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Blockchain for Climate Change: Can China Lead?

A new finding by researchers that blockchain application can yield benefits in enhancing transparency and increase automation for the bottom‐up and decentralised governance system envisioned in the Paris Agreement on climate change could test China’s resolve to lead in both aspects of the technology and fighting the global threat.

Known to be the world’s largest greenhouse gas emitter – accounting for about 27% of global CO2 emission, China reportedly wrestled the mantle of leadership on climate change from the United States in 2017 – a week after the U.S. withdrew from the Paris Agreement – to spearhead the bringing together of countries from across the globe for a discussion on how to deploy clean energy.

The Paris Agreement, for the first time, brings all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects by strengthening the global response to the threat and keep a global temperature rise this century below 2 degrees Celsius while limiting its increase to 1.5 degrees Celsius.

China has been leading effort in the global campaign ever since such as recognized by a top environmental economist, Lord Nicholas Stern, who chairs the Grantham Research Institute on Climate Change and the Environment who suggested that decisions that are set to shape the world’s future regarding combating climate change will be taken in China.

Also, according to Kelly Sims Gallagher and Fang Zhang of Tufts University, their study of many aspects of China’s energy and climate policy, including industrial energy efficiency and reforestration, shows that China’s carbon dioxide emissions are likely to peak well before its 2030 target.

Nonetheless, the new analysis supported by the German Research Foundation and the Open Access Publication Fund of TU Berlin shows that, under current mechanism specifications, a blockchain application can enhance transparency in the process thereby eliminating information asymmetry.

It is an opportunity for China to explore the application of blockchain technology – which it supposedly leads globally following a sudden growth in interest – to address the global challenge.

The researchers suggest a digitally-representable asset in the form of an ITMO which could be a unit, an amount, or a net flow interchangeably represented on the blockchain as tokens that are used towards a mitigation target. This is to enhance the automation and disintermediation of the transaction process, a faster and more efficient clearing and settlement time, and the transparency and traceability of the complete transaction history.

They argue for the consideration of blockchain technology, despite it being a nascent and largely untested technology, to overcome legacy system limitations linked to mechanisms set to address climate change (e.g. Kyoto) which are based on many manual steps and a centralised and fragmented databank structure.

Banking on blockchain’s immutability which has the advantage of bringing consistency into the history of an asset, e.g., an ITMO, the researchers say the technology could help address a key criticism against the mechanisms under the Kyoto Protocol: the lack of transparency in the project documentation, implementation, and validation of mitigation activities.

Their study suggests that a permanent and immutable record, as provided by blockchain technology, is beneficial to enhance transparency and accountability.

“In an immutable system, it is always possible to go back in time and retrace every single transaction to the origin, which can be useful in case of fraudulent behaviours to trace all actors involved,” a part of their published paper states.

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