Innovation Tagline: Using the blockchain to create supply chain incentives to reduce the 1 Gt CO2e of Greenhouse Gas emissions
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A top priority is to reduce the amount of methane that is leaked and flared during the production of oil and natural gas. Methane trapped in the geological formations of oil and gas wells , is often flared or vented. This is done disposed of as a safety measure, but also simply because leaked or vented to the atmosphere when infrastructure is not available to gather, process and distribute the methane it as natural gas for a profit. This This is often the case typical in remote and undeveloped areas where there is a lack of pipelines and other infrastructure to transport the natural gas. In those cases, it is simply (the highest rates are observed in Africa, Figure 1) where methane is burned (flared) or, worse still, released directly to the atmosphere.Because methane has 25 times the climate impact of CO2, this methane leakage and flaring is a major source of global Greenhouse Gas (GHG) emissions. The Environmental Defense Fund estimates the total global oil and gas methane leakage and flaring at between 250 Mt to 1 Gt CO2e per year (Figure 1). The latter amount is and converted into Carbon Dioxide (CO2), or worse, vented or leaked.
Figure 1 flaring and venting data from EDF (2021)
The Greenhouse Gas (GHG) warming potential of uncombuseted methane is more that 25 times on a CO2 equivalent (CO2e) basis. While, flaring was estimated at 142 billion cubic meters (bcm) in 2020 (figure 1), 265 million tons (Mt) CO2e, 8 Mt of methane were released at 240 Mt CO2e (IEA 2020). Assuming a lower combustion efficiency total emissions could reach as high as 1 Gt of CO2e, greater than the total emissions of Germany or all the world's airlines combined.
Figure 1 Annual flaring and associated gas use, from EDF (2021)
In recent years, there has been a concerted effort on the part of The Environmental Defense Fund, major oil companies and the Oil and Gas Climate Initiative, international organizations such as the United Nations Environmental Program and the World Bank, and institutional investors have made an effort to reduce methane leakage and flaring. Nevertheless, this remains a difficult goal to achieve because of a lack of data and proper financial incentives. Many oil wells do not have equipment to record how they are handling excess underground methane, and many companies simply do not report on the level of the methane that is released. As . Even if they do this information is stuck in data silos, making it difficult to share and verify reported values. As a result, each year a significant amount at least $15 billion worth of methane is wasted through venting, leakage and flaring, flared rather than being used sold as a valuable commodity (natural gas) . measuring the value of the wasted methane is needed to determine the returns and extracting rents from investing in infrastructure to capture it.
Fortunately, there has been progress. EDF (2021) is urging investors to engage energy companies to improve flaring and venting transparency, requiring collaboration to establish clear metrics. Several new data sources ranging from satellite imagery to instrumentation at oil wells will be to independent satellite imagery is being made available. Independent tracking tools are being introduced (for waste emissions). Converting Converting this data into useful fuel value chain metrics requires integration with production data. Flaring Monitor, an open source project, has made some progress on this, and will provide key part of our solution . This provides a key element of the solution presented in this challenge to bridge reporting silos for in order to reduce waste methane emissions. (this effort could align with the World Bank's Imported Flared Gas Index).
In this project, we will work on using the blockchain technology to provide trusted data on methane and transfer that data to fuel consumers to incentivize methane reduction at the point of production. The first part of the project will integrate data from different sources to arrive at the best estimate of the methane emissions of a facility. The second part of the project will use Value chain (scope 3) reporting standards to calculate the impact of methane emissions reduction on the fuel used by fuels delivered to customers. It could then be used as part of the Supply Chain Decarbonization Project to incentivize the use of fuels with lower embedded emissions.
Through this we hope to help provide greater visiblity visibility to the oil producers, their investors, and government agencies and NGO's involved in reducing methane flaring and leakage. We also hope to create an additional lever, where fuel consumers could can actively participate in reducing methane emissions. by purchasing emission reduction and methane performance certificates.
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Solution
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Once the combined data is used to derive the methane emissions emission profile of an oil producing facility, a non-fungible token (NFT) contract could is used to track the additional emissions from the fuel produced. This . A carbon tracker NFT (C-NFT) has been implemented using the ERC-721 standard as part of the Hyperledger Labs Net Emission Token (NET) network to issue, transfer, and retire carbon tokens by different accounts. For example:
- Voluntary Carbon Tracker Track Token (VCT) could be used are issue by industry members to note the amount of methane emissions associated with the emissions realized from flared/vented methane, and unrealized emission from oil or natural gas produced at the well. sold and tracked across other facilities in the fuel value chain.
- Audited Emission Certificate Certificates (AEC) could then be are also assigned to verify realized emissions of a facility. AEC are also assigned to energy consumers based on the VCTaudited emission profiles. Fuel from high/low methane wells would have higher embedded emission emissions for whoever consumes it.
- Credits similar could be issued to , in the form of methane performance certificates, transfer the lower embedded methane emissions from one party to another, helping them meet their emissions emission reduction goals while providing incentives to reduce methane emissions at the well.
In this a simple example of an energy value chain, imagine an oil & gas producer or well extracts the crude oil and gas from the ground. A utility power plant then produces uses the gas to produce heat and electricity which is used by sent to a refinery to process the crude oil into fuel products, such as gasoline for cars, diesel for heavy transportation, and kerosene or jet fuel for aircraft. A C-NFT provides a digital emission profile for accounts owned by facilitieseach facility, i.e.g., oil and gas fieldproducer/well, power plant, refinery (Figure 2):
Figure 2 C-NFT illustration
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Each step in this the value chain (reporting "silo") consists of inputs and outputs, which are transacted using the Net Emissions Token ( NET ) network, in Carbon Dioxide equivalent (CO2e) of Greenhouse Gas emissions. Based on the Value chain (scope 3) reporting standards:
- Inputs are retired NETs for direct (scope 1) emissions due to fuel burned or indirect emissions for purchased energy (scope 2) or downstream emissions (scope 3).
- Outputs are tokens transferred downstream to the users of the fuel, such as power plant, refinery, freight companies or airlines.
- VCT are transferred as the CO2e of fuels sold to consumers (used in commercial trade).
- AEC are indirect emissions, e.g., from selling electricity/heat
Emission profiles can explicitly reference a source C-NFT (arrows in Figure 2) to track embedded emissions, for example the crude oil, or the heat and electricity supplied by the power plant, that went into the finished products.
In practice, we envision a supplier sends an emissions tokens (e.g. VCT) from this its facility's emission profile to its customer using the (C-NFT) with oracle-validated methane flaring data, to its customers. This emissions token is an NFT which allows organizations to bridge the internal boundaries of traditional data silos to get a complete view of the energy value chain. It An NFT is attached to each quantity of fuel it sells so that the consumer of the fuel could correctly calculate the emissions of the fuel it uses.
The consumer (e.g., Fuel user such as a freight carrier or airline) could then identify the embedded waste metahne methane emissions through public view functions of the NFT, such as carbon intensity metrics:
- CI of oil & gas supplied (Fuel trade out) -> flared gas + leakage / fuel outputs
- CI of Refined fuel trade -> other emissions (e.g., electricity/heat, flue gases) / refined fuel out
Investors could also purchase C-NFTs' with verified comparatively lower methane emission profiles as part of their climate commitment strategy, incentivizing producers to reduce emissions.
The consumer could also reduce its carbon intensity (CI) by purchasing a certificate from a low CI producerfuel supplier. This certificate could come in two forms: A certificate of carbon intensity, which would help producers with lower carbon intensity to obtain greater value for their output, or an actual offset, to provide funding for producers with high carbon intensity to reduce it.
A certificate of carbon intensity is simply a transferrable claim of origin backed up by data. It is similar to a Renewable Energy Certificate (REC), but whereas a REC attests that electricity produced is from a renewable source, the certificate of carbon intensity attests the carbon intensity of the crude petroleumfuel produced using oil and gas. It could then be transferred between two users of fuel so that a user which is looking to reduce its emissions footprint could pay for a lower carbon fuel, without physically taking delivery of it. This This would require simultaneously subtracting the embedded emissions of the fuel inventory of the consumer and adding it back it to the embedded emissions of the fuel inventory of the producer. In future transactions, the producer would have to attach a higher CI to the fuel it sells as it sells certificates of lower embedded emissions. This creates a mechanism where a producer of lower carbon fuels could monetize greater value for their output.
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In contrast, an offset is an accounting of emissions reduction in return for an investment, such as equipment for capturing, storing, and transporting methane This creates an incentive to make capital investments at high carbon intensity producers to reduce them. To be valid, an offset must follow the general principles of carbon offsets, such as Additionality, Correct Baseline, Permanence, Real, and Leakage protection – In other words, the emissions reductions must not have occurred without the investment from the buyers of the offsets. The offset would be a token which would transfer the emissions reductions to the buyers of the offsets, which again could be a fuel user.
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Si Chen is the founder of Open Source Strategies, Inc. and coordinates the Carbon Accounting and Certification WG of the hyplerledger Climate Action and Accounting (CA2 SIG). He is the author of the open source book, Open Climate Investing, and a co-editor of an upcoming book "Sustainable Carbon Economy with Blockchain: The Role of Oil and Gas Industry in The Energy Transition".
Woody Moore is currently acting Co-chair of the Climate Action and Accounting Special Interest Group (CA2SIG). He holds a Masters in Business Administration with 10+ years of experience planning and executing Go-to-Market strategies for early stage tech start-ups. He also has expertise in the field of internet governance, where he supports ICANN's (Internet Corporation for Assigned Names and Numbers) multistakeholder decision-making model to help the global community reach consensus around the protocols, standards and policies needed to support the security, stability and resiliency of the internet's Domain Name System.
b. Identify talent/resource gaps and needs (Do you need more support developing the blockchain solution? Do you need support with front end development? Do you need support developing the business model?)