Blockchain-based carbon trading mechanism to elevate governance and smartness

Abstract

Climate change has negative effects on life on earth as well as the environment and economy. Harmful greenhouse gases, especially CO2, emitted from industrial processes executed by developed countries were identified as the primary reason behind climate change. The world recognized the risk of excessive CO2 emissions, therefore, the United Nations established the Kyoto protocol which aims at reducing the release of CO2 by monetizing its emissions. To achieve its goal, the Kyoto protocol established a carbon emission trading scheme to distribute and trade CO2 allowances among and between emitting participants. However, the carbon emission trading scheme fell short of its goal due to lack of integrity, governance, high intermediary cost and other security and technical issues revealing the need for a solution to elevate the scheme's operations. Meanwhile, blockchian emerged as a revolutionary way to operate business models due to its decentralization, security, traceability, immutability, and privacy. This study proposes an efficient and smart carbon emission trading system utilizing blockchain and smart contract. Our paper proposes a carbon emission trading system using Ethereum blockchain smart contract to automate trading Kyoto units between entities and reduce operations cost. The proposed system performs buyers registration and Kyoto units trading using Ether cryptocurrency for payment without intermediary but rather through smart contract and blockchain. The result is a robust and smart system that inherits blockchain features of trust, immutability, distribution, governance, and transparency.