Distributed Ledger Technology for Governance of Sustainability Transparency in the Global Energy Value Chain † *
| DOI | 10.3366/gels.2020.0006 |
| Published date | 01 February 2020 |
| Date | 01 February 2020 |
| Pages | 55-100 |
Between now and 2040, global economic growth is estimated to increase at an annual rate of three per cent.
Globalisation has created world-wide interconnectivity of energy supplies.
Sustainability, particularly in the context of the energy supply chain, is an imperative of our time. Climate change is a global concern that arises from the use of energy – carbon dioxide (CO2) from the burning of fossil fuels is the greatest contributor to climate change.
In this article we consider how blockchain might help sustainability
This is the first of a two-part article. In this Part 1, we consider the shortcomings of the traditional model for managing and operating market-based instruments designed to reduce CO2 emissions, and how blockchain technology could overcome common problems in these programs.
While this paper is about improving sustainability outcomes in the energy value chain, ‘sustainability’ is neither a straightforward term nor does it have simple governance.
The concept of ‘sustainability’ has been described as ‘amorphous’,
The term ‘sustainability’ (also ‘sustainable development’) is found in several legal instruments, yet it lacks a legal definition.
In addition, international governance of sustainability is multifaceted. It has been observed that, ‘[a] notable aspect of sustainability is its holistic and cross-cutting nature – it cannot be achieved by any single rule, statute, or agency’.
Furthermore, the notion of ‘sustainable energy’ also continues to evolve. The concept of sustainable energy has been described as a focus on the transition to clean energy and away from fossil fuels in the context of climate change.
However, even in light of the transition to clean energy, fossil fuels (including natural gas, oil and coal, which are finite (non-renewable) resources) will continue to have a fundamental position in the global energy mix. Although the use of renewable energy will continue to expand, it will not replace fossil fuels in the near term – fossil fuels are predicted to comprise 77% of the global energy mix in 2040.
Another complication for management of ‘sustainable energy’, is that it (and the international legal principles that apply to it) is governed through several legal areas, such as human rights, corporate, labour and natural resources.
This lack of consistency means it is not possible for regulators to demand ‘sustainability’ from the players in the energy value chain, because each regulator's understanding of what it requires may be different. The alternative approach is one of gradualism. It is possible for regulatory systems in the value chain to provide incentives for the players in the chain to choose sustainability over the alternatives. The aim would be to use the energy market to evolve an understanding of what forms of sustainability are achievable. However, it is not possible to devise such incentives, or to identify whether they are actually achieving the desired results, without reliable information about what is actually happening across the value chain.
Market-based instruments (MBIs) (discussed further in section 4) are one key resource employed to improve sustainability in the energy system. Examples of MBIs include emissions trading schemes that are designed to reduce CO2 emissions and renewable energy certificate schemes (green certificates) that seek to increase the use of renewable energy. In fact, there are a range of such tools (e.g., feed-in tariffs, energy efficiency/savings certificates (white certificates), guarantees of origin, etc.). We have chosen to focus on MBIs in this paper, as they provide a useful framework in which to explore transparency and to understand the legal and regulatory facilitators and prohibitions to creating an effective transparency system for sustainability.
Governance of sustainability generally, and of MBIs specifically, in the energy value chain is a complex endeavour. It relies on policy instruments which are implemented via a patchwork of international, national, regional and local laws, including both hard and soft law. The consequence is sustainability ‘silos’ rather than application of a coordinated, life cycle approach. From a geographical view, these schemes typically have a domestic or regional focus (e.g., feed-in tariffs (local), EU emissions trading scheme (regional)), and yet the issues they seek to remedy collectively lead to problems with international impacts. Consider, for example, that natural resources required for energy generation may be exported to be consumed elsewhere; climate change is a global issue, and thus the use of fossil fuels by one region or sector could have implications elsewhere; pollution and waste can traverse international boundaries. Furthermore, the harm created today could have consequences for future generations (inter-generational effects).
This complex system of independent and overlapping governance structures results in a lack of information transparency which reduces the effectiveness of MBIs. Information generated and recorded in one governance structure may not be available to market actors working under a different governance structure, or to the regulators of that structure. This can prevent MBIs from working efficiently.
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