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by Alexis Pappas
The province can become a premium exporter of the world’s best low-emissions fuels and carbon credits by leveraging blockchain technologies and digital assets.
The energy transition is one of the greatest economic shifts that humanity has ever experienced. While it may be a little hyperbolic, US Special Presidential Envoy for Climate John Kerry recently called it the “largest market the world has ever seen” and described it as having a greater impact than the Industrial Revolution.
Alberta’s boom periods have always been based in its rich energy resources, and its future opportunities could also lie in its high regulatory standards and emissions-reducing innovation. Global markets for ESG assets like carbon credits, green equity, and low-carbon certified products are predicted to reach as high as US $53 trillion by just 2025, and our provincial advantages could help us capture a significant share. That is, if we can prove it.
ESG Greenwashing
In 2022, the booming ESG investment bubble have had to confront a harsh reality. February saw Morningstar strip US $1 trillion from Europe’s sustainable investment markets, home to more than 80% of global green funds. In June, the Frankfurt offices of Deutsche Bank’s asset management arm DWS Group were raided in a greenwashing investigation that could impact half of its nearly $1 trillion portfolio.
Voluntary carbon offsets surfaced from last year’s COP26 climate conference as a critical funding mechanism for the trillions in sustainable development needed to meet the Paris Agreement targets of limiting warming to 1.5 degrees in this century. However, voluntary markets in countries like China are under fire for fraud, and some studies suggest more than 90% of offsets fail to meet basic criteria for a tonne of reduced or removed carbon.
Even under the old Kyoto Protocol “Clean Development Mechanism”, concerns were raised about the credibility of the offset credits. Sustainability needs to become more than a convenient economic fiction, and tokenization – the creation of tradeable digital assets from data registered on blockchain networks – is an important solution.
Asset Integrity
Blockchain networks can build trust in assets like carbon offsets and low-emissions energy products by providing immutable, encrypted registries that allow data to be almost instantly traced to its point of origin. When a blockchain token is created, or minted, from this data, additional information can be attached as metadata that verifies the authenticity of the asset, such as assurance documents, IoT device measurement data, and proof of standards compliance.
This process can prevent “double-spending” of voluntary credits – a major current challenge – by requiring all credits used as offsets to be registered as such, and the tokens to be disposed of, or “burned”, in exchange for certificate of offset application.
Aligning Standards
A proliferation of competing standards and authorities has fragmented both voluntary carbon trading and the growing market for low-emissions fuel. Tokens have the advantage of being programmable, and capable of surfacing assets that align to different protocols types, like the World Business Council on Sustainable Development’s GHG Protocol or the UN’s Oil and Gas Methane Protocol (OGMP), from the same emissions data set.
Blockchain will also support consensus-building for global standards, especially for carbon trading, through transparent, publicly available metadata that allows comparisons between asset types and better market discovery around credit value – an area where Alberta can be a clear leader.
Digital Exports
Tokenization will encode Alberta’s top global measurement standards and emissions regulations and allow its high ESG performance producers and midstreamers to create new value for their low-emissions assets like carbon offsets from sequestration and certified low methane, carbon, and NOx fuel.
By the end of 2022, certified “responsibly sourced” natural gas is predicted to be 18% of the North American market, and the end-to-end traceability and standards compliance enabled by tokenization provides more credibility and trust, especially for a major energy growth market – blue hydrogen.
Canada is already a top-ten hydrogen producer and its ambitious Hydrogen Strategy puts a focus on exports to the US, APEC and Europe, and as a heating and transportation fuel across Canada. Blue hydrogen’s natural gas feedstock has drawn greenwashing criticisms, making advanced verification of its carbon sequestration key for widespread acceptance.
The carbon capture and sequestration projects receiving an unprecedented amount of investment in Alberta could, through traceable tokens, become an attractive source of premium, audit-resilient credits for emerging carbon ETFs and global marketplaces.
Path Forward
The path to scaling the use of tokenization for Alberta’s sustainable energy exports isn’t without challenges – it will take strategic collaboration between government and the energy sector, availability of technical talent, and a lot of targeted education about the technology’s applications and value.
James Graham, CEO of Calgary-based blockchain firm GuildOne, said that the projects his ESG1 division is developing with a local energy partner for tokenized carbon offsets and certified natural gas and biofuels are starting to resonate.
“We have some of the world’s best energy measurement regimes and regulations in Alberta. With ESG markets experiencing a massive collapse of trust, we have an opportunity to become a top exporter of verified green products, especially to meet tightening emissions regulations in Europe.”
Blockchain is growing in recognition among Alberta’s energy sector. In October of 2022, blockchain will be included on the event calendar of Calgary’s Net Zero Conference and Expo, a major energy sustainability event developed by Petroleum Technology Alliance Canada (PTAC) and Eventworx.
Allan Fogwill, PTAC’s COO, described blockchain as “an enabling technology that can help Oil and Gas companies capitalize on their emissions management expertise and open up a brand-new export market for credits and for solutions to create those credits”.
About Alexis Pappas
Alexis Pappas is a technology strategist and writer with diverse experience in blockchain and energy innovation. Committed to values of inclusion and collaboration, she is the Executive Director of the Canadian Blockchain Association for Women and a Director of the Canadian Blockchain Consortium.
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