13 Jan The Role of Blockchain in Managing Climate Impacts
More energy, less carbon: this is the dilemma facing governments, businesses and consumers as they determine how to respond to climate change. What role can digital technologies play?
Climate and Energy
The defining issue of our day—-on the one hand, global energy demand continues to rise, fuelled by rising prosperity and population growth in developing regions such as Asia and the Middle East. On the other, concerns about global greenhouse gas (GHG) emissions – which reached an all-time high in 2018 of 34bn tons of CO2e compared to 13bn 50 years ago – are driving calls to rapidly decarbonise.
Energy companies have an opportunity to respond to an increasingly global diversity of demand, at lower carbon intensity.
One of the most important themes to have emerged in business over the past decade is environmental, social and governance standards (ESG). ESG signifies commitment to sustainable capitalism with accountability. Business groups such as the US Chamber of Commerce now promote ESG as a key business objective and it is a priority for boards and shareholders across the world, since an effective ESG programme impacts valuation, reputation and societal standing.
The energy sector is understandably under global pressure to embed ESG in operations and practices as part of taking a more responsible role in responding to climate change.
Repsol recently announced an industry-leading, net-zero carbon dioxide emissions target for 2050. Repsol believes it can achieve two-thirds of the 2050 goal through initiatives such as moving away from carbon intensive projects, using cleaner forms of energy to power refineries, adding more biofuels into diesel and petrol, cutting flaring and methane leaks, and increasing renewable power in its energy mix. Repsol intends to link at least 40 per cent of its top managers’ long-term pay to achieving the 2050 target.
Obviously, actions to achieve these targeted outcomes need to be measured and monitored, but the technology and tools to enable this are, relative to the scale of the problem, shallow. Data must be stored in a manner that leaves an evidence trail — it must be tamper-proof, auditable and transparent. That means that the global energy industry, still heavily analogue, must lead with digitalisation if we are to tackle the impact of climate change in a meaningful way.
Politicians globally are listening and acting. The European Commission is committed to an EU Green Deal designed to achieve the target of net-zero carbon emissions by 2050. The Commission can guide, but not force, member states to abandon established industries or change energy systems; however, the direction of travel is clear.
The energy sector will need to change and fall in line with these political directions. Nowhere will the change be more fundamental than in the digitalisation of the energy supply chain. Many energy companies are advancing down this road, with some beginning to recognise the role of blockchain in creating a more transparent, trusted and sustainable reporting framework for the future.
The Blockchain Opportunity
Blockchain is the technology behind a distributed network of computers that can be used to store data securely but which, uniquely, has a single memory. That means data cannot be freely copied and edited to create an alternative version of the truth, which is why blockchain technologists refer to it as the “trust platform”. In the enterprise context, the blockchain would be used as a private permissioned framework for a group of stakeholders, such as suppliers, customers and regulators.
As energy companies seek to regain the trust of all their stakeholders, including, critically, “social trust” with consumers, they will have to demonstrate an even higher level of compliance with a green agenda because data-supported accountability will demand new and more onerous operational standards.
Blockchain Use Cases
Below are some of the potential blockchain applications in the industry:
Supply chain efficiency and transparency
Most trading organisations are active in two supply chains: financial and physical. The financial one has the distinct advantage of having been dramatically transformed through financial automation, while the physical one remains analogue and therefore significantly slower. Combining the two onto a blockchain structure will enable the creation of a digital twin of the two supply chains.
For example, refining and petrochemical products are subject to multiple safety and quality certifications by regulators and this data can be stored in the digital twin to provide evidence of its provenance. In 2019, Repsol implemented a supply chain track and trace solution called BlockLabs, developed by Finboot, to do exactly this, thereby improving the certification process of petrochemical goods and driving supply chain efficiencies.
Tomas Malango, experimentation and deep tech director at the Repsol Technology Lab, explains: “Currently, there is a lot of re-working involved in processes where we handle a large number of samples due to issues such as labelling errors and information being inaccurately recorded or transmitted. Digitalisation allows Repsol to identify the samples correctly throughout their whole life cycle.”
Track and trace technology has numerous applications for the energy industry. For example, knowing a product’s origin and its chemical composition are critical, as illustrated by a contaminated crude oil situation in Russia recently. The 1.5m barrels-a-day pipeline was suspended in late April 2019 after refiners in Poland and Belarus detected excess chlorine in the crude oil that could destroy refining equipment or, at high temperatures, create poisonous chlorine gas.
Trading and quality management
The complex Oil and Gas market, with customers and suppliers dealing at different junctions and products moving from upstream to downstream, creates ample opportunities for intermediaries such as traders, surveyors, and shipping agents to extract value. Blockchain removes intermediaries from the equation.
In this ecosystem, there is a huge amount of paperwork as permits, custody ownership and transfer documentation move along its chain via emails. The management and protection of this data remains analogue. Not only does this represent immense risk (loss of documents, fraud, counterfeiting, etc), but it is also inherently inefficient, which pushes up costs. Blockchain brings the required transparency and auditability to a fragmented supply chain, while driving higher operational standards throughout the chain.
Oil and energy project collaboration and management
Oil and Gas installations involve multiple parties, including engineering, procurement and construction (EPC) companies, services companies and multiple subcontractors, as well as the energy companies themselves. This project complexity typically leads to lack of documentation linking each step, resulting in audit fragmentation. In the event of an insurance claim, the lack of sufficient data can be an impediment.
A possible use of blockchain is leveraging the distributed platform for the storage of all the details about a project, including design documentation, as-built documentation, project plans and project resourcing information. All the parties involved in a project – EPC, Oil and Gas companies, operations parties, insurers and regulators (should the need arise) – would be able to access the platform, which would act as the sole repository throughout the project life cycle. Furthermore, creating a digital twin of the data opens up greater possibilities to finance the asset and change its ownership as it moves between parties.
Oil and Gas companies will progress towards a decarbonised future at different speeds. Digitalisation will not only accelerate the passage, but also provide proof of the quality of their transition. Tomorrow’s winners will be those that are transparent and accountable to an increasingly impatient, demanding and critical stakeholder audience. The template for transition is unquestionably digital and, within that universe, we believe blockchain plays a pivotal role. Only through its adoption will the safe energy industry leaders of today transition into sustainable energy providers of tomorrow.
This article is co-authored with Nish Kotecha, Chairman and Co-Founder of Finboot. I have the privilege and honour of working with Finboot as an advisor.
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