Maya P
As the world inches closer to critical climate deadlines, the global policy community is rethinking how carbon is priced—and how accountability can span across borders. The Carbon Border Adjustment Mechanism (CBAM) is the European Union’s ambitious response to carbon leakage and industrial competitiveness. But for CBAM to function at scale, particularly across diverse and fragmented global supply chains, it requires something traditional compliance systems often lack: real-time transparency, trust, and interoperability.
This is where blockchain technology steps in. More than just the backbone of cryptocurrencies, blockchain could become the digital engine that powers the next generation of climate accountability. When carbon meets code, CBAM becomes not just a border tax—but a global trust mechanism.
CBAM: Climate Regulation at the Border
At its core, CBAM is a climate policy designed to impose a carbon cost on imports from countries with laxer climate regulations, leveling the playing field for EU-based industries that already operate under strict emission rules (European Commission, 2021). Initially covering sectors like steel, cement, and electricity, the mechanism calculates the embedded emissions in imported products and requires importers to purchase CBAM certificates equal to the carbon price in the EU Emissions Trading System (ETS).
This sounds simple, but the practical execution is complex. CBAM hinges on accurate emissions data, transparent reporting, and seamless verification across international borders. Without these, the mechanism risks becoming either ineffective or unfair.
Blockchain: A Trust Engine for Carbon Markets
Blockchain is a decentralized ledger that records data across a network of computers, making it secure, immutable, and transparent (Nakamoto, 2008). These characteristics make blockchain a natural fit for managing complex, multi-actor carbon reporting systems.
Already, blockchain is being piloted in climate-related applications such as carbon credit trading, renewable energy certification, and digital Monitoring, Reporting, and Verification (MRV) systems (World Economic Forum, 2021; Reinsberg et al., 2020). When applied to CBAM, it can enhance four critical dimensions:
- Tamper-proof emissions data: Blockchain can ensure that once emissions data is entered, it cannot be altered—helping regulators and businesses trust the reported values (Giungato et al., 2017).
- Traceability across supply chains: Blockchain enables tracking of carbon footprints from raw material extraction to product delivery, allowing accurate assessment of embedded emissions (Saberi et al., 2019).
- Digital CBAM certificates: Smart contracts can automate the issuance and trading of CBAM certificates, cutting down administrative overhead and reducing the risk of fraud (Swan, 2015).
- Interoperable carbon accounting: Blockchain can serve as a common platform for integrating various national carbon pricing systems, fostering global cooperation (World Bank, 2022).
Case Studies: Blockchain in Action
Several real-world initiatives illustrate how blockchain can power carbon markets and support CBAM-like frameworks.
CarbonX tokenizes verified carbon credits into Carbon Offset Rewards (CORs), making them easily tradable. This not only increases participation in carbon offsetting but also introduces blockchain-enabled transparency and accessibility (CarbonX, 2018).
Veridium Labs, in partnership with IBM, offers a platform that calculates a company’s carbon footprint and issues tokenized environmental assets. Their system integrates IoT and AI, enabling real-time emissions tracking— a perfect blueprint for CBAM-compliant MRV (Veridium, 2020).
In China, Energy Blockchain Labs partnered with IBM to create a blockchain-driven carbon asset management platform that validates emissions data, issues digital carbon credits, and uses smart contracts to automate compliance with emissions caps (IBM, 2017).
These projects show that blockchain isn’t speculative—it’s already proving its worth in making carbon markets more transparent, efficient, and fair.
Challenges on the Road Ahead
Despite the promise, integrating blockchain into CBAM is not without obstacles:
- Technical hurdles such as energy consumption, interoperability between platforms, and scaling up to global trade volumes remain unresolved (Zheng et al., 2018).
- Legal and regulatory gaps exist regarding data privacy, cross-border data sharing, and the legal recognition of digital ledgers (Finck, 2019).
- Equity concerns loom large for developing countries, many of which lack the infrastructure or capacity to implement blockchain-based MRV systems (Heeks et al., 2021).
- And finally, while blockchain ensures data integrity, “garbage in, garbage out” still applies. Inaccurate emissions data input can undermine the entire system, no matter how secure the ledger (Reinsberg et al., 2020).
Policy Recommendations: Building the Bridge
To maximize the synergy between blockchain and CBAM, coordinated efforts are essential:
- Develop standardized digital MRV protocols to ensure compatibility across regions (World Bank, 2022).
- Invest in digital infrastructure and training for developing countries to foster inclusive participation (UNFCCC, 2021).
- Foster public-private partnerships to scale up innovations and reduce costs (World Economic Forum, 2021).
- Clarify regulatory frameworks around blockchain and emissions data to enable broader adoption (Finck, 2019).
Conclusion: A Smarter Path to Climate Fairness
The convergence of CBAM and blockchain marks a transformative moment in global climate policy. By embedding trust, traceability, and automation into the carbon adjustment process, blockchain can help CBAM live up to its potential—not as a trade barrier, but as a tool for equitable, effective climate action.
As the world races toward net-zero, a digital layer of accountability may be the missing piece in our climate governance architecture. When carbon meets code, climate policy gets smarter.
References
- CarbonX. (2018). CarbonX launches Carbon Offset Rewards. Retrieved from https://carbonx.ca
- European Commission. (2021). Proposal for a regulation establishing a carbon border adjustment mechanism. Retrieved from https://ec.europa.eu
- Finck, M. (2019). Blockchain and the General Data Protection Regulation: Can distributed ledgers be squared with European data protection law? European Union Blockchain Observatory and Forum.
- Giungato, P., Rana, R., Tricase, C., & Tarabella, A. (2017). Current trends in sustainability of Bitcoins and related blockchain technology. Sustainability, 9(12), 2214.
- Heeks, R., Renken, J., & van der Merwe, C. (2021). Digital development and disruptive technologies: Lessons from blockchain in developing countries. Development Policy Review, 39(6), 867–887.
- IBM. (2017). IBM and Energy Blockchain Labs build a blockchain platform to trade carbon assets. Retrieved from https://www.ibm.com
- Nakamoto, S. (2008). Bitcoin: A peer-to-peer electronic cash system.
- Reinsberg, B., et al. (2020). Blockchain-based digital MRV for climate change mitigation: A conceptual framework. Climate Policy, 20(9), 1203–1217.
- Saberi, S., Kouhizadeh, M., Sarkis, J., & Shen, L. (2019). Blockchain technology and its relationships to sustainable supply chain management. International Journal of Production Research, 57(7), 2117–2135.
- Swan, M. (2015). Blockchain: Blueprint for a new economy. O’Reilly Media.
- UNFCCC. (2021). Enhancing capacity-building on climate transparency and reporting in developing countries. Retrieved from https://unfccc.int
- Veridium. (2020). Veridium: Reinventing environmental assets through blockchain. Retrieved from https://veridium.io
- World Bank. (2022). State and trends of carbon pricing 2022. Retrieved from https://www.worldbank.org
- World Economic Forum. (2021). Blockchain for scaling climate action. Retrieved from https://www.weforum.org
- Zheng, Z., Xie, S., Dai, H. N., Chen, X., & Wang, H. (2018). An overview of blockchain technology: Architecture, consensus, and future trends. IEEE International Congress on Big Data, 557–564.
About the contributor: Maya P is a Doctoral student in sustainable energy transition, Asian Institute of Technology, Bangkok. She is a fellow of EPAYF 2.0 – Environment Policy and Action Youth Fellowship, Cohort 2.0.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.
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Acknowledgement: This article was posted by Khushboo Dandona, a research intern at IMPRI.
