CAN BLOCKCHAIN ADDRESS THE CARBON MARKET ISSUES IN ZIMBABWE?
By Tami Koroye
Climate Change and its disastrous effects on the world are a genuine topic of the 21st century. An important step adopted by international organisations and countries to mitigate global greenhouse gas emissions is the adoption of carbon emission trading. The concept of carbon emission trading was introduced in the Kyoto Protocol in 2005, by the United Nations Framework Convention on Climate Change (UNFCCC) to commit developed countries and multinational companies to reduce the emission of greenhouse gases to individual standards.
Carbon emission trading is the buying and selling of ‘carbon credits’ by countries and companies which allows them to emit above their permitted quota. The governments of developed nations create the ‘cap’ of the greenhouse gases to be emitted by their companies, and issue them free or auctioned carbon credits. Companies that have successfully limited their greenhouse gases production can sell off their credits to other companies that are struggling to do so, creating a viable climate trading economy through the ‘cap and trade’ scheme.
This trade is also replicated in the international market through carbon trade agreements, which allows developed countries to buy carbon credits from developing countries, paying for the development of carbon lowering actions in developing countries. This means that heavy polluters like China can buy carbon credits from countries like Zimbabwe, in their attempt to not exceed the internationally recognised emissions limit by helping Zimbabwe reduce their own greenhouse gases emission. Carbon credits, or certified emission reductions (CERs), are earned from projects that reduce greenhouse gas emissions, with each credit being equivalent to one tonne of CO2.
Countries can get carbon credit through reducing emissions, carbon capture through planting of forests, and refraining from emissions by preventing cutting down of rainforests. REDD+ is the framework created by the UNFCCC to assist members in the forest sector that reduces emissions from deforestation and forest degradation. Although argued to be effective, carbon trading has been criticised for lacking transparent mechanisms to calculate and trade the carbon credits, as well as verifying the emissions mitigation activities of states. The carbon market has been criticised to be rife with scandals by the developed countries, as they seek out loopholes in the Kyoto protocol. This has led to the call by experts for the use of emerging technological innovations such as blockchain to calculate, record and promote carbon trading.
ZIMBABWE AND CARBON TRADING
Although African countries are the best option for carbon trading partners, there is very little carbon trading conducted on the continent. Zimbabwe contributes less than 0.05% of greenhouse gases. Food and water security in the future is a consistent fear, as the country faces patched rainfall and disappearing ground water for farming and other activities. The country already is battling economic challenges that have led to a high rise of inflation, poverty and inequality. With agriculture contributing about 16% of the country’s GDP, the climate crisis will be disastrous to the social and economic lives of Zimbabweans. Although Zimbabwe has long released its Intended Nationally Determined Contribution (INDC) it faces issues of lack of proper finances to have effective climate action. Currently, Zimbabwe's main sources of energy are coal (about 44.6%), petroleum (12.4%), hydroelectric power (4.5%) and biomass (39.4%) which is the major source of energy for most households in rural areas. Zimbabwe has however always recognised the need for climate action and acceded to the Kyoto Protocol in 2009 but has been unsuccessful in implementing a national strategy for climate mitigation as it has little or no economic resources to finance climate actions..
Carbon trading projects are not a new concept in Zimbabwe. It’s environmental, social and economic benefits are visible in the Mbire District of Kariba with its carbon crediting scheme. The Kariba-REDD+ project is 785,000 hectares of forest started in July 2011 aiming to generate 52 million carbon credits from reducing deforestation. The Kariba REDD+ has been the main pioneer of carbon-trading initiatives in Zimbabwe, and its positive effects can be seen in the increased job opportunities and the development of buildings at Masoka secondary school and the setting up of a bio digester at Chitsungo hospital.
However, in comparison to the consequential benefits, there is little carbon trading activities in Zimbabwe, which raises the question, why?
WHY?
Oscar Reyes from Carbon Trade Watch has said that “Africa is marginal to the carbon market, and the carbon market has been irrelevant to the continent’s efforts to tackle climate change”. Statistically, Africa accounts for only 2% of the global carbon trade. The current expensive nature of renewable energy projects contributes to the poor nature of carbon trading projects in Africa, as they naturally do not attract investors. Countries like Zimbabwe with its poor economic standing is seemingly excluded from conducting wholescale carbon trading projects, unlike its neighbour South-Africa.
Another documented reason why Zimbabwe faces difficulties selling its carbon credits is the cumbersome process and unwillingness of major polluting nations to buy, as there is no simple carbon trading platform for transactions to be conducted on, and international legal obligations to do so. This consequently means that developed companies can renege on their commitments, and communities that have invested time and labour into earning carbon credits will hardly be compensated for their efforts. A brief from Zimbabwe’s climate ministry noted that “rich countries have barely kept the promise” of meeting their pledges.
Another prominent reason why carbon trading is relatively low in Zimbabwe is the issue of corruption from both the government offices and multinational corporations, as the money paid by multinational companies can get lost in the maze of government bureaucracy. An instance of such shady acts is evident in the payment of Z$215 million ($2.5 million) to Mbire by Carbon Green (a multinational company), and the bulk of the funding is documented to go into infrastructure projects, but the workers in the project gets paid as little as $0.20 sometimes. Trade fraud and accounting challenges have hindered the development of these markets in Zimbabwe. Already, carbon markets have an uneven structure and are cumbersome, coupled with the challenges of doing business in Zimbabwe affects the country’s standing in international carbon markets. This is worsened by regulatory challenges, as legislations such as the Mines and Minerals Act, which has supremacy often conflicts with local efforts in promoting carbon trade projects.
IS BLOCKCHAIN THE SAVIOUR?
Massamba Thioye, a co-chair of the Climate Chain Coalition, and Manager, Regulatory Framework Implementation sub-division, Mitigation division at UN Climate Change, believes it is, as he said “In climate policy making, transparent measurement, reporting and verification of climate action is important.” The UNFCCC, in 2018, highlighted the use of decentralised technology such as blockchain in reducing the effects of climate change globally due to its decentralised and immutability features. Blockchain is a decentralised ledger that records information in blocks that are digitally chained together. The new information forms a new electronic block which is linked to other existing blocks chronologically, with decentralised nodes that cannot be edited or restructured by a particular party, unless agreed to by all other parties (nodes) that have access to the ledger. Blockchain, therefore, is very secure and mainly irreversible, making it a suitable technology for creating an effective carbon trading platform.
Energy Blockchain Lab and IBM have already created a blockchain platform to trade carbon credits in China and facilitate clean energy trading. Blockchain has been heralded as a crucial aspect in ‘...facilitating circular economies, biodiversity, smart cities, blue economy and oceans, and emissions management and trading” as it is seemingly the perfect technology for the measurement, reporting and verification of carbon trade and mobilisation of climate action funds. Smart contracts can be used on a blockchain platform to calculate, track and report on the reduction of the carbon footprint across the carbon market. It can provide instant authentication, verification of real-time data and clear data records. Imagine this operational in Zimbabwe.
Blockchain in Zimbabwe can also effectively track and report emission reduction for carbon credits automatically. This will make the country’s carbon market more reliable and attractive to developed countries who are mainly polluters. The technology could also allow for the development of platforms for peer-to-peer renewable energy trades. Consumers would be able to buy, sell or exchange renewable energy with each other, using tokens or tradable digital assets representing a certain quantity of energy production. This will have noticeable effects in Zimbabwe’s energy sector, as people can easily gain access to renewable energy trade, cutting down the country’s already low emissions.
In terms of accountability from countries and multinational companies, Blockchain effectively reduces room for failed commitments, as smart contracts can be effectively automated to conclude transactions on fulfilment of obligations. Instances of companies refusing to fulfil their end of the bargain are eliminated, as the execution of obligations is automatic. Blockchain also creates room for decentralised automated organisations (DAOs) that will exist solely on the chain to regulate and monitor the carbon market in, not only Zimbabwe, but in the world. How accepting will the developed and developing countries be to this idea will warrant another article entirely.
Blockchain, however, effectively addresses the issue of reneged obligations, as it will make transparent the transactions between parties, and automatically pay the workers through smart contracts. Smart contracts are automated computer codes that form a digital contract between parties on a blockchain and is effected once certain obligations are complete. These contracts can also have a real-life interphase, so therefore, once participants in rural Zimbabwe have fulfilled their obligation in accumulating a certain amount of carbon credit, the contract will automatically be complete with smart contracts, and the workers will get their agreed payment. Blockchain can also create the avenue for Zimbabwe to invest in climate action through investing green-coins, which are cryptocurrencies, to generate another sustainable source of climate finance.
Can the government of Zimbabwe adopt a blockchain platform for carbon trading, considering its present economic woes? Yes, this writer believes so. Blockchain is not a foreign topic in Zimbabwe. The country has one of the biggest cryptocurrency trading markets in Africa. Also, Ethiopia has effectively adopted a national blockchain platform for regulation and monitoring of its national education performance. Nothing, except the government's unwillingness, can prevent Zimbabwe from following the same path. It should be mentioned, however, that blockchain does not address the issue of climate justice, nor will it bend the hands of developed countries to partake in the carbon market trade. For that to happen, there must be an effective international legal obligation on developed countries to do so. Also, the regulatory hurdles faced by carbon trading parties is another challenge that should be addressed by the Zimbabwean government alone. Regardless, the problems blockchain can address, it will address. Should Zimbabwe adopt a carbon trading platform on blockchain? This writer says yes emphatically. The economic advantages of leading the charge of climate change and promoting carbon trade are enormous. Will that effectively increase the carbon trading activities in Zimbabwe? Is blockchain a panacea to all of Zimbabwe’s climate and economic challenges? The answer is no. But there is no harm in trying.
Tami Koroye is a licensed lawyer hailing from Nigeria. He holds an LLB from the University of Benin and a BL from the Nigerian Law School. He is also currently a PhD candidate at the university of Bradford where is focusing on digital currency for a monetary union.
Tami is passionate about the transformation of the financial technology sector and believes in the promotion of financial inclusion in Nigeria. As such, he is a member of various policy conversation panels that provide informed opinions to government organisations regulating the Fintech and Crypto services.
You can connect with him on Twitter @tammi_koroye