Blockchain Application for the Paris Agreement Carbon Market Mechanism—A Decision Framework and Architecture

• Main Authors: Marco Schletz, Laura A. Franke, Søren Salomo
• Format: Article
• Language: English
• Published: MDPI AG 2020-06-01
• Series: Sustainability
• Subjects: Blockchain; decision framework; climate policy; carbon markets; Paris Agreement; Article 6
• Online Access: https://www.mdpi.com/2071-1050/12/12/5069

This paper evaluates the suitability of blockchain technology for the Article 6.2 carbon market mechanism of the Paris Agreement. The bottom-up approach of the Paris Agreement causes challenges to the robust accounting of mitigation outcomes and information asymmetry, both of which result from a high number of heterogeneous emission accounting systems. Blockchain is an innovative technology that can act as an aggregation platform for these fragmented systems while enhancing transparency and automating accounting processes. However, this new technology is not a panacea for all problems, and the trade-offs of applying blockchain technology need to be assessed case by case. We create and apply an eight-step decision framework for testing the applicability of the technology for the Paris Agreement Article 6.2 carbon market mechanism. The analysis shows that, under current mechanism specifications, a blockchain application can enhance transparency and increase automation, thereby eliminating information asymmetry. We outline a system architecture that allows the linking of the heterogeneous systems, the integration of an Article 6.2 exchange mechanism, and the progress tracking of climate targets. This blockchain architecture offers national Parties the opportunity to co-create a decentralised system in line with the bottom-up ethos of the Paris Agreement.