Radical innovation for the Paris Agreement – a blockchain technology adoption perspective

Climate change is an enormous governance, coordination and incentive challenge. To achieve our climate goals, a multitude of governance levels, ranging from non-state, to sub-national, to national and to international actors need to collaborate over a long-time period. The Paris Agreement, as the first multilateral environmental agreement, is built on bottom-up and decentralized coordination among all of these actors.

This decentralized governance approach enabled the breakthrough in climate negotiations but also posed an immense governance challenge. Previous climate governance systems, such as the Kyoto Protocol mechanisms, were all centrally coordinated and led to the establishment of fragmented and heterogeneous system designs.

To enable the effective coordination of climate action through governance, these systems need to be connected to eliminate information asymmetry and create transparency and trust. In this context, blockchain is frequently mentioned as a promising technology. However, blockchain is still a new and often misunderstood technology, causing both hype and antagonism.

This thesis analyses this technology based on a systematic approach to understanding what it could and what it shouldn’t be used for. The thesis focuses on use cases inside the Paris Agreement, namely carbon market mechanisms and energy efficiency. A detailed understanding of the specific case requirements is critical as blockchain is rightfully criticised as a technology in search of use cases.

Accordingly, the case requirements need to provide a strong justification for a blockchain application as the technology comes with significant trade-offs compared to conventional database systems. Only if blockchain is the sole technological solution to develop novel economic or governance models or significantly improves automation and transaction efficiency should it be applied.

For this systematic assessment, the thesis develops criteria and a decision framework to evaluate if a blockchain application is beneficial and, if so, what type of blockchain is most feasible. As a next step, the thesis applies this framework to the different carbon market and energy cases. This evaluation establishes that a blockchain application towards these cases is suitable.

In addition, the analysis demonstrates that the blockchain design, e.g. in terms of beneficial technological features and governance type, vary substantially. Hence, there is no uniform blockchain that “suits all”, but each case requirement results in a distinct blockchain design. After confirming the relevance of blockchain for cases inside the Paris Agreement, the question became, “how can this technology be used to have an actual impact and accelerate climate action coordination?” The Paris Agreement consists of a vast number of actors with very different capacities and interests.

Such capacities range from almost no technological or organisational capacities to conduct climate accounting and adopt blockchain technology to very advanced actors. Consequently, actors also show diverse attitudes manifesting in openness to leapfrog into new technologies or technology lock-in and path-dependence.

Similarly, the interests and economic incentives among actors vary widely. This actor heterogeneity was already expressed at the political and negotiation stage, where national Parties could thus far not agree on the rulebook for the new carbon market mechanisms (Article 6). A blockchain application would be beneficial in this heterogeneous and political environment, but its adoption and innovation is complicated by the diverse range of actors’ capacities and interests.

Blockchain is a technology that is shaped by its application environment and then acts as a platform to enable governance of that environment — these blockchain inherent interdependencies with its adoption environment present novel theoretical considerations for blockchain adoption and innovation. Despite these complexities and uncertainties, blockchain needs to be considered to enable and accelerate climate action.

We are at a crucial time where the established legacy systems and technologies are insufficient to provide the coordination needed to achieve our climate goals. We are currently designing the systems and architectures of the future, the post-2020 systems. This allows the transition from manual and analogue processes into automated and digital designs, enabled by emerging technologies, such as blockchain.