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Blockchain Application for the Paris Agreement Carbon Market Mechanism—A Decision Framework and Architecture

Author

Listed:
  • Marco Schletz

    (UNEP DTU Partnership, Department of Technology, Management, and Economics, Technical University of Denmark, 2100 Copenhagen, Denmark)

  • Laura A. Franke

    (Microsoft, Azure Specialist for Data, Artificial Intelligence and Blockchain, 80797 Munich, Germany)

  • Søren Salomo

    (Technology and Innovation Management, Technical University Berlin, 10623 Berlin, Germany
    DTU, Technical University of Denmark, Center for Entrepreneurship, 2400 Kgs. Lyngby, Denmark)

Abstract

This paper evaluates the suitability of blockchain technology for the Article 6.2 carbon market mechanism of the Paris Agreement. The bottom-up approach of the Paris Agreement causes challenges to the robust accounting of mitigation outcomes and information asymmetry, both of which result from a high number of heterogeneous emission accounting systems. Blockchain is an innovative technology that can act as an aggregation platform for these fragmented systems while enhancing transparency and automating accounting processes. However, this new technology is not a panacea for all problems, and the trade-offs of applying blockchain technology need to be assessed case by case. We create and apply an eight-step decision framework for testing the applicability of the technology for the Paris Agreement Article 6.2 carbon market mechanism. The analysis shows that, under current mechanism specifications, a blockchain application can enhance transparency and increase automation, thereby eliminating information asymmetry. We outline a system architecture that allows the linking of the heterogeneous systems, the integration of an Article 6.2 exchange mechanism, and the progress tracking of climate targets. This blockchain architecture offers national Parties the opportunity to co-create a decentralised system in line with the bottom-up ethos of the Paris Agreement.

Suggested Citation

  • Marco Schletz & Laura A. Franke & Søren Salomo, 2020. "Blockchain Application for the Paris Agreement Carbon Market Mechanism—A Decision Framework and Architecture," Sustainability, MDPI, vol. 12(12), pages 1-17, June.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:12:p:5069-:d:374620
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    References listed on IDEAS

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    2. Rahel Mandaroux & Chuanwen Dong & Guodong Li, 2021. "A European Emissions Trading System Powered by Distributed Ledger Technology: An Evaluation Framework," Sustainability, MDPI, vol. 13(4), pages 1-21, February.
    3. Swinkels, Laurens, 2024. "Trading carbon credit tokens on the blockchain," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 720-733.
    4. Arsenii Vilkov & Gang Tian, 2023. "Blockchain’s Scope and Purpose in Carbon Markets: A Systematic Literature Review," Sustainability, MDPI, vol. 15(11), pages 1-27, May.
    5. Campbell-Verduyn, Malcolm, 2021. "Conjuring a cooler world? Blockchains, imaginaries and the legitimacy of climate governance," Global Cooperation Research Papers 28, University of Duisburg-Essen, Käte Hamburger Kolleg / Centre for Global Cooperation Research (KHK/GCR21).
    6. Li, Qingqing & Shi, Jinbo & Ni, Kan & Wang, Ruohan & Zhang, Chongyi & Yang, Nan & Yang, Yifei & Shen, Yifan & Guo, Ru & Liao, Zhenliang, 2024. "A highly credible and efficient real-time carbon MRV + O system for delicacy management of distributed carbon abatement behaviors," Applied Energy, Elsevier, vol. 355(C).
    7. Yang, Ping & Lv, Yanqin & Chen, Xiaodan & Lv, Juan, 2024. "Digital finance, natural resource constraints and firms' low-carbon behavior: Evidence from listed companies," Resources Policy, Elsevier, vol. 89(C).
    8. Marco Schletz & Ana Cardoso & Gabriela Prata Dias & Søren Salomo, 2020. "How Can Blockchain Technology Accelerate Energy Efficiency Interventions? A Use Case Comparison," Energies, MDPI, vol. 13(22), pages 1-23, November.
    9. Guocong Zhang & Sonia Chien-I Chen & Xiucheng Yue, 2024. "Blockchain Technology in Carbon Trading Markets: Impacts, Benefits, and Challenges—A Case Study of the Shanghai Environment and Energy Exchange," Energies, MDPI, vol. 17(13), pages 1-15, July.
    10. Lei Su & Wenjiao Yu & Zhongxuan Zhou, 2023. "Global Trends of Carbon Finance: A Bibliometric Analysis," Sustainability, MDPI, vol. 15(8), pages 1-21, April.

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