The blockchain ‘s emerging role in sustainability
Picture, if you will, a tracking system that discreetly verifies the provenance of products as they move across a supply chain — sending proactive alerts about unexpected detours that could signal potential tampering or environmental conditions that might pose safety issues. Did we mention that it’s virtually tamperproof?
Or, imagine a database that monitors the clean electricity generated by on-site solar panels, issues renewable energy certificates as certain production thresholds are achieved, then distributes them according to predetermined contracts. Automatically.
Most of us would be hard-pressed to deliver an elevator pitch explaining “the blockchain,” an emerging technology that could power either of those hypothetical applications along with many other types of financial and non-financial transactions. Yet many are coming to believe this platform could become nothing short of revolutionary, not just in the financial world but for all manner of sustainable business applications starting with the ones imagined above.
How’s this for a high-profile endorsement? In an essay published in November, IBM chairman and CEO Ginni Rometty drew this comparison between the blockchain and the “set of arcane standards” that eventually would become the internet: “Few predicted the profound impact it would have on society. Today, blockchain — the technology behind the digital currency bitcoin — might seem like a trinket for computer geeks. But once widely adopted, it will transform the world.”
At its heart, a blockchain is nothing more than a digital ledger. Think of it as a decentralized database that records transactions of almost any type and enforces contracts related to them automatically, based on conditions defined by the participants. The transaction history is appended to the “chain” rather than tracked via a paper trail. Because the system is distributed and encrypted, it’s difficult to tamper with or hack.
Naturally, all of the world’s largest financial services firms and banks are investing heavily in blockchain technology. The venture capital community poured almost $1 billion into related startups between 2014 and 2016, about 10 times the amount dedicated over the previous four years.
While the hype level seen during 2016 isn’t likely to last — it sometimes seems every other tech headline is rife with blockchain promises — the next few years will usher a wave of experiments. Where sustainability professionals are likely to see the most action: among utilities or renewable energy developers seeking a more efficient way of pricing and selling clean power; at consumer products companies and retailers seeking a better way of validating supply-chain claims; and among banks and insurance companies interested in verifying the provenance of minerals, commodities or raw materials.
You can expect utilities to play an active role, for example, in testing how blockchain technology might be used to rethink how energy is priced and sold.
“Blockchain has the potential to disrupt power for several reasons: The power value chain relies on a plethora of cumbersome trading and clearing systems to support complex markets, opening the door for a leaner distributed system that can cut out middlemen and lessen associated fees,” said Lux Research analyst Isaac Brown. “Furthermore, units of power and energy are a strong fit for smart contracts, as they are concrete and discrete, and meters can feed directly into blockchain logic.”
The “owner” of a distributed grid, for example, might be able to sell excess power to virtually anyone within an open market. Or, a blockchain could be used to generate RECs needed to back up certain reporting claims.
One experiment to watch closely is in Brooklyn, New York, where a startup called LO3 Energy is using the blockchain to manage clean power trading across a solar-fed microgrid that covers a city block filled with both residential buildings and industrial facilities. The idea is that if one building produces more electricity than it can use, it can allow another building to consume it. “When each piece of the grid has a blockchain, it knows how to react,” said Scott Kessler, director of operations for LO3.
In late 2016, the LO3 project attracted a notable new advocate: German energy management giant Siemens, which is considering LO3’s technology as an addition to its own microgrid controllers. The CEO of Siemens’ digital grid business envisions “tremendous opportunities” from this technology for both utilities and corporate customers. LO3 hopes to get at least two more demonstrations up and running in early 2017. “At this point, the only roadblocks to doing this are at the policy and regulatory level,” Kessler noted.