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In battle against climate crisis, don’t overlook the blockchain

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As the world increasingly looks at using digital technology to accelerate action on issues such as climate change and biodiversity loss, blockchain is pushing to the forefront.

Blockchain is a digitally distributed, decentralized ledger that helps to verify and trace multistep transactions. While it might be best known as the architecture behind crypto-currencies like Bitcoin, it is finding uses in everything from tracking the sustainability of products to the real-time monitoring of pollution.

This technology is key to innovations in energy and climate, say experts, but so far, little attention has been given to how blockchain can be used in developing countries. A new report from the United Nations Environment Programme (UNEP) and the Social Alpha Foundation (SAF) is looking to change this picture and unlock new opportunities.

Blockchain for Sustainable Energy and Climate in the Global South: Use Cases and Opportunities explores how the technology can accelerate the transition to clean energy and help combat climate change in developing countries. It’s a publication that comes as global temperatures are on pace to rise by at least 2.7°C by the end of the century, a number UN Secretary-General António Guterres has called catastrophic.

“The world needs to almost halve emissions over the next eight years to stay on track for a 1.5°C world, while at the same time expanding access to energy to bring hundreds of millions of people onto the grid,” said Mark Radka, Chief of UNEP’s Energy and Climate Branch, referring to data from UNEP’s Emissions Gap Report 2021. “Blockchain technology can play a part by making possible more accurate load monitoring, generation and distribution in the grid through efficient use of data,” he added.

Driving innovation

Several businesses, such as Power Ledger, an Australian technology company, have begun to tap into the potential of blockchain. The company established a pilot project in the Indian state of Uttar Pradesh that allowed homeowners with solar arrays on their rooftops to sell power to others on the grid, setting prices in real time and executing transactions over blockchain.

Systems like those can help accelerate the deployment of renewable energy in developing countries and help states move away from unsustainable electricity subsidies.

The United Nations Development Programme estimates that up to $650 billion per year in renewable energy financing will be needed to meet Sustainable Development Goal 7on energy. However, renewable energy projects can often be bogged down by financing shortfalls, high investment costs, and a lack of liquidity. These problems conspire to create a shortage of bankable projects. According to the UNEP/SAF report, blockchain’s distributed ledger technology can provide improvements by enabling renewable energy project developers, investors, and purchasers to collaborate on a common platform with established international standards for due diligence and compliance.

For example, South Africa’s Sun Exchange allows anyone with an internet connection to buy solar panels online and rent them to businesses, hospitals, schools and other organizations in Africa. Sun Exchange uses the Bitcoin blockchain for cross-border payments so that there are no intermediaries between the beneficiaries and the investors.

In 2015, the company installed its first solar power panels at a school in the Cape Town region, financed entirely by private individuals through cryptocurrencies. By 2020, the platform had 18,000 users in 162 countries.

Through the Sun Exchange’s solar installations, organizations have reduced their energy costs by 20-30 per cent and have been able to redirect these funds towards their core offerings, including quality education for children, positive living environments for elderly residents and care for vulnerable wildlife.

Addressing the negatives

But there are barriers to blockchain technology. A massive amount of computing power – and electricity – is needed to process certain transactions. In many countries that energy can be prohibitively expensive.

The report suggests that new regulatory frameworks will be key to addressing the high cost of power. For example, electricity tariffs in many places would need to be changed so that energy consumers are more likely to participate in surplus energy trading through blockchain platforms. But such regulatory frameworks and guidelines are still lacking.

The report concludes that as blockchain is still in its infancy and given the potential negative environmental impact, the technology itself needs to evolve to foster environmental sustainability at scale. Driving the penetration of blockchain and relevant emergent technologies will require improving digital infrastructure, including expanding access to affordable broadband internet and smart devices.

As blockchain and related digital technologies develop rapidly, policymakers also need to adjust regulations to spur the development of future energy systems while mitigating environmental risks.

UNEP-led partnerships, such as the recently launched Coalition for Digital Environmental Sustainability, can support these efforts by linking digital technology applications to environmental sustainability.