Climate Ledger Initiative

Submitted by Richard Taylor | published 25th Oct 2021 | last updated 20th Dec 2021
Why DLT is vital in fighting climate change? CLI co-founder Nick Beglinger gives a summary at Gold Standard’s Grow to Zero event
Climate Ledger Initiative

Climate Ledger Initiative

Climate Ledger Initiative (CLI) is an international, multi-stakeholder initiative at the intersection of climate change and blockchain technology, or more generally distributed ledger technology (DLT). The mission of CLI is to accelerate climate action in line with the Paris Climate Agreement and the Sustainable Development Goals (SDGs) through blockchain-based innovation applicable to climate change mitigation, adaptation, and finance.

The Climate Ledger Initiative was started in 2017 by Nick Beglinger of Cleantech21 and is jointly operated by INFRAS Consulting, Analysis and Research and the Gold Standard Foundation. The CLI is financially supported by the Government of Switzerland and the Government of Liechtenstein, and maintains an ever-expanding platform of donors, partners and collaborators.

The 2021 edition of the CLI Navigating Report* highlights experience and remaining challenges while testing and implementing blockchain and other pilot digital applications for climate action in Kenya, Peru, India and Chile.

*Download the text from the right-hand column. 

Introduction

What is blockchain, or more generally distributed ledger technology?

In a simplified view, the blockchain can be seen as a new kind of database system, that does not follow a centralized structure like conventional databases (e.g. to track transactions of values in a bank), but dispersed over many decentralized nodes, the so-called “distributed ledgers”. Each ledger contains a copy of the database, and each new entry into the database is to be verified decentralized by numerous entities, and, once approved by the network, stored in all the ledgers. Another key element of the blockchain technology is the cryptographic architecture that “chains” each new entry or “block” in the database to earlier entries in such a way that the entries cannot be changed anymore and that provides security and transparency over earlier entries. Such blockchain based databases cannot only be used to track the transfer of money or other values, but also to track greenhouse gas emissions, report on progress in the implementation of climate finance projects or provide poor communities with access to financing to access clean energy, for example.

Find more information in CLI factsheets

Why is the blockchain technology relevant for climate action?

A blockchain-based database may increase the active participation of country parties and enhance public and private sector participation and ambition across the major pillars of the Paris Agreement—mitigation, adaptation and finance. The unique identification and tracking properties could ensure a high level of transparency within the network as well as a high-level of trust for the stored data. Moreover, combining mechanisms of the Paris Agreement with blockchain technology could open the door to many new and innovative approaches within climate change mitigation, adaptation and finance – offering lower transaction costs and increased transparency.

Use cases methodology

Working with concrete use cases that show real life applications of DLT and other digital innovations to drive climate action is one of CLI's main pillars.

CLI use cases provide digital innovations, with a strong climate impact. They are based on solid concepts, robust partnerships and allow for the systematic extraction of learnings for the benefit of other practitioners in the field, technology developers and policymakers. For some use case partners, in particular those working in developing countries, CLI has provided limited funds for activities such as approving concepts, road testing, implementation, outreach and exchange of learnings with peers and policymakers.

For the selection of use cases, CLI team developed together with SDC a set of criteria for the selection of use cases, including the quality of the team, their sustainability and climate impact, strength of technical innovation, embeddedness in local contexts and clear plan for scaling up of activity.  Below are selected examples of approaches relating to adaptation that encompass both mitigation and adaptation benefits. FFI see the full list of use cases on the CLI webpage for use cases.

Use case: climate risk insurance, Kenya

Etherisc
System and relevant actors of the Etherisc Weather Index Insurance in Kenya (Figure 7 in CLI report 'Blockchain for Climate Action and the Governance Challenge' (2021))

Accessible and affordable crop insurance is crucial for smallholder farmers to protect their livelihoods and increase their resilience to the effects of climate change. Unfortunately, traditional insurance is not able to provide sufficient protection. In Sub-Saharan Africa, only three percent of smallholder farmers have access to agricultural insurance. Insurance can be expensive, and there is little trust in traditional insurers due to histories of delayed or even absent pay-outs.

With the support of blockchain giants Chainlink and the Ethereum Foundation, Etherisc and Acre Africa launched a project in Kenya in October 2020. The purpose of the project is to make climate risk insurance cheaper, faster and more transparent, based on blockchain technology. Etherisc provides its blockchain platform, the “Generic Insurance Framework“ or GIF, as a solution to automate an existing insurance product by ACRE Africa, which is distributed in cooperation with village-based agents and farm input suppliers, through scratch cards and a USSD telecommunication service. When planting seeds, the farmer can register the code using the SMS/USSD function on their feature phone to provide necessary personal and agricultural information. The basic insurance premium is prepaid, included in the price of the seeds. Top-up payments can be made through M-PESA to increase the cover.

Once the insurance smart contract is active, it will autonomously track the weather data relevant to the farmer’s policy. Such data is sourced from satellite weather data "oracles" in real time. The smart contract can automatically execute the pay-out through an API connecting to the mobile payment network as soon as the agreed conditions for drought or flood are met as defined in the farmer’s respective policy. Such instant payments solve an existential cash-flow problem that farmers have with the delays between their claim and the insurance pay-out. The solution has the potential to achieve premium reductions of up to 30% and to reduce claim cycles from 3 months to 1 week. The pay-outs are done through M-PESA directly to the farmer’s mobile phone.

Etherisc’s project in Kenya aims to provide smallholder farmers with access to affordable crop insurance to increase their resilience to the effects of climate change. The blockchain-based solution brings premiums down to an affordable level. It helps to eliminate asymmetric access to information and increases transparency. The automated payments increase speed of transactions, lower operational costs and avoid conflicts of interests for the insurer. This helps to build trust that claims will be paid when farmers need them most urgently.

The first season, 2021, saw 17,000 insured farmers live on the platform. The first payments to farmers could be made even before the end of the season.

Text from the Report from INATBA and CLI 'Blockchain for Climate Action and the Governance Challenge' (2021)

Partners: Etherisc Impact B.V. (The Netherlands), ACRE Africa (Kenya)

Contributors: Jan Stockhausen (Etherisc, Kenya insurance)

See CLI page for climate risk insurance, Kenya use case

Use case: cooking as a business, India


An improved, clean cookstove fitted with sensors installed in a rural household in Raichur, India. Source: FairClimateFund 

Cooking on traditional open fire causes health problems, deforestation, climate change, and imposes a huge burden, especially on women. FairClimateFund aims to use climate financing to give households that are most vulnerable to the impacts of climate change access to clean cooking.

The SDC-supported Climate Ledger Initiative (CLI) is supporting a pilot project by the FairClimateFund and its partners Nexleaf Analytics, JSMBT and Applied Technologies, in which 100 households in Raichur, India, will be provided with clean cookstoves. These stoves will be equipped with cost-effective sensors to monitor cooking practices. The monitored data will be transferred automatically to a DLT platform to calculate and validate the emission reduction impacts.

The platform offers opportunities for buyers to finance climate and other sustainable development impacts (benefits), particularly those related to Sustainable Development Goal 5, Gender equality. The idea is that income from climate finance will enable the users (usually women) to make savings relative to using other cookstoves. The potential impact buyer can purchase the impacts directly from the online platform with full details such as tracing and accountability, and will make direct transfer to the cookstove user’s account.

A baseline household survey was done, and geo-tagging data for 110 households from Ramanhal and Chikkahonnakuni villages has been uploaded to the platform. A training session was organised for JSMBT staff responsible for sensor installation, software, and data collection and for informing households about the precautions they need to take with using their stoves.

The use case provides a clear and transparent mechanism to incentivise rural communities, and especially women, to become more financially resilient by generating a fair income from the use of cookstoves with lower carbon emissions and a positive effect on health.

Partners: FairClimateFund (The Netherlands), Nexleaf Analytics (USA), Applied Technologies (India), JSMBT (India)

Contributors: Owen Hewlett, Jürg Füssler, Megha Thakur (Fair Climate Fund)

See CLI page for cooking as a business, India use case

Tracking climate adaptation measures and their impacts

Unlike climate mitigation, where global mean temperatures or greenhouse gas concentrations determine a threshold, the adaptation arena requires extensive work for both assessing climate change vulnerability and strengthening Monitoring, Evaluation, and Learning (MEL) of interventions aiming to improve climate resilience. The assessment of climate risks and vulnerability as well as coherent MEL schemes are crucial requirements for decision makers at different levels (e.g., UN agencies, governments, implementing entities, and development/financing institutions in general) to design, compare, prioritise, monitor, and appraise climate adaptation interventions.

Innovative approaches for climate adaptation based on Information and Communication Technologies (ICT) and using blockchain mechanisms have great potential for supporting the continuous monitoring of vulnerability reduction initiatives. To support monitoring of adaptation initiatives, mechanisms can exploit tamper-proof and data persistent (immutable) properties. This is also relevant for other functionalities, for instance, supporting the provenance/traceability of contributions, that is, who gives or receives financial resources.

As an example, Loss & Damage (L&D) programmes using cash-based transfers as assistance mechanisms for affected individuals and families exposed to extreme climate events could be implemented through blockchain technologies, reducing transaction time and costs (e.g., for account creation, distribution mechanisms, transaction authorisation, reporting, payment of fees), thereby improving efficiency and efficacy of L&D assistance programmes. Through smart contracts and distributed accounts (e.g., on smartphones) operating on a single blockchain network, direct transfers of values between peers could be enabled. This approach can be particularly useful in countries where vulnerable communities have limited access to banking services.

Similarly, index-based climate insurance schemes where certain weather parameters can be monitored through ICT/IoT devices can combined with blockchain to trigger payments through smart contracts when the index falls above or below a pre-specified threshold. This approach could enhance current initiatives building resilience not only in agriculture-based rural communities in developing countries, but also in massive business contexts, such as tourism or freight industries, which also suffer from extreme weather events.

Text from chapter 7 of CLI Report on Navigating Blockchain and Climate Action (2018)

Governance of DLTs: challenges at the international, national and blockchain levels

While blockchain works without a central authority, this does not mean there is an absence of governance. Governance is defined as an allocation of power, risks and responsibilities and thus is also core to blockchain-based climate actions. Different governance challenges have to be carefully addressed in order to build trust and create confidence in the technology, particularly in using blockchain for climate action. Governance challenges are structured along three different levels: international, national and blockchain. While the focus of the first two levels deals with compliance to existing national and international laws, the latter is about actively defining rules and designing systems to automatically enforce these rules.

In blockchain-based platforms, actors within the blockchain system hold a copy of the ledger of data, meaning that data is replicated for all entities participating in that blockchain (i.e., nodes or peers). Due to distributed data storage, it can be difficult to ensure that all nodes agree upon a common vision of the ledger – referred to as consensus among nodes. Consensus can be reached in different ways depending on the nodes’ modes of operation. Nodes can operate in a permissionless or permissioned mode with respect to accessing the blockchain network and maintaining the ledger. These different participation modes characterise the three main blockchain types presented below.

Text from 'Blockchain for Climate Action and the Governance Challenge' report from INATBA and CLI (2021)


Blockchain governance systems (Table 5 in CLI Navigating Report [2018]).

Blockchain technology offers cryptographic features (integrity, authenticity and non-repudiation) and immutability due to its usage of hash functions and digital signatures. Moreover, as it is a distributed technology, blockchain offers decentralisation and transparency at different levels depending on the chosen solution. 

Key findings on governance

  • Creating confidence in technologies, and specifically in DLT, is a prerequisite to broad participation, and because governance establishes the rules or participation, governance is the main vehicle for creating confidence. One-size-fits-all solutions to governance challenges do not exist, and trade-offs have to be expected.
  • As a new technology, blockchain needs to attract the attention of policymakers, users and other stakeholders. Active engagement with governments and policy-makers appears to be crucial in informing the public dialogue and legislative process on blockchain applications.
  • Technical interoperability – the ability to exchange data with other platforms and the offchain world – and legal interoperability are crucial for blockchain applications.

Interoperability between blockchains

Digital technologies such as the Internet of Things (IoT), DLT and artificial intelligence (AI) have the potential to manage the increasing amount of climate-relevant data in a way that brings down carbon emissions and boosts energy efficiency across industries. To enable the generation and use of digitally accessible data, all participants – the provider of satellite images, forest authorities, banks – need to ensure that their activities interoperate with each other.

Without interoperability, blockchains will not work to their full potential. Climate relevant areas, where interoperability between blockchains will become increasingly relevant, include the management of supply chains, climate finance, transportation and industrial production processes. Moreover, the ability to ensure smooth information sharing across blockchains enables the opportunity to develop partnerships and the sharing of solutions – integrating payment options into climate risk insurance executed by smart contracts based on weather indices, or tracking renewable energy production on one blockchain and converting the outcome into a carbon reduction on another blockchain, for example. One blockchain network will simply be unable to provide all the needs for any given transaction.

 

Text from Chapter 2: 'Interoperability and Open Data challenges' of CLI Report (2020)