Could the DAOs (decentralized autonomous organizations), tokens and blockchain networks of Web3 be the foundations of a sustainable world? With the Intergovernmental Panel on Climate Change (IPCC’s) latest report advising that transformative new systems are urgently needed to keep warming below the 1.5C degrees mandated by the Paris Agreement, it’s time to consider how disruptive digital technologies could accelerate climate action.
What is Web3? The first iteration of the internet was a simple, read-only platform for most users. Our current internet, Web2, evolved into user-created content and powerful social networks. Decentralized and powered by blockchain, Web3 is often called the “read-write-own” web because it puts control over governance and operations into the hands of its global users and enables new kinds of value creation as tokenized digital assets like NFTs (non-fungible tokens).
The unique properties of Web3 and its applications, platforms, and assets have the potential to overcome some of the biggest challenges to global sustainability, and exciting new projects are demonstrating just how powerful Web3 could be for building a net zero future.
The effectiveness of centralized action against climate impacts is showing a myriad of weaknesses, even in the non-profit sphere. According to a recent survey, just 11 per cent of major philanthropic organizations – including those focused on the environment – rated their climate action as “very effective”.
Governments have consistently failed to act with urgency on the international scientific community’s warnings, or with fairness towards those who climate change will impact the hardest. This is especially true of the United States.
The Supreme Court’s July roll-back of the country’s Environment Protection Agency’s ability to enforce emissions standards is shocking in light of a report showing that the U.S. alone has caused almost two trillion dollars in climate impacts to emerging countries like Brazil, India, and Indonesia.
Globally, the world’s richest countries made a lot of promises to provide climate financing for the developing world, but The 2021 United Nations Climate Change Conference (COP26) revealed their disappointing performance at the collective US$100 billion funding commitment promised by 2020.
UN Special Envoy on Climate Action and Finance Mark Carney’s Glasgow Financial Alliance for Net Zero (GFANZ) is backed by companies with US$130 trillion in assets and was developed to make sustainability a key part of all global economic decisions.
However, green investment is only effective with integrity, and massive greenwashing scandals like that of Deutsche Bank’s current US$1 trillion investigation demonstrate that our environmental, social and governance (ESG) markets are full of fraudulent and misrepresented assets.
Proof of integrity
The blockchain technologies that act as the foundation for Web3’s digital assets offer unique advantages for overcoming challenges to meaningful progress on sustainability. Green assets like voluntary carbon credits, considered a key financing tool for emissions-reducing projects, are coming under heavy criticism, with some studies showing that more than 90 per cent of credits from leading authorities like Verra and Gold Standard fail to meet basic offset criteria.
For voluntary offsets and ESG investments in nature-based solutions and sustainable projects, markets are now rightfully demanding real proof of green value. Tokenization helps overcome this challenge by providing traceability of origin and provenance of an asset through its metadata: a transparent, public record of attributes like standards compliance, physical qualities, and validation processes and signing authorities.
Metadata information can be integrated with business systems and device intelligence for automated asset generation. For example, a carbon credit, like those issued by GuildOne in a 2021 project with a Canadian energy partner, can pull data from energy intelligence software, verify and certify it with an ecosystem of authorities, and turn it into a fully tradeable and traceable digital asset.
This digital verification process can apply to diverse types of ESG assets beyond carbon offsets, such as certifications for low-emissions products like food or fuel, units of renewable power, and investments in sustainable projects like green energy or conservation.
Web3 could also provide important platforms for the kind of borderless collaboration and international marketplaces required for a successful net zero transition, which U.S. Special Presidential Climate Envoy John Kerry recently called the “largest market the world has ever seen” and described as having a larger impact than the Industrial Revolution.
The massive scope and international nature of this shift will take an unprecedented level of collaboration, and tokenization is an ideal way to encode leading global standards, such as the Greenhouse Gas (GHG) Protocol for carbon measurement and calculation, into an asset like a carbon offset.
This will help create markets that are aligned across borders on metrics like carbon calculation, verification criteria, and emissions standards, which are currently fragmented and vary widely in different regions, even within the same country.
In addition to supporting new types of markets, Web3 also offers innovative new community ownership models for sustainable projects, enabling creative financing for green initiatives and for more people at all economic levels to participate in the energy transition.
A decentralized future
The ability to create trust in an asset through tokenization and Web3’s emerging global markets and communities could lead to a very different society – one in which the majority of people play an active daily role in the energy transition, rather than its current domination by industry and government.
In the near future, a household might vend tokenized renewable power from a solar array onto a decentralized energy grid, receiving automated payments in cryptocurrency in exchange. As a DAO, the grid itself would be owned and managed by its participants, who all vote on issues like governance and revenue distribution and profit from its success.
The home’s GHG emissions, monitored by its edge devices and registered as debits on a blockchain network, could be offset by automated cryptocurrency purchases of carbon credit tokens from global exchanges. The credits on these digital markets, based on emissions reductions from both corporations and individuals, would be standardized, verified, and like the home’s emissions debits, generate automatically from digital data.
These trusted credits would be a critical funding source for new sustainable energy, emissions-reducing technologies, and conservation initiatives, creating an automated green economy that catalyzes innovation and engages billions of people.
Ultimately, Web3 could do for the energy transition what it is predicted to do for the internet – shift control over our world’s future to into the hands of the many, rather than the few.