Research Summary: Managing Climate Change With Blockchains and Oracles - Tecnalia/Chainlink Labs Report

Oracles and Data
1

TL/DR

  • Blockchain has the potential to be an important tool for supporting a transparent and effective clean energy infrastructure.
  • Oracles bring off-chain data (such as energy data) on-chain, perform secure off-chain computation, and allow communication across blockchains.
  • Because oracles connect existing energy industries to blockchains, they are essential for the creation of blockchain-based markets for sustainable energy investment and administration.
  • Blockchains and oracles offer sustainable energy industries a road forward, allowing them to upgrade their infrastructure while also meeting ambitious clean energy goals.
  • This report provides a good summary of the role that blockchain and oracles will play in the future of clean energy.

Core Research Question

What role do blockchain and oracles play in sustainable energy systems?

Citation

Chainlink/Tecnalia Report: Managing Climate Change in the Energy Industry With Blockchains and Oracles: Redefining the Energy Industry With Blockchains and Oracles | Chainlink.

Overview

There are a number of major changes in the energy industry driving a shift toward sustainable energy solutions. These changes include economic and political drivers.

Economic changes are related to supply and demand for sustainable energy. On the demand side, population growth and rising living standards increase the need for more efficient, cleaner energy systems. On the supply side, technological innovations in sustainable energy are growing at an exponential rate. One of these innovations are the advent of P2P decentralized energy systems, that make energy exchange powered by blockchain possible. Political changes are related to changes in political circumstances such as election results, war, regulatory changes, etc.

Decentralized Energy Grids

There are two major producers of energy at the moment: (1) independent power producers - large sustainable energy sources which include hydroelectric dams, solar panel fields, and wind farms and; (2) distributed energy resources - small scale energy consumers and producers (called “prosumers”) which include individuals, small businesses, and microgrids.

1600×993 237 KB

Figure 1: Distributed energy system models.

New electricity market designs are being considered for the “prosumer era” which focuses on sustainable energy exchange and production by smaller-scale prosumers (Fig. 1). Each of these models has the potential to be powered by hybrid smart contracts and blockchain.

These models include P2P(peer-to-peer) energy exchange systems; prosumer-to-microgrid systems in which prosumers exchange energy through a microgrid connected to a traditional grid; prosumer-to-island microgrid models in which prosumers buy and sell energy to an independent microgrid; prosumer groups in which prosumers create their own “power plants” by pooling energy resources.

Hybrid Smart Contracts and Decentralized Energy Grids

Hybrid smart contracts consist of a smart contract and a decentralized oracle network. Smart contracts automatically execute transactions if certain conditions are met and decentralized oracle networks supply the data for smart contracts. Together, these can power a multiplicity of use cases related to distributed energy system models. While the report mentions a total of eight sustainable energy use cases for hybrid smart contracts, I describe two in detail which are more directly related to distributed energy systems:

  1. Parametric insurance for renewable energy infrastructure.
  2. Consumer rewards for sustainable consumption.

Parametric Insurance for Renewable Energy Infrastructure

Parametric insurance is a special type of insurance that offers payouts on the basis of specific trigger events. Since renewable energy sources have a great deal of upfront costs and are subject to fluctuations in weather patterns that can seriously reduce energy output, parametric insurance that can be delivered frequently and instantaneously can reduce uncertainty and encourage investment. In this case, oracles play a key role in gathering weather data which is used to trigger parametric insurance payouts via a blockchain.

Some parametric insurance platforms have already been established in this area. For example, Arbol is an Ethereum-based platform that delivers parametric insurance on the basis of temperature variations.

Consumer Rewards for Sustainable Consumption

Rewarding sustainable behavior is essential for the long-term success of sustainable energy systems. Hybrid smart contracts can help reduce energy consumption through the use of data from smart meters that can be fed into smart contracts that are triggered when a certain amount of energy savings is reached.

Other Use Cases for Hybrid Smart Contracts

Other use cases for hybrid smart contracts include:

  • Tokenized carbon credits.
  • DeFi energy derivatives markets.
  • On-chain climate and green bond ratings.
  • Tokenized cash flows from clean energy projects, energy conversion contracts and grid management.

All of these are described in more detail in the Report.

Ongoing Challenges

There are a number of challenges that need to be addressed to maximize the success of hybrid smart contract use cases. Among these are the availability of high-quality data and open-source analytics, industry standards, and the identification of optimal regulatory and legal environments for implementing and piloting these use cases.

Discussion and Key Takeaways

This report provides a good summary for the educated layperson about cutting-edge developments in sustainable energy and the role that hybrid smart contracts will play in the future of sustainable energy.

While many of the use cases described in this report are very important, recent developments in the literature surrounding smart contracts in energy systems show that these efforts are even more advanced than this report may suggest. See some of my previous SCRF posts on these topics such as:

Of all of the challenges faced, I believe that finding the correct regulatory and legal environment to successfully pilot projects may be among the most important to address. Since developing countries have fewer energy regulations and a less developed energy infrastructure, these may be the perfect places to pilot many of these systems which can benefit the developing nation and can go far to help sustainable energy systems powered by smart contracts.

11 Likes
2

Excellent summary, @jasonanastas! I wonder how this decentralised energy system is different from the EU’s new carbon tax payment system in terms of the efficiency of resolving the carbon emission problem?

5 Likes
3

You’ve provided a great summary @jasonanastas. According to the study, blockchain technology has the potential to be a significant tool for creating an efficient and transparent sustainable energy infrastructure. I’m interested in learning more about this extremely ground-breaking development in sustainable energy, and I’m also curious to find out more about the blockchain, which might be eco- friendly (maintain current operations without jeopardizing the energy needs or climate of future generations).

2 Likes
4

@jasonanastas a fantastic research. I am actually reading this research for the second time and i just realise decentralised energy distribution could be the solution my country needs in resolving the epileptic energy generation and supply. The fact that it will do away with middlemen whom often pepetrate fraud in the distribution is heart-warming.

3 Likes
5

@jasonanastas, that was really a nice piece. Blockchain’s decentralized methodology have offered both depth and breadth. It have involved everyone in the computation and made it possible for them to do so. Along the whole supply chain, including manufacturers, suppliers, distributors, and consumers, it have also enabled the tracking and reporting of greenhouse gas emission reductions.
For me, I believe that blockchain technology advancements are effective accelerators for group action to combat climate change.

It is crucial to acknowledge the distinct value of clean technology entrepreneurs in this process.

Also, Investors in the public and private sectors are beginning to recognize their special value and are now investing the technology.

I love what the EU is currently doing notably being developing technical and investment programs which support blockchain-based digital innovations that contribute to climate change prevention. In my own part of the world where I come from, the government is not being proactive enough in adopting and supporting these types of technologies especially when it comes to the issue of climate change.

2 Likes
6

@jasonanastas your work is very enlightening. :clap::clap:

Previously, I did not give much thoughts to the application of blockchain technology - smart contracts and oracle networks - to the climate and energy industry.

This sentence best explains my position.

I’m excited about the usecases in the report and the two you explained…

Especially about the consumer rewards.

My main takeaway is that blockchain technology can help support our transition to clean energy. And I’d like to see that happen.

1 Like
7

While carbon pricing/taxing and rewards via decentralized energy systems are all aiming to shift behaviors and decrease outputs through ‘punishments’ or incentives’, both approaches can benefit consumers and companies that adopt more energy efficient practices. In the EU, the Emission Trading System establishes a process to allocate, track and cap emissions via set allocations and it provides a market for trading carbon emissions that many countries can and have incorporated into their tax systems. The quantity of allowances in circulation is limited, and reduces year by year giving companies time to adjust (source).

This system is efficient in shifting industry behaviors in the direction of decreasing overall carbon emissions even with each country in the EU varying how they tax different types of emissions. In this report from 2021, I would argue that this variation could influence where industry players conduct business if they could economically benefit in different locations depending on their type of emission output. Some countries in the EU also aim to reduce carbon emission by directly taxing goods like fuel for consumers. This is again is a method that influences consumers to shift their behaviors to be more environmentally conscious and in many cases, where consumers have alternatives, they turn to them.

Blockchain solutions offer consumers and small producers more transparency and options for accessing clean energy as well as profiting from their excess energy. As this paper stated, a major efficiency opportunity in this approach is that processing data and transferring energy can happen with low overhead and set parameters. Seeing how climate policies and clean energy solutions are currently driven on a state by state and regional level, defining these parameters in such a way where municipalities agree on targets and can benefit as equally as possible is going to be difficult. Energy sources in nearby municipalities will be similar but once it is scaled, there will be groups benefiting more than others.

If grids and system based on smart contracts operate within states/small municipalities, the challenge of investing in infrastructure will arise and will either have to be offset by mechanism like parametric insurance (if that type of clean energy is dependent on weather) or it’ll have to push for high adoption and buy in amongst consumers which may be difficult if consumers can’t benefit consistently from this energy source.

If (sustainably) reducing carbon emissions is the ultimate goal, establishing a regulatory ecosystem with scaling frameworks of emission targets could drive more efficiency for both tax and smart contract solutions.

4 Likes
8

It is fascinating that blockchain can help solve one of the world biggest problem in this 21st century.
Climate change occurs over a long period of time, for blockchain to change with this climate and improve it is really amusing. The growing population increase the demand for energy and this might pose a high risk of damage to human if the the energy supply is not safe. Thay is why there is need for safe energy transmission. Yhe release of carbon is constantly affecting the climatic system and it leads to a huge risk on mankind.
For blockchain to provide support for the energy industry, infastructure known as oracle is required. Now let’s get this right, oracle serve as an intermidiary that delivers off-chain data ( here we refer to it as energy data) Into a blockchain and facilitate communication between different blockchain. Combination of these present a way forward for the energy industry, and enables it to moderalise its energy infastructure and meet the damand for safe energy supply.
It is important to understand that blockchain has the potential to be an important tool for supporting a transparent and effective clean energy in an economy where the dand for safe energy is high.

1 Like
9

Cool, this is a good summary of the applications and potential of blockchain tech for climate, and the essential role of hybridized contracts that can reference and relate to IRL datas for climate, biodiversity, groundwater etc. Readers here are most likely familar with DeFi; I’d lump much of what the commentators are describing into ReFi, regenerative decentralized finance, which uses blockchain related toolsets (smart contracts & oracles, for example) to incentivize regenerative practices and/or improvements in ecosystem services function. Its’ hard to describe without using all kinds of lingo, easier to look at examples.

First, Regen Network who “propose a remedy to ecological degradation and climate change. This approach leverages blockchain to create a systemic multi-stakeholder, market-driven solution to facilitate verifiable ecological outcomes”. I’m a big fan of $Regen, which is the governance token for the Regen blockchain, built on CosmosSDK so its’ a sovereign L1 on the cosmos-inspired (and secured) internet of blockchain aka IBC. See https://regen-network.gitlab.io/whitepaper/WhitePaper.pdf

Regen is a crypto, smart contract enabled framework for the minting of ecological assets, a methodologies library and marketplace. The marketplace was launched at Cosmoverse Medellin in September 2022 and may be viewed at app.regen.network - connect using Keplr wallet - and buyers can purchase ecotokens which include natural capital ton (carbon sequestered) and maybe various other valuable attributes (soil, water, biodiversity). Regen allows a land user to enter ecological contracts and be compensated for improvements to soil organic carbons by regenerative grazing, for example the carbon plus grasslands methodology.

The original comment @jasonanastas describes a decentralized renewables energy grid. I suggest that similar decentralized infrastructure might be incentivized, perpetuated for rainwater harvesting and groundwater recharge (see Ogallala.Life). Helios.Eco is a DAO financing similar solar projects.

The paper was published by chainlink which is known for providing oracle services, and backed one of my favorite projects, https://shamba.network/ which is a geospatial data oracle and dMRV provider. MRV is used in payment for ecosystem services context (normally, carbon) to measure, record, validate that the practices occurred or that certain ecosystem state changes have taken place, its’ to substantiate natural capital assets like carbon credits. dMRV refers to digital MRV, or arguably decentralized distributed digital MRV (see dMeter).

Also see Celo, which seeks to back its’ tokens with significant natural capital holdings. SilviDAO which is a tree propagation and tracking app that can monetize the trees’ ecosystem services. Neptunechain is for water quality markets.

The BICOWG (blockchain infra carbon offset working group) submitted a response to POTUS Executive Order on Ensuring Responsible Development of Digital Assets that does a fantastic job describing and communicating how this technologies’ many applications to climate, carbon, energy etc. See Biden EO Response - Final Draft - Google Docs

CarbonPath is another project at interesting intersection of industry, MRV, climate and crypto, which seeks to ascertain, tokenize the emission savings captured when gas wells are plugged appropriately and before they become a public liability.

Finally, the writers of a more traditional academic article accepted for publication purport to “believe that the invention of Blockchain or Distributed Ledger technology – increasingly touted as the beginning of the fourth industrial revolution– could provide new ways to incentivize the behavior of resource users, establish innovative monitoring capacity, and help to avoid corrupt governmental behavior.” They go on to describe specific scenarios whereby the tech could be used to reverse deforestation, and groundwater depletion.

4 Likes
10

Kolectivo provides tokenized schema to circular economy & value natural capital, deployed, developed in collab (?) w/ island of Curacao. Associated w/ impressive Curve labs & Astral protocol.

Their blue paper released few weeks back is comprehensive & cutting edge. Yes blockchain can be used in climate, but potential goes much further, towards regenerative communities, improved ecosystem services/function and circular/bioregional (rational, hyperefficient) governance.

Perhaps SCRF could cultivate, maintain whitepaper index? Some of these are/may be notable works but seems wrong submit them along w/ papers, research, reviews.

2 Likes
11

A highly regarded paper in space of RWA (real world assets) and natural capital, ecosystem services and similar - proposes a taxomony for tokenizing natural capital asset. Published by curve few months before blue paper and informed kolectivo approach.

As Web3 looks at market-based conservation and ecosystem services as spaces for intervention, the lack of a clear Natural Capital Asset (NatCap) taxonomy is an opportunity to pioneer a radical tokenomic approach to classify and value nature, based on crypto-native principles of openness, trustlessness and permissionless

2 Likes
12

@jasonanastas I applaud you for your article; after reading it, I was able to start doing further research on the subject.

Very little indeed.

it impossible for there to be any other viable energy source besides nuclear.

Blockchains and other proof-of-work technologies increase energy usage without a defined upper limit, which is detrimental to sustainability and egregiously immoral given the present environmental catastrophe. Possibly the most naive activity in the contemporary digital scene is gambling on cryptocurrencies, a planet-incinerating disaster.

The math issue becomes increasingly challenging each time a new bitcoin is introduced in order to prevent their from being an excessive amount in circulation. In order to run them, additional computers and electricity are needed. Pakistan, which has a population that is seventh in the world, consumes less energy than Bitcoin.

A blockchain could be used to track electrons in a truly decentralized, grid-agnostic, consumer-driven system, but the overhead seems to be prohibitive. This problem is mostly solved by simple reverse metering, but would be best served by market-driven pricing with 5-minute settlements, so power provided when it isn’t needed isn’t accounted for in the same way as power when it is most needed.
smart research

How do blockchains work?

A blockchain is a form of public distributed ledger technology that is composed of a chain of data blocks that are safely connected to one another using cryptography. In addition to transaction information, each block includes a timestamp and a cryptographic hash of the one before it. Blockchain nodes follow a consensus algorithm protocol to include and validate fresh transaction blocks.

Blockchain transaction data is unchangeable, transparent, and unanimous. The blockchain system is also decentralized, distributed, safe, quick, and fault-tolerant. Because users control their own data on blockchain, there is no need for an authority to mediate the transactions. Regardless of who performs the transaction or where it takes place, blockchain transactions always result in the same outcome. Deterministic transactions are thus a crucial prerequisite for any blockchain network.

These characteristics allow blockchain to give customers more efficiency and control over their data related to energy sources. Energy usage data, such as market prices, marginal costs, energy consumption data, renewable energy resource data, fuel prices, etc., are updated securely and in real time by an immutable ledger.

The decentralized Web 3 ecosystem can access legacy systems, existing data sources, and cutting-edge computations through Oracle. It links an off-chain data and infrastructure to a deterministic blockchain, allowing advanced decentralized applications (dApps) to respond to both the conventional system and real-world events.

To make dApps useful, smart contracts must be combined with data from the real world. Oracles assist in resolving this issue. Since the blockchain network alone cannot access the outside data, it acts as blockchain middleware to create a connection between the blockchain network and the external real-world data resources (such as the decentralized oracle network). As a result, all blockchains will be able to access trustworthy, secure off-chain data.

And that is the function of the oracle in a sustainable energy system. It creates immutable tables and blockchain tables for the blockchain and adds external energy data to the blockchain.

smart research2

https://blogs.oracle.com/database/post/how-to-achieve-crypto-secure-data-management

Blockchain tables are immutable tables that divide rows into several chains. Each row in the chain is linked to the one before it using a cryptographic digest or hash, with the exception of the initial row. Based on the data in that row and the hash value of the row before it in the chain, the hash is automatically determined during insert. At the time of insertion, timestamps are also captured for each row.

3 Likes
13

According to the study, from the Basque research centre Tecnalia and blockchain oracle developer Chainlink Labs, For the energy sector to modernize infrastructure and achieve sustainability goals, blockchains and oracles offer a promising future in achieving that. Chainlink is meant to serve as a guide for creating hybrid smart contracts, one of the main characteristics of the blockchain, to create renewable energy solutions, with an emphasis on the function of oracles.

The underlying assumption is that blockchains may serve as a common backbone to store data and run applications that are more dependable, transparent, safe and also easily accessible.

The present energy industry’s infrastructure and data should be connected to blockchains via Oracles, an on-chain, off-chain middleware, along with a number of other crucial datasets, APIs, and systems required to create value on-chain.

Oracles enable the pricing of green energy assets in decentralized finance (DeFi) markets, the triggering of financial reward systems based on consumer consumption profiles, and the accurate automated settlement of renewable energy contracts based on smart meters and weather data, according to the report.

From this foundation, many other clean energy use cases can be developed and expanded on in the future, providing society with a new and potent infrastructure for switching to sustainable energy models, reducing the negative effects of climate change, and facilitating positive environmental outcomes that are global in scope," the statement continues.

The application of smart contracts has been a driving force behind the success of early adopters in the developing blockchain sector. To access secure external data, smart contracts rely on Oracle middleware, which enables programmers to build sophisticated blockchain applications. The next generation of sustainable energy solutions may be created by smart contract developers with the help of high-quality climate and energy data that is available on-chain.

New issues are being faced by the energy sector, such as balancing an electricity system that is becoming more dispersed and progressively increasing the amount of intermittent renewable energy generation while proving investment returns on clean energy projects.

Utilities, service providers, and governments may leverage blockchain technology to digitize and value clean energy investments and develop completely automated incentive programs for engaging in sustainable behaviors during this period of significant infrastructure and market transition.

According to chainlink report paper, the power industry may more effectively digitize and value investments in sustainable energy by utilizing blockchains. The two businesses discovered that this would probably result in more money being invested in green investment possibilities, more transparency, and greater responsibility for keeping pledges to reduce greenhouse gas emissions.

According to this paper report, the new backend infrastructure required for creating sustainable energy solutions is known as “hybrid smart contracts.” The framework employs smart contracts to specify the rules for interested parties and blockchains to track and resolve multi-party operations.

In order to include data and non-blockchain infrastructure into the contracts, it also leverages oracles or interoperability solutions for blockchains based on smart contracts. Tokenized carbon credits, which businesses purchase to offset emissions, are one of the use cases mentioned in the report paper. The idea is that by storing carbon credits as digital tokens, oracles can issue and audit the tokens and they can be monitored and exchanged more readily.Before awarding a credit, Oracles can quantify the carbon sequestration in a specific area using satellite and remote sensing data to confirm a project’s claimed carbon offset. hybrid system for smart contracts Using Chainlink oracles called Hyphen, for instance, verifies greenhouse gas data on-chain and validates claimed corporate climate pledges.

Climate bonds and green bonds, fixed income instruments that raise money for environmental initiatives, can also be tokenized on blockchains, similar to how carbon credits have been done.

Arbol, an Ethereum-based platform for climate risk management, employs smart contracts to support energy companies in mitigating the impact of temperature changes on power consumption and revenue variations.

According to the chainlink report paper, reward schemes might also be used to motivate people to cut emissions. Consumers might get payment in cryptocurrency or NFTs for fulfilling the conditions of a smart contract intended to reduce their carbon impact.

Issues:

The chainlink report paper lists a number of obstacles for more research and development, despite the fact that the blockchain oracle technique appears to have tremendous promise. These include the accessibility of high-quality data, open-source analytics, and mechanisms for event verification that minimize trust.

Another is standardization throughout the industry, while it’s also necessary to find workable jurisdictions for use case pilots.

Chainlink and Tecnalia advise stakeholders to first establish their use case for the blockchain oracle-based model before developing and piloting a proof of concept to evaluate its feasibility and look for improvements before commercializing the solution.

In conclusion,

The digitalization of climate change tools and the construction of infrastructure might both benefit greatly from blockchain technology. Additionally, the technique may be applied to “value clean energy assets.”

Blockchain can assist in providing “completely automated incentive structures” once different parties, including governments, place value on climate-focused goals. Through this procedure, actions and behaviors geared toward preserving the environment and promoting sustainability will be appropriately rewarded.

1 Like
14

Nice summary ,The chainlink report paper gave three important points:

  • The energy sector is transitioning from fossil fuels to clean energy sources, necessitating new investments and industry workflows.
  • Blockchains can better digitize and track the ownership of energy infrastructure and cash flows while oracles can connect existing energy infrastructure and data to blockchains to support new hybrid smart contract applications.
  • Hybrid smart contracts allow companies to transfer ownership, issue rewards, and settle contracts in a more transparent, efficient, and globally accessible manner using data such as IoT sensor outputs, weather patterns, and user consumption profiles.
2 Likes
15

Great work @jasonanastas

Blockchains can better digitize and track the ownership of energy infrastructure and cash flows while oracles can connect existing energy infrastructure and data to blockchains to support new hybrid smart contract applications

During my further research on this topic, I came across a resource that addressed the research question.

I believe blockchain is a key tool to speed up the process of decarbonising the economy, as it makes transactions traceable, secure and quick . This technology makes the supply of green energy more efficient, flexible and transparent, which incentivises the production and consumption of 100 % renewable energy.

The energy industry is undergoing massive infrastructure and market reforms as a result of rising demand for clean energy, which is primarily driven by efforts to mitigate the detrimental consequences of climate change. Blockchain technology can aid in the shift to renewable energy by providing as backend infrastructure that allows numerous independent parties to track assets via a shared ledger and enforce agreements using cryptographic truth. The energy industry can better digitize and assign value to clean energy investments using blockchains, resulting in more democratized access to green investment cash flows, greater transparency into the success of clean energy projects, and stronger accountability around stakeholders meeting their stated commitments.

A plethora of new blockchain-based use cases in clean energy can be unlocked with the help of Oracles, including tokenized cash flows for renewable energy projects, trusted on-chain rating systems for green bonds, carbon credit systems derived from measurable carbon sequestration, automated energy conversion contracts tied to renewable performance outputs, and much more.

The combination of blockchains and oracles eventually provides a new road ahead for the energy industry, allowing it to upgrade its infrastructure while also meeting ambitious sustainability goals that are mission-critical for organizations and industries in the twenty-first century.

2 Likes