A Conceptual Model for Networking of Carbon Markets on Distributed Ledger Technology Architecture

Abstract

In spite of the apparent lack of success of international emission trading under the Kyoto Protocol, numerous jurisdictions are implementing mitigation mechanisms that put a price on carbon, whether by taxing activities that cause release of carbon to the atmosphere, or by creating markets through which the cost of atmospheric release of carbon is internalised to the relevant activities by way of emission trading schemes. These diverse and heterogeneous mechanisms – in particular the emission trading schemes – might achieve greater efficiency, larger scale, and other benefits, were they to be connected. Against this background, this paper sets out a proposal for a conceptual model for the networking of emission trading schemes, built on the architecture of distributed ledger technology. In this way, it is argued, the interconnection of these emission trading schemes might be achieved flexibly, cost effectively and efficiently, while taking account of the requirements for cooperative approaches, evidenced in the Paris Agreement. The purpose of the paper is to stimulate, and provide a starting point for, more detailed, intensive discussion of what the technical requirements might be of some such scheme.

Keywords: Networking, emission trading schemes, distributed ledger technology, blockchain, international transfer, mitigation outcomes, Paris Agreement