Accounting researchers say they have discovered a theoretically possible solution to simplify the tracking of Type 3 greenhouse gas emissions up and down the value chain using
Under certain regulations in the European Union, California and other jurisdictions, entities must report direct emissions from a company’s facilities and vehicles (Scope 1), indirect emissions from energy used to operate its operations (Scope 2) and emissions from upstream suppliers. and downstream end users who purchase a company’s products (scope 3), which are generally considered the most complex and difficult to track. Accounting researchers – from Auburn University and John Carroll University – believe they have found a technological solution that, in theory, could make this process easier.
The theoretical solution, presented in the Accounting review paper
Bartek Sadowski/Bloomberg
Specifically, each component of a tangible asset would have an associated NFT created by a self-executing smart contract once that component enters the value chain as an input to the blockchain. This NFT is assigned data showing scope 1 emissions associated with the creation of the component; a separate NFT is then created for the Scope 2 emissions generated to create the component. As these components move down the physical value chain, the corresponding NFTs move between the same companies on the blockchain.
When components are combined in manufacturing, smart contracts “burn” the associated NFTs and create new ones that represent the updated in-production assets and their aggregated emissions up to that point in the value chain. Each of these updates is recorded in the blockchain ledger, which the researchers said would be collectively maintained and approved by the consortium members.
“This system creates near real-time cradle-to-grave provenance for tangible assets and their associated emissions as they move through the value chain, and allows all emissions to be counted and claimed. In addition, all actors in the value chain can use this system. to determine the total emissions associated with a product and their classification into scopes 1, 2 or 3 from a reporting perspective,” the document states.
Their system also has the ability to turn different privacy levels on and off to protect each company’s proprietary information. Participants can also view only upstream and downstream Scope 3 emissions by categories such as goods or services purchased, transportation and distribution, and end-of-life treatment of products sold. According to the document, when their system is fully built, any company with authorized access will be able to query the blockchain ledger to find out the total emissions value of each of its products across the three domains.
This contrasts with current practices, which are generally considered complex and arduous and rely heavily on manual processes.
“During our research, we interviewed an (individual) who works for a large retail company. He manually enters data from about 4,000 suppliers into a spreadsheet and then performs calculations,” said Greg Jenkins, one of the authors of the study. , noting that this method is time-consuming and could lead to data entry errors and double counting of emissions.
The newspaper does not, however, claim that this technique is a success. He stressed that there are many practical obstacles to overcome before such a system can be fully implemented, as well as many risks that must be taken into account. Although technologically feasible, the experts on whom the researchers applied the concept emphasized, firstly, the need for governance and coordination; second, a lack of trust in the blockchain; and third, blockchain latency. This is in addition to other anticipated difficulties such as the challenge of getting accurate emissions data to enter the blockchain in the first place, differences in reporting schedules potentially disrupting coordination, potential exposure of confidential information and other risks that technology is intended to eliminate. address. However, researchers believe these challenges can be overcome and will be worth it.
Emissions tracking technology protected by US agreement
Although blockchains themselves can be very energy intensive, generating significant greenhouse gases, Mark Sheldon, another author of the study, noted that specific applications do not have to be.
“Blockchains use different consensus mechanisms to ensure that different nodes (computers) agree on updates to the underlying ledger. Proof of stake, an option to use with our solution, is very energy efficient compared to proof of work, This is the one everyone hears about with Bitcoin In fact, the Ethereum blockchain recently moved from proof of work to proof of stake and is found to be 99% more energy efficient. other factors also come into play. with our model specific, but this is the major problem when it comes to energy efficiency,” he said in an email.
