Blo lockchain and Cli limate Markets BBL April 3, 2019 1 Agenda - - PowerPoint PPT Presentation

1

Blo lockchain and Cli limate Markets

BBL April 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 cr crypto tography to ensure that each transaction recorded in ledger is digitally signed, to red reduce the pot potentia ial l for fraud The blockchain ledger’s main value is that it is shared between separate entities. It is based

• n a con

consensus mechanis ism to add new entries to the ledger There is no no single le ma master co copy of

• f the led
• edger. 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 di diffic icult lt to

• alt

lter hi historic ical l data 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

• thers 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 2 3 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/PRIC ICE-BASED MECHANIS ISMS R&D, INNOVATIO ION SU SUPPORT

• Cap

Cap and nd Tra Trade

• JCM
• CDM

CDM

• Whi

hite te Ce Cert rtifi ficate te

• Green

Green Ce Cert rtifi ificate

• RED

REDD+

• Pub

ublic fun unding to

• la

labs bs and and un univ ivers rsiti ties

• Rese

Researc rch gr gran ants ts

• Paten

atent po poli lici cies

• La

Label elling

• GHG

GHG Per erform rmance e st standard rds

• Tec

Techn hnology st standard rds

• Fue

uel l st 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

Bl Blockchain in Elem lements & Digita ital Innovations Exi xisting and and Po Post-2020 2020 Ne 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

• f projects

register and track

Database

• f 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 project in country A Cookstoves project developer in country B Livestock project in 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

• Acc

ccou

• untin

ing: : Dou

• uble Cou
• unti

ting & & Dou

• uble Sp

Spen ending

• Data

ata Int Integri rity ty

• Cyb

yber ersec ecuri rity ty

• Diffi

ifficult t to

• see

see wha what is is go goin ing on

• n
• How

How to

• Incre

Increase se Parti articipati tion

IOT

• Data

ata Int Integri rity ty & & Qual uality ty

• Com
• mpl

plexity ty of

• f data

data co coll llecti tion

• Tim

Timing inte interv rvals

• Cyb

yber ersec ecuri rity ty

• Diffi

ifficult t to

• see

see wha what is is go goin ing on

• n

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

Donor Country Client Country WBG Auditors UNFCCC Carbon Trust Fund(CTF) Credit Purchase Agreement (CPA) Audit Request 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 5 4

Verify Credit Verify Credit Verify Credit

7 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

• wn 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 Lab sdavidcarevic@worldbankgroup.org Mert Ozdag, IT Officer, Technology and Innovation Lab mozdag@worldbank.org

Annex

38

Wareh arehouse

Local 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 Ghana Canada Turkey Egypt

Blockchain consensus mechanisms

Source: Blockgeeks, “Proof of Work vs. Proof of Stake”

39