1

Blockchain and Climate Markets BBLApril 3, 2019

Photo credit: Mojix

Agenda

2

1

2

What is blockchain?

Opportunities & challenges for post-2020 climate markets

3 Looking forward: Developing a Blockchain-enabled warehouse

4 Technology and Innovation Lab Demo

1. What is blockchain?

Blockchain is like the internet in the 1990s: weird and scary

• Innovation quote

4

Blockchain is a….

5

Blockchain uses cryptography to ensure that each transaction recorded in ledger is digitally

signed, to reduce the potential for fraud

The blockchain ledger’s main value is that it is shared between separate entities. It is based

on a consensus mechanism to add new entries to the ledger

There is no single master copy of the ledger. Many copies of the ledger exist and they are

replicas of each other in relative time

A write-once, thus immutable, ledger that records every transaction. The entire history of all

transactions is available, making it very difficult to alter historical data

Secure

Shared

Distributed

Ledger

Adapted from Microsoft

How does it work?

6

A peer requests a transaction

The network validates the transaction

The transaction is added with

others to a block of data

The new block is added to the

blockchain

The transaction is broadcasted to the network

The transaction is complete

1 23

4

5

6

Source: PwC, “A Look at Blockchain Technology”

Benefits of peer-to-peer and centralized systems

7

Peer-to-Peer Centralized

Myth busters

• Ledgers as a storage of information: Blockchain does not “host” databases per se, but rather, they hash (encrypt) and timestamp records of transactions and relevant existing datapoints

• Transparency: Data is not necessarily open to all parties. Access and visibility will depend on permissioning arrangements

• Accuracy and immutability: Garbage in, garbage out

• Tokens and Initial Coin Offerings: While Bitcoin and other crypto-currencies are examples of “tokens’, there are other functions and reason for the use of blockchain

8

2. Opportunities & challenges for climate markets

Current climate market landscape

10

REGULATORY MARKET/PRICE-BASED MECHANISMS R&D, INNOVATION

SUPPORT

• Cap and Trade

• JCM

• CDM

• White Certificate

• Green Certificate

• REDD+

• Public funding to labs

and universities

• Research grants

• Patent policies

• Labelling

• GHG

Performance

standards

• Technology

standards

• Fuel standards

Current market infrastructure

11

Additional challenges post-2020

• NDCs establish a (notional) cap on national emissions in every country;

• Full national accounting for international transfer of mitigation outcomes (ITMOs) (“corresponding adjustment”)

• Mechanisms may generate units that differ on their environmental integrity, ambition (i.e., mitigation value) → not fungible

12

ALL COUNTRIES WISHING TO PARTICIPATE IN ARTICLE 6 WILL NEED A NATIONAL REGISTRY

NEED FOR A “SETTLEMENT PLATFORM” FOR TRACKING OF TRADES AND ACCOUNTING

RECONCILIATION AND TO AVOID DOUBLE COUNTING

COMMON “LANGUAGE” NEEDED FOR REGISTRIES TO COMMUNICATE WITH ONE ANOTHER (E.G., UNIVERSAL REFERENCE ID NUMBER, PROTOCOL FOR EXCHANGE); COMPARE DIFFERENT ASSETS

Addressing existing and post-2020 needs

13

Blockchain Elements & Digital

Innovations Existing and Post-2020 Needs

Cumulative, Immutability

• Security of transaction (e.g., fraud prevention)

• Robust accounting, double counting control

• Continuity of historical transaction records → auditable

Encrypted Transactions • Security against cyber attacks

Decentralized Infrastructure

• Cost efficiency

• No single point of failure

• Transparency

Permission• Security (write & view permission); confidential information can be

kept outside the chain

Smart Contract • Diversity of units / rules for exchange; ensure payment; accounting

The Internet of Things,

Big Data Analytics

• Automated, seamless and efficient data flows and analysis

• To be further explored

What if…

14

Assets are digitized (as energy is being produced): process streamlined and efficient

Transferring of assets is P2P with validation by peers per blocks

Verification process is “automated” and costs are dramatically reduced

Registries are simple digital accounts – reducing the costs and complexity

Settlement info can be downloaded through reports from the chain

Challenges

• Regulatory and governance framework – given the decentralized nature of blockchain

• Blockchain does not address all challenges – e.g., cumbersome MRV processes

• Energy consumption – however, this depends on “Proof of Work” or “Proof of Stake” and level of permissioning

• Many blockchains – not the blockchain. Many remain insecure

• Lack of interoperability – many blockchains but no common communication between them

15

Progress to date

• WBG Report (published in March 2018)

• Technology and Innovation Lab Proof-of-Concept (POC)

• Internal report to inform the POC

• Contribution to Climate Ledger Initiative Report (published in Dec 2018)

• Government of Chile Blockchain Pilot

16

3. Blockchain-enabled warehouse

Registry 2

18

Warehouse

Registry (Country A)

Examples of filters

Database of projects

register and track

Database of projects

Sector

Country

International buyers

Country governments

register and track

track

tCO2e

MAAP score

Multinational companies

Existing registries

Asset developers

Generation of Mitigation Outcomes & Role of Warehouse

Purchasing funds

Database

Solar project in Country A (blockchain)

register and track

Wind projectin country A

Cookstoves project developer in country B

Livestock projectin country C

Warehouse – Progress and Next Steps

19

• Design phase• Target to complete design: June 2019

• Goal to share the design publicly

• Ongoing: WB Blockchain Lab • Working on prototype to inform design of meta-registry, transactions

• Launch phase• Plan to launch pilot of database, registry, and meta-registry functions by

October 2019• Question of hiring one or more service providers

• Showcase at COP25

4. Demo

Blockchain

Where Emerging-Tech can Help: Climate Market Problems

21

• Accounting: Double Counting & Double Spending

• Data Integrity

• Cybersecurity

• Difficult to see what is going on

• How to Increase Participation

IOT

• Data Integrity & Quality

• Complexity of data collection

• Timing intervals

• Cybersecurity

• Difficult to see what is going on

Tech components are building blocks, each performing

particular functions. !

Country to Country trading on Blockchain

22

In this experiment, we showed how the process would work if the purchase agreement

was on the blockchain, and climate asset disbursement through a blockchain network.

Assets could then be continuously traded between countries.

Purchase

Agreements/

Commitments

Integrity of IoT

Data

Identity/

Ownership

MO

Creation

Registries/

Cancelling/

Retirement

Transactions/

Settlement/

Payment

23

Donor Initiated Carbon Market(DICM) – Process Flow

Do

no

r C

ou

ntr

yC

lien

tC

ou

ntr

yW

BG

Au

dit

ors

UN

FCC

C

Carbon Trust Fund(CTF)

Credit Purchase Agreement

(CPA)

AuditRequest

Audit and Certify

Create Audit Report &

Certificate

Receive Money

Create/Issue Carbon Credits

Carbon Account/

Carbon Account

Purchase Agreement

Sell

Buy Sell

Donate Money

Buy

Blockchain Components

1

6

3

2

54

Verify Credit

Verify Credit

Verify Credit7

7

7

Buy Via Donor Fund

8

9

10

24

25

Integrity of Assets: Blockchain & IOT

26

In this experiment, Blockchain is used to secure a hash of the IOT data. The hash can be used for an integrity check of the data –

solving the “first mile” data problem.

Purchase

Agreements/

Commitments

Integrity of IoT

Data

Identity/

Ownership

MO

Creation

Registries/

Cancelling/

Retirement

Transactions/

Settlement/

Payment

Prototype Architecture

27

Readings from solar sensor

28

• Timing of readings can be

modified

• All IOT devices can be

monitored to ensure they

are working properly, and

analytics can identify data

anomalies.

• Readings are set up to be

associated with a project,

aggregated, and hashed to

the blockchain so that the

data can be checked

• Auditors can compare the

data provided to them with

the hash to ensure it was

not tampered with.

29

30

Chilean Government Building Solar Panels – using IOT and BC Technologies

31

Warehouse Concept: Integration of Registries and Markets

32

Building off of the last experiments, how could a blockchain network function as a “meta-

registry” to bring together buyers and sellers and ease market access.

Purchase

Agreements/

Commitments

Integrity of IoT

Data

Identity/

Ownership

MO

Creation

Registries/

Cancelling/

Retirement

Transactions/

Settlement/

Payment

Different types of participants, their registry configurations and their linkages into the warehouse

33

There is no central node

Each Entity has their own node

Diagram categorizes nodes by type of warehouse participant

Each participant builds their own API into the warehouse

34

35

Warehouse Meta-registry

Prototype

• Blockchain is

underlying component

• User Interface can be

tailored, like any other

application.

36

THANK YOU!

Rachel Mok, Analyst, Carbon Markets and Innovation Practice rmok@worldbank.org

Stephanie Rogers, Financial Specialist, Carbon Markets and Innovation Practice srogers@worldbank.org

Susan David Carevic, IT Officer, Technology and Innovation Labsdavidcarevic@worldbankgroup.org

Mert Ozdag, IT Officer, Technology and Innovation Labmozdag@worldbank.org

Annex

38

WarehouseLocal Microgrids

Local consumer

program to

purchase clean

energy

Regionally

funded

Wind farm

Company run

cook stove

project

Forestry

project

Nationally

funded Solar

Project

The Big Picture

Chile

India

GhanaCanada

Turkey

Egypt

Blockchain consensus

mechanisms Source: Blockgeeks, “Proof of Work vs.

Proof of Stake”

39