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Innovation Tagline:  Using the blockchain to create supply chain incentives to reduce 1 Gt CO2e of from methane flaring and fugitive emissions 

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

Project Members

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

Problem 

While the world tries to avert the worst of climate change, most scenarios still show the oil and gas industry remaining a significant part of the global energy system for several decades to come.  During this transition, however, we must do everything possible to reduce the climate impact from continued use of fossil fuels. 

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. 

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.   

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

In recent years, 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 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 certificates.

 

Solution

We propose to use a blockchain oracle, such as Chainlink, to integrate the different sources of data from methane emissions.   Several independent sources, such as GGFR, Flaring Monitor, MethaneSat, UNEP IMEO, flare-intel, could be combined with company reported figures to arrive at an answer.  A blockchain oracle assigns tokens for each source of data and weighs the data according to the tokens held by its source.  It could increase or decrease the tokens for each data source as the data is subsequently validated or refuted.

Using the derived methane tokens an oil&gas facility (well) starts constructing an emission profile for its fuel production. The profile is digitally encoded as non-fungible token (NFT) smart contract that track embedded methane emissions across fuel 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. contained in oil, natural gas and derived fuels sold to other facilities
  • Audited Emission Certificates (AEC) can be issued by independent sources to verify the realized emissions of a facility.
  • AEC are also assigned to energy consumers to communicate embedded methane emissions downstream.  Fuel consumed from high/low methane producers will carrier higher/lower embedded emissions.
  • Credits, in the form of methane performance certificates, are used to transfer the lower embedded methane emissions from one party to another, helping the receiver meet an emission reduction goal, while providing the supplier an incentive to reduce its methane emissions at the well.

In a simple example of an energy value chain, imagine an oil & gas producer that extracts fuel from a well. A 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.  The C-NFT contract is used to construct a digital emission profile for accounts owned by each facility, i.e., oil and gas well,  power plant, refinery (Figure 2):

Figure 2 C-NFT illustration

Each step in the value chain (reporting "silos") consist 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 other upstream 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 of 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)  to its customer from its facility's emission profile (C-NFT) with oracle-validated methane flaring.  This allows organizations to bridge the internal boundaries of traditional data silos, and construct a complete view of the energy value chain.  An NFT is attached to each quantity of fuel it sells so that the consumer could correctly calculate the total emissions.

The consumer (e.g., Fuel user such as a freight carrier or airline) can identify the embedded waste methane emissions through public view functions of the NFT, such as carbon intensity CI 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 

The consume can reduce (or compl)y with a desired CI standard by purchasing carbon tokens from a low methane supplier. This token transfer could be arranged without physically taking delivery of the fuel. The NFT(s) simply provides a methane performance certificates for the output fuel tokens, helping producers with lower carbon intensity to obtain greater value for their products. A CI certificate 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 CI certificate attests the total emissions of the fuel produced.

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. 

Ownership of CI certificates could be transferred between two fuel users at a premium allowing a user to reduce its emissions footprint. This would require simultaneously transferring, with the aid of a smart contract, fuel token (and embedded emissions) inventories of the consumer and the supplier. 

Investors could also purchase C-NFTs' with verified low methane emission profiles as part of their commitment to combat climate change and support the financing of additional infrastructure to reduce methane emissions.


Figure 3 Architecture for verifying waste emission. 

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):

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 directly 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 often employs Life Cycle Assessment (LCA) practices, 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

Standard LCA practices applied to fuel CI 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, rather than 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:

  • registers as an industry dealer of the NET network
  • construct a (voluntary) emission profile (C-NFT) for current inventories (using VCT) based on the calculated methane emissions
  • connects its C-NFT profile to the waste emission verification system (Figure 3)
  • list inventories as digital VCT that can be transferred to other industry/consumer accounts.

Accomplishment and Team

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.

Bertrand WILLIAMSRIOUX  is an independent consultant with 15 years of experience in energy economics, climate science and computer programming.  He has worked as an analyst and advisor on energy market and climate policy issues, and is currently creating a startup offering carbon accounting and management services for energy intensive commodity industries.

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". 

Sherwood 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?)

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).

Launch phase

  1. Collect and prepare emission data (16 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. 1 Month)
    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 (16 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  (16 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)









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