Blockchain for Governance of Sustainability Transparency in the Global Energy Value Chain

Abstract

Transparency is one of the most useful tools to support sustainability in the energy value chain. By providing information about the sustainability of the activities of actors, transparency creates incentives to improve sustainability. This paper explains how blockchain technology might be used to build a global transparency system for sustainability information in the energy value chain, using market based instruments (MBIs) as its testbed.

While the energy value chain is global, management of sustainability is not. Instead, sustainability is managed through a complex system of independent, sometimes overlapping, structures, with both mandatory and voluntary elements. MBIs such as emissions trading schemes, green certificates and labelling programs facilitate sustainability through market incentives. However, the transparency of MBIs, and so the information which can be derived from them, is inconsistent, fragmented across national schemes, and not readily accessible. The problems that arise from that are compounded by the regulations that govern MBI programs, which set out the information to be collected and restrict how widely it can be shared.

Blockchain technology offers a tool which could be used to collect and share sustainability information better. This would increase the effectiveness of sustainability incentives through market responses such as consumer choice and investor pressure, and make MBI schemes operate more efficiently. However, the implementation of blockchain for MBIs is not to be done against a blank canvas – it must be consistent with existing governance requirements. If the existing regulatory regimes governing MBIs are not respected, developments based on blockchain are unlikely to be adopted.

Part 1 of this paper begins by explaining the workings of blockchain, and provides context for MBIs and sustainability in the energy value chain. It then explains how blockchain could improve transparency, and outlines a vision of a “promised-land” of full sustainability transparency, which might be achieved were it possible to meet the regulatory constraints.

Part 2 of the paper goes beyond that vision, by analysing the regulation of MBIs in six sample legal regimes (Brazil, India, Kazakhstan, Mexico, South Africa and the EU) to identify the constraints those regimes place on the sharing of MBI information. It explains how the choices between different ways of implementing blockchain technology could be used to satisfy differing jurisdictional requirements. The paper concludes by presenting a conceptual model of linked blockchains, each complying with its own, varying, local regulatory requirements, which might exchange information through gateways and control the subsequent use of that information through peering agreements. The outcome is a scalable model to which other blockchains could be integrated as they are developed, and through which sustainability information could flow on a global scale, while continuing to comply with existing, local, regulatory regimes.

Keywords: Blockchain, climate change, emissions trading schemes, energy law, energy policy, energy regulation, energy transition, global energy, green certificates, market-based instruments, Paris Agreement, sustainability, transparency

JEL Classification: F64, Q54, Q56, K00, K32, Q48