Scope for improvement? Carbon accounting on the blockchain

When a firm calculates its emissions, it has to break them down into three scopes.

Scope one emissions derive directly from assets that are owned and controlled by the company such as its fleet of vehicles and the power usage in its buildings.

Scope two are the indirect emissions that occur from its sources, and scope three are the emissions produced by its end users and its supply chains.

Calculating all three scopes demands a lot of trust and accuracy from all parties in the hope of not accidentally ‘greenwashing’, being fined, and missing out on emissions that could have been shed.

And it’s here where blockchain is making its pitch.

At the BT Sustainability Festival, held at the British telco’s innovation hub in Adastral Park, Adi Ben-Ari, founder and CEO of Applied Blockchain, explained that blockchain technology could “create more trust” in the carbon accounting process.

Blockchain is a decentralised, public ledger that records transactions over many computers using digital contracts that will lock each movement of an asset into a shared database.

With blockchain, says Ben-Ari, “you get stronger authentication of the data and stronger security around it, and that’s quite important in a sustainability context.”

To clarify, Ben-Ari agreed that while blockchain is controversial on the sustainability front, it’s mainly only the Bitcoin and crypto side of blockchain that consumes a lot of power and energy.

“In order for Bitcoin to be up and running, there is a huge amount of energy consumption that goes with it,” he says. “But that’s not to say that blockchain overall isn’t sustainable.”

Ben-Ari adds that there are other blockchains that solve problems in sustainability, such as within the supply chain.

Eric Wragge, global head of business development and capital markets at blockchain firm, the Algorand Foundation, explains that the usual way of calculating indirect emissions in firms is by getting others to fill out a survey.

“There are big companies saying, we have a solution,” he explains. “Everybody’s got their own sustainability survey to tell us how much carbon you use to produce that item.”

For them, this is not the answer. For instance, in the case of  companies such as UK retailer Marks and Spencer’s – which has 30,000 suppliers – a solution like that can be incredibly complicated and labour-intensive.

“Situations like that are where I think blockchain and Web 3 can be incredibly powerful.”

For blockchain platform Circulise, its business development manager Umberto Cucchi says its platform can trace the carbon usage of, for example, the transport used to ship goods and document it onto a blockchain.

“So we will manage different data points from one end to the other of a supply chain,” he explains.

The firm will time-stamp each movement in the supply chain with the amount of emissions used, and verify it to those responsible for proof of ownership.

The firm calls its software solution a ‘digital product passport’ which keeps a detailed record of the product’s original material consumption, and any other environmental data.

According to Wragge, this kind of accountability and traceability is especially important in the example of a big oil firm such as Shell.

“ You have a company like Shell, who spends a tonne of time on their disclosures and sustainability,” he says.

“Yet, it’s digging up all of this carbon, and then passing it on to its customers and saying, ‘OK, we don’t actually use so much because we power some of our diggers and pipelines sustainably.”

“Ultimately, you should be saying one tonne of carbon that comes out of the ground is going to be one tonne of carbon in the sky,” says Wragge.

“So for all of those steps along the supply chain, who burned how much of the petrol before the customer burned what was left over at the end?”

For Wragge, this is really where the current way of self-reporting is flawed, as carbon emissions in not only petrol, but other products, are shifted down to the customer when it could be spread out more fairly.

“I think that’s where blockchain becomes super powerful,” he says, “because if one tonne comes out then it’s reported on the chain.”

So, with the help of a blockchain. Rather than each party along the supply chain gathering their own information and self-reporting it, it is evident and already there in the contact.