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

Photo credit: Mojix Blo lockchain and Cli limate Markets BBL April 3, 2019 1

Agenda 1 What is blockchain? 2 Opportunities & challenges for post-2020 climate markets 3 Looking forward: Developing a Blockchain-enabled warehouse 4 Technology and Innovation Lab Demo 2

1. What is blockchain?

Blockchain is like the internet in the 1990s: weird and scary • Innovation quote 4

Blockchain is a…. Secure 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 Shared The blockchain ledger’s main value is that it is shared between separate entities. It is based on a con consensus mechanis ism to add new entries to the ledger Distributed There is no no single le ma master co copy of of the led edger. Many copies of the ledger exist and they are replicas of each other in relative time Ledger 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 o alt lter hi historic ical l data data Adapted from Microsoft 5

How does it work? 3 The network 1 A peer requests 2 The transaction validates the a transaction is broadcasted transaction to the network 5 The new block is added to the blockchain 4 The transaction is added with others to a block of data 6 The transaction is complete Source: PwC, “A Look at Blockchain Technology” 6

Benefits of peer-to-peer and centralized systems Centralized Peer-to-Peer 7

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 R&D, INNOVATIO ION REGULATORY MARKET/PRIC ICE-BASED MECHANIS ISMS SU SUPPORT • Cap Cap and nd Tra Trade • GHG GHG • Pub ublic fun unding to o la labs bs • JCM Per erform rmance e and and un univ ivers rsiti ties • CDM CDM st standard rds • Rese Researc rch gr gran ants ts • Whi hite te Ce Cert rtifi ficate te • Tec Techn hnology • Paten atent po poli lici cies • Green Green Ce Cert rtifi ificate st standard rds • La Label elling • RED REDD+ • Fue uel l st standards 10

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 A LL COUNTRIES WISHING TO PARTICIPATE IN A RTICLE 6 WILL NEED A NATIONAL REGISTRY NEED FOR A “ SETTLEMENT PLATFORM ” FOR TRACKING OF TRADES AND ACCOUNTING RECONCILIATION AND TO AVOID DOUBLE COUNTING C OMMON “ LANGUAGE ” NEEDED FOR REGISTRIES TO COMMUNICATE WITH ONE ANOTHER ( E . G ., U NIVERSAL REFERENCE ID NUMBER , PROTOCOL FOR EXCHANGE ); C OMPARE DIFFERENT ASSETS 12

Addressing existing and post-2020 needs Bl Blockchain in Elem lements & Digita ital Exi xisting and and Po Post-2020 2020 Ne Needs Innovations Security of transaction (e.g., fraud prevention) • Cumulative, Immutability Robust accounting, double counting control • Continuity of historical transaction records → auditable • Encrypted Transactions Security against cyber attacks • Cost efficiency • Decentralized Infrastructure No single point of failure • Transparency • Security (write & view permission); confidential information can be • Permission kept outside the chain Smart Contract Diversity of units / rules for exchange; ensure payment; accounting • The Internet of Things, Automated, seamless and efficient data flows and analysis • Big Data Analytics To be further explored • 13

What if… Assets are digitized (as energy is being produced): process Transferring of assets is P2P with streamlined and efficient validation by peers per blocks Verification process is “automated” and costs are Settlement info can be dramatically reduced downloaded through reports from the chain Registries are simple digital accounts – reducing the costs and complexity 14

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

Generation of Mitigation Outcomes & Role of Warehouse Asset developers Existing registries Solar project in Country A (blockchain) register and track International buyers Examples of filters Registry Country Database Country (Country A) of projects governments Sector register Multinational Warehouse and track Wind project companies in country A tCO2e register Purchasing funds and track MAAP score Cookstoves project Database Registry 2 of projects developer in country B track Livestock project Database in country C 18

Warehouse – Progress and Next Steps • 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 19

4. Demo

Where Emerging-Tech can Help: Climate Market Problems Acc ccou ountin ing: : Dou ouble Cou ounti ting & & Dou ouble Sp Spen ending • Data ata Int Integri rity ty • Cyb yber ersec ecuri rity ty • Diffi ifficult t to o see see wha what is is go goin ing on on • Blockchain How How to o Incre Increase se Parti articipati tion • Cyb yber ersec ecuri rity ty • Diffi ifficult t to o see see wha what is is go goin ing on on • Data ata Int Integri rity ty & & Qual uality ty • Com ompl plexity ty of of data data co coll llecti tion • Timing inte Tim interv rvals • IOT ! Tech components are building blocks, each performing particular functions. 21

Country to Country trading on Blockchain Transactions/ Settlement/ Registries/ Payment Cancelling/ Retirement MO Creation Identity/ Ownership Integrity of IoT Data Purchase In this experiment, we showed how the Agreements/ process would work if the purchase agreement Commitments was on the blockchain, and climate asset disbursement through a blockchain network. Assets could then be continuously traded between countries. 22

Donor Initiated Carbon Market(DICM) – Process Flow 10 Carbon Account/ Receive Money Country Client 7 Verify Credit 8 Purchase Sell Buy Agreement Carbon Trust Audit WBG 7 Verify Credit Fund(CTF) Request 3 2 Credit Purchase Agreement (CPA) 9 Buy Via Buy Sell Donor Fund 1 Country Donor Donate Money Carbon Account UNFCCC 7 Verify Credit 4 5 6 Auditors Create Audit Create/Issue Audit and Report & Carbon Certify Certificate Credits 23 Blockchain Components

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Integrity of Assets: Blockchain & IOT Transactions/ Settlement/ Registries/ Payment Cancelling/ Retirement MO Creation Identity/ Ownership Integrity of IoT Data Purchase In this experiment, Blockchain is used to Agreements/ secure a hash of the IOT data. The hash can Commitments be used for an integrity check of the data – solving the “first mile” data problem. 26

Prototype Architecture 27

Readings from solar sensor • 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. 28

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Chilean Government Building Solar Panels – using IOT and BC Technologies 31