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1) Project Name: Reducing Methane Leakage and Flaring through Supply Chain Tokens

2) Innovation Tagline:  Using the blockchain to create supply chain incentives to reduce the 1 Gt CO2e of Greenhouse Gas emissions 

Project Keywords:  #NFT #TokenEconomy #ValueChain #CarbonEmissions #Flaring #Scope3

from methane flaring and fugitive emissions 

3) List the Hyperledger Projects that will be leveraged to develop your solution: We are building a carbon tracking network to tie together supply chain emission data. This will include a set of smart contracts as part of the open source blockchain carbon accounting tools built by the CA2SIG: a Utility Emissions Channel Project for auditing emission from electricity purchases, Net Emissions Token (NET) Project to tokenize emissions and offset credits, and a Climate DAO Project, the elements of an operating system for climate action.  These projects are built on top of Hyperledger Fabric, Besu, and Bevel.

4) Project Members

1. Bertrand WILLIAMSRIOUX
2. Sherwood Moore
3. Si Chen

Problem 

1. Arezki Dji

Problem 

Even as we reduce our Greenhouse Gas (GHG) emissions to stop climate change, While the world tries to avert the worst of climate change, most scenarios still show the oil and gas industry remaining will remain a significant central part of the global energy system for several decades to come.  During In this transition, however, we must do everything possible to reduce the climate impact from continued use of fossil fuels. A period, 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 disposed of as a safety measure, but also leaked or vented to the atmosphere when infrastructure is not available to gather, process and distribute it as natural gas for a profit. This is typical in remote and undeveloped areas (the highest rates are observed in Africa, Figure 1) where methane is burned (flared) and converted into Carbon Dioxide (CO₂), or worse, vented or leaked. 

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The Greenhouse Gas (GHG) warming potential of uncombuseted uncombusted 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.   

Figure 1 Annual flaring and associated gas use, from EDF (2021)

In recent years, the Environmental Defense Fund, Although 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 , NGO's, and investors have all committed to reducing oil and gas methane emissions, it remains a challenge because of a lack of data and proper financial incentives. Many oil wells do not have equipment to record how they are handling methane, and many companies simply do not report . 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 at least $15 billion worth of methane is flared rather than being sold as a commodity (natural gas) 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 instrumentation at oil wells to independent satellite imagery is being made available. Converting this data into useful fuel value chain metrics requires integration with production data.  Flaring Monitor, an open source project, has made some progress. This provides a key element of the solution presented in this challenge to bridge reporting silos in order to reduce waste methane emissions. 

In this project, we will work on using 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 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 visibility to the oil producers, their investors, government agencies and NGO's involved in reducing methane flaring and leakage.  We also hope to create an additional lever, where fuel consumers can actively participate by purchasing emission reduction and methane performance certificatesquality data about the methane emissions of specific facilities and producers.  As a result, it's difficult to allocate the needed investment to the right places.

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Solution

We propose to use a solution using two important blockchain oracle, such as Chainlink, to integrate the different features:

• An oracle which could integrate multiple sources of data

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• , from satellite images to company reported data to facility level instruments, that together could provide the best estimate of methane emissions at the facilities and company levels.
• A tokens network that would allow the value of lower methane emissions to be transferred to buyers looking for fuel with lower carbon intensity.

For more technical details, please see Oil & Gas Methane Emissions Reduction Project. 

Using the derived methane tokens and emission profile is constructed for and oil producing facility. The emission profile is expressed as a non-fungible token (NFT) contract used to the embedded methane emissions across other supply chain stakeholders. 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.

• Voluntary Carbon Track Tokens (VCT) are issue by industry members to note the amount of emissions
  1. realized from flared/vented methane
  2. unrealized emission from oil, natural gas and derived fuels sold to other facilities in the fuel value chain.
• Audited Emission Certificates (AEC) can be used to verify realized emissions of a facility.
• AEC are also assigned to energy consumers based on audited emission profiles.  Fuel from high/low methane wells would have higher embedded emissions for whoever consumes it.
• Credits, in the form of methane performance certificates, transfer the lower embedded methane emissions from one party to another, helping them meet their emission reduction goals while providing incentives to reduce methane emissions at the well

In a simple example of an energy value chain, imagine an oil & gas producer extracts crude oil and gas from the ground.  A utility power plant uses the gas to produce heat and electricity sent to a refinery to process the crude oil into fuel products, such as gasoline for cars, diesel for heavy transportation, and jet fuel for aircraft.  A C-NFT provides a digital emission profile for accounts owned by each facility, i.e., oil and gas producer/well,  power plant, refinery (Figure 2):

Figure 2 C-NFT illustration

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Each step in the value chain (reporting "silo") consists of inputs and outputs, are transacted using the 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 emissions tokens (e.g. VCT) from its facility's emission profile (C-NFT) with oracle-validated methane flaring data, to its customers.  This allows organizations to bridge the internal boundaries of traditional data silos to get a complete view of the energy value chain.  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 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 fuel 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 fuel 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 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. 

Figure 3 Architecture for verifying waste emission. 

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Figure 3 depicts an ongoing effort by the blockchain carbon accounting team to collect emission data points into a database (orbitDB) using IPFS or Fabric. These are connected to Ethereum contracts (NET/C-NFT) using a ChainLink oracle service or DAO.

The next step will involve building tools to pull in different data sources to support independent auditing and verification (MRV cycle):

• company voluntary reports/ ERP sensors (gas flaring)
• independent tracking service focusing on Flaring Monitor

Other Value chain scope 3 tools/services

To our knowledge there is no system focused designed to bridge the MRV systems used by organizations to direclty identify value chain emissions.

The GHG Protocol provides a free tool to help measures cross-sector value-chain impacts. It provides inputs typically used in LCA practices, which may only provide historic/aggregate data from several years ago. It is more focused on providing measures for individual organizations as opposed to connecting reporting activities.    However, according to the Carbon Disclosure Project (CDP), value chain reporting has not been very successful in reducing emissions (Patchell 2018).

Value chain reporting may use the Life Cycle Assessment (LCA) practice, which can be difficult for organizations to implement on their:

• Access the credible metrics restricted by data silos across emission measurement, reporting and verification (MRV) systems
• Rely on historic data based that may be several years old
• Employ of on model estimates that may be subjective and hard to validate

LCA applied to fuel carbon intensity standards have no been very effective in mitigating emissions (Plevin et al 2017).

CarbonChain is a comparable solution to help organizations assess emission impacts across commodity supply chains. However, it operates as a centralized services, focusing on gathering data into a bigger silo not connecting them.

Minimum viable product

Our target product is a portal where data from multiple sources of methane emissions could be viewed, and the final methane emissions for a production facility is calculated.  Then an oil & gas producer could also:

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Our team-members has been working on the Supply Chain Decarbonization Project for some time, with the Operating System for Climate Action providing much of the underlying code needed for this challenge.

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Sherwood Moore is currently acting Co-chair of the Climate Action and Accounting Special Interest Group (CA2SIG). He holds a Masters in Business Administration MBA 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.

Additional resources needed:

• Front end user interface development
• Hyperledger Fabric - Integration of remote sensing data to Fabric and integration of Fabric with Layer 2 Ethereum network.

Project Plan

We set the following goals for the a prototype methane reduction C-NFT

• Construct the methane emissions of an oil and gas producer by combining industry repots with with independent data 
• Illustrate the verification of emissions in line with recognized standard setting body practices
• Track embedded emissions though to the final producer of a consumer fuel (gasoline/diesel).

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Launch phase

1. Collect and prepare emission data (4 weeks)
   1. Select a set of typically of oil/gas well and gather relevant data, sourced from company reports, independent sources, (Flaring Monitor), sensors, or simulated.
   2. Create/select a representative model/data set for intermediate processing of oil and gas in a refinery and a power plant to produce a consumer fuel.
   3. Setup up data sources to be storage within a fabric emission channel or IPFS database (Figure 3) 
2. Build the blockchain oracle (8 weeks)
   1. Select an oracle service
   2. Integrate the distributed database (fabric/ipfs) with the oracle
   3. Register "real-world" methane emission data as digital token in the layer 2 NFT contracts.
3. Construct emission profiles  (4 weeks)
   1. Design UI/UX for for constructing and linking emission inventories
   2. Using the NET network compile emission inventories (accounting boundaries) for each facility using the GHG Protocol corporate reporting standard 
   3. Using C-NFT Bridge accounting boundaries following the Value chain (scope 3) reporting standards: 
4. Simulate trading of methane performance tokens / CI certificate using C-NFT (4 weeks)

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?)

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