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Economy

Blockchain and Climate: A New Energy Frontier

Oct 23 , 2018
  • Roger Raufer

    Resident Professor of Energy, Resources, and Environment at SAIS's Hopkins-Nanjing Center
  • Nicholas Manthey

    Graduate student at the Hopkins-Nanjing Center in Nanjing
  • Anneliese Gegenheimer

    Graduate student at Johns Hopkins' School of Advanced International Studies

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‘Blockchain’ has become a new high-tech mantra, as speculators watch market frenzy surrounding Bitcoin and other cryptocurrencies, and ICOs (initial coin offerings) that are used to amass funds for new tech startups and other purposes. Environmentalists worry about the massive energy consumption associated with cryptocurrency ‘mining’, which is the use of computers to solve complicated mathematical puzzles in order to earn new coins or tokens. A recent study estimates that the current Bitcoin network consumes on the order of 20 terawatt hours of electricity per year globally—a figure comparable to the energy use of Ireland—and might triple in the very near future.

Given such negative headlines, it might come as a surprise that the UN Framework Convention on Climate Change (UNFCCC) declared its support for the technology underlying such cryptocurrencies: distributed ledger technology (DLT), commonly known as blockchain. The Climate Chain Coalition (CCC) was launched in December 2017 as a multi-stakeholder group that utilizes DLT to help mobilize climate finance and enhance MRV (measurement, reporting, and verification) for climate mitigation and adaptation. More than 100 organizations from around the world have now joined the CCC. This followed similar explorations over recent years by the UN Development Programme (UNDP) and UN Environment Programme (UNEP), all providing positive messages about how this new technology might be applied in the climate arena.

Blockchain and Energy

Blockchain has earned its environmentally harmful reputation because of the energy consumption of the Bitcoin network, which is currently estimated between 1-3 gigawatts (GW)  of continuous electricity demand globally. One benchmarking study has suggested that China alone accounted for nearly 60 % of worldwide cryptocurrency mining; usually using coal-fired power plants, with their accompanying CO2 emissions.

The CCC recognizes the importance of this problem. Its Charter reads: “we recognize some negative effects and current challenges of many DLT applications (in particular those using the blockchain with proof of work consensus) regarding their levels of energy consumption and GHG emissions. We are transparent and forthcoming while we actively seek appropriate solutions to address these challenges.”

While 1-3 GW accounts for only 0.1% of world generating capacity, some countries, including China and the U.S., have begun setting restrictions on Bitcoin mining operations due to concerns around high energy consumption and effects on local electricity prices. This problem has been addressed in ways beyond restriction as well; for example, by using electricity solely generated through renewable energy sources to reduce carbon emissions, or by changing the structure of the currency’s verification process (i.e., moving from ‘proof-of-work’ systems to less energy-intensive alternatives.)

Blockchain in China

In September 2017, the Chinese government banned ICOs and shut down domestic cryptocurrency exchanges, as well as, in addition to the energy restrictions noted above, increasing regulation in February 2018 by formally banning cryptocurrency trading and blocking foreign exchange sites.

Despite these strong regulatory actions controlling cryptocurrencies, China sees a potentially promising future for DLT. President Xi Jinping grouped blockchains with other significant technological advances—artificial intelligence (AI), quantum information, mobile communications, and the internet of things—recognizing them as technology for “breakthrough applications."

Earlier this year, the Ministry of Industry and Information Technology (MIIT) announced that it would foster blockchain as a “core” technology for the new digital economy. In March 2018, for example, it announced plans to create a blockchain standardization committee to promote national standards around the technology; in May, MIIT’s Center for Industry Development (CCID) released its first cryptocurrency rankings (though how they will be applied remains unclear); and in August, MIIT published plans to create a Blockchain Lab for Data Security and Technology. The Communist Party also released a primer entitled Blockchain for Officials to serve as a guidance in formal messaging and strategy.

As of July 2018, there were 4,000 blockchain companies registered in China (with more than half created in the previous six months). In addition, in 2017, more than half of the 406 blockchain-related patent applications in the World Intellectual Property Organization (WIPO) database were from China. Blockchain patent applications from the country grew nearly three-fold, with cryptocurrency-related applications growing 16% since 2016.

Many blockchain organizations from around the world have operations and projects within China, but it is especially notable—given such numbers and activities—that there has been such limited participation from Chinese blockchain companies within the CCC.

This does not mean, however, that Chinese organizations have been completely inactive in regard to the CCC’s mission. Neng Lian Tech Ltd. (能链科技) is a Shanghai-based startup focused on reducing carbon emissions whose carbon asset trading platform was used as an example at the UNFCCC Bonn conference in November 2017. They recently launched a green public chain and have released their first Dapp (decentralized application), M Green (磨绿), which incentivizes and rewards consumers and businesses for green behaviors.

Neng Lian Tech is not alone. Another ambitious Chinese startup, Energo, has been expanding its blockchain-based, energy-trading services in cooperation with the Taiwanese government “to develop regional energy trading centers that conduct P2P energy transactions through virtual power plants”. The company also plans to develop local energy projects in South Korea and Southeast Asia, indicating that a greater regional expansion is on the horizon for the Shanghai-based company.

In what may be the first mass-adopted, enterprise-level application of DLT technology, Shenzhen-based BYD, known for its electric vehicles and batteries, announced in early September that it will be implementing a blockchain-based “carbon banking solution”. Developed by VeChain and DNV GL to calculate emissions and issue credits for “millions of BYD cars, buses, trains, and other vehicles,” it is not just a pilot project, but mass-production ready. The prospect of realizing blockchain adoption within China’s transportation sector for an environmental application would truly be a pioneering effort.

The China-U.S. Blockchain Connection

Despite growing concern over the U.S.-China trade war and increasing protection over U.S. technology and intellectual property, the blockchain space has seen some collaboration across borders, especially with regard to global governance and the sharing of technical expertise.

For example, China and the U.S. are both part of the International Organization for Standardization’s Technical Committee on Blockchain Standards, which focuses on developing global blockchain standards. Blockchain China Connect, an organization based in Chicago, facilitates investment and business opportunities for international blockchain and cryptocurrency communities. And ConsenSys, a New York-based blockchain organization, is helping in the development of Xiong’an, having gained experience from its community-based electricity microgrid in Brooklyn.

Numerous such organizations in both countries are now dedicated to developing this new technology, with many focused on the “greener” applications of DLT. While applications involving carbon credits and electricity trading appear to be making the most headway, they could soon find themselves in an overarching web of possibilities in the growing list of DLT applications, especially in smart cities. Though the speculative hype around blockchain has subsided, an innovative spirit persists as China, the U.S., and organizations like the CCC strive for sustainable development along the decentralized digital frontier.

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