Play to Earn consists of a dynamic of playing to win, thus creating a monetization of time. It is the unique set that is changing the way of seeing gaming, and with the new generation of games, many people have professionalized being able to live from it. The use of NFTs is essential in the gameplay dynamics of this new gaming world, being the ideal connector between cryptocurrencies and games.

DigitalArts4Climate uses Blockchain technology to turn art into digital assets or NFTs that can be collected and traded for multi-stakeholder partnership initiatives. This use case shows NFT's potential for resource mobilization, youth engagement, and climate empowerment. Gameplay is also usable for incentivizing widespread positive climate action. For example, GreenApes is using gamification to help convey people's carbon footprint to them.??

MEASUREMENT, REPORTING AND VERIFICATION (MRV)

Blockchain and Web3? will be critical tools for measurement and reporting combined with AI and IoT with large-scale interconnected databases (e.g., climate, water, land) to develop action for desertification and deforestation and predict weather events and trends.? Blockchain and Web3 can help with standardized accounting protocols for interoperability across accounting scales and systems; greater transparency from VCM operators and credit purchasers; standalone certifications on rights and ownership of credits; improved traceability, traceability, and liquidity, and smart contracts allow carbon credits to be used in innovative ways, creating additional demand in the overall VCM. Combined with remotely sensed data via satellite imagery, drones, laser-detecting devices, and IoT devices, machine learning, and artificial intelligence analytics can decrease development costs and increase rigor in measurement).

DECENTRALIZED AUTONOMOUS ORGANIZATION (DAO) FOR CLIMATE ACTION

A DAO can create new digital economies where tokens can unite and economically align people around a common purpose. It is possible to develop economies that value climate action. Blockchain can enable: : (i) Direct financing for community-scale climate actions, (ii) Simplification of results-based climate finance, (iii) Decentralized carbon trading benefits people with low incomes at the household level, (iv) Crowdfunding for climate projects for people experiencing poverty, and Gamification to incentivize climate-friendly action. Social impact and global commons issues require greater cooperation and collaboration among ecosystems that don't typically collaborate or converge.?

CONCLUSION

A pivotal element to scaling will be mobilizing capital through sustainable finance initiatives for climate action through green bonds, fintech solutions, and alternative finance mechanisms. Investment programs are needed to support Blockchain and other technological innovations contributing to climate change mitigation and adaptation. Strengthening the clean technology innovation ecosystem and improving access to finance facilitates clean technology startups and small and medium-sized enterprises is also needed. ? Green digital asset solutions, carbon markets, decentralized energy trading,? smart grid management, NFTs. DAOs, incentivization, and transparent measurement and reporting are all ways Blockchain and Web3 can be deployed for climate action. Metaverse and immersive reality will enable the use of Digital Twins across energy, water, and telecom networks to allow for the examination of climate projections and impacts.

#Web3 #Blockchain #NFTs #CarbonMarkets #Innovation #Sustainability?

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