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Nested Accounting Mechanism
A key prompt for a participatory Paris Agreement
Prompt WS3: Propose and develop a mechanism so that climate assets (eg. Mitigation outcomes) are accounted within their nested jurisdictions and thus included into national registries and international frameworks. Consider metadata schemas and contracts so that these mitigation and adaptation outcomes of key actors like cities, companies and individuals can be included and accounted under the respective Nationally Determined Contributions where they are retired.
Prompt Host: Swytch.io | Yale Openlab | Verses.io Discord channel: https://discord.gg/2Ya6sa CoMakery: Project site link

Background and context

A key aspect for a global climate accounting system is its capacity to combine both commitments, actions and politics pertaining to nation-states, as well as those from all Subnational (eg. provinces, regions and cities) and Non-State Actors (eg. companies, organizations, individuals). This feature needs to be achieved without any risk of double counting, for example emissions reductions from a Forest project in Washington done by a company in California are accounted in both states, and they show up equally at the national level.
Preventing double counting happens to be one of the main values of distributed ledger technologies and thus particularly a tool to leverage to, for example, allow bottom-up actions to be considered within the Paris Agreement tracking of the achievement of nationally determined contributions. This integration should be designed to take advantage of positive feedback loops involved in a win-win dynamic between state and NSA. Namely, accounting the actions of Non-State Actors (NSAs) lessens the climate burden of the national governments, thus fostering federal incentives to support NSAs actions and the capacity building to utilize the same accounting methodologies. With incentives and motivation, NSAs can mobilize the lion share of capital required in finance the climate transition. Conversely, if an elected government from a nation-state loses track of scientific facts and shows minimum signs of planetary stewardship, a mechanism that incorporates NSA accounting can enable a country to maintain a Paris-consistent track irrespective of the federal position. A clear example of this dynamic is seen with the Trump administration of the United States of America in regard to the potential pullout of the Paris Agreement, which lead to the immediate backlash by states and companies in the form of the #WeAreStillIn coalition.
A process for nested accounting need to be translated to an automated protocol. This means that, for example, the mitigation certificates generated and retired by a forest conservation project developed by a private actor would automatically be included in the fulfillment of climate commitments of the subnational actor (eg. the province or region in which the project or company is located), and subsequently the nationally determined contribution of the involved country. If the mitigation certificates are sold from the private developer to a company incorporated in a different jurisdiction —and are retired by the buying actor— then, subject to countries approval, the accounting of those actions would fall under the nested scopes involved in the buyer’s jurisdiction.
Performing a nested geographical accounting on the retired climate credits of non-state actors is one the main pillars of the project and key function of the climate actors and registries domain. It allows parties to the Paris Agreement to include official actions from cities and companies, lessening the burden of the federal state, and the capacity to incentivize the private sector to mobilize climate action capital, rewarding by conventional economic returns, as well as digital credits eligible for global trading (eg. ITMOs —international transfer of mitigation outcomes).
Prompt's graphical abstract
The figure below shows a mockup of how nested accounting is proposed and would operate in the Open Climate platform. In this case, it shows the interface of a logged in non-state actor —spanish renewable energy company Iberdrola— viewing one of their major solar projects in the region of Extremadura, Spain. This solar project, Nuñez de Balboa, will be fully functional in 2020 but in this case already started to produce renewable energy certificates (equal to 1 MWh). Once the Iberdrola company retires these certificates (meaning they are no longer eligible for trading in a market) these can be accounted as mitigation outcomes belonging to the company and act as proof of progress to their climate pledge, but are also immediately accounted to the corresponding subnational actors (i.e. the province of Cáceres and the region of Extremadura) who also have a respective climate pledge. Furthermore, the same credits should hold a protocol metadata schema that allows them to be tagged directly to Spain’s NDC. Prior to retirement (i.e. they are accounted and removed from the market), these credits then could participate under the trade of an ITMO.

Useful definitions

Climate Assets: Climate assets is a generic term referring to digital records attesting to climate value arising from an action which occurred in the past, and has supporting data to prove it following an accepted methodology of how it was monitored, reported and verified. Climate value can be positive, eg. a mitigation outcome with emission reductions or clean energy generated, as well as an adaptation action which reduces vulnerability, but can also be a negative value, eg. a proof of emissions of 1 tn of CO2. Climate assets can have tradeable and thus monetary value, eg. a carbon offset. An example is a Renewable Energy Certificate, which is 1 MWh of clean electricity generated
Retired asset: Once that climate asset cannot be traded, and thus can be accounted to an actor (eg. to offset their emissions)
Registries: This often relates to a repository where climate assets are stored and accounted. Registries are also referred to as platforms that hold official information about a climate actor's emissions and pledges.

Tasks & Contribution opportunities

  • Create a registry of spatial domains for at least one country, where each geospatial polygon has an ID associated to its political jurisdiction. This would make the map of USA and its coordinated be one polygon, and inside it would be the polygons for all states, and within them the geospatial contours for each major city. Consider using Open Street Map or ESRI for it. This would produce a Geospatial domain that may be particularly useful for addressing nested accounting.
  • Propose a mechanism to automate a nested accounting process once a climate asset is retired. Should the nested scope consider political jurisdictions, spatial boundaries, or a different approach? How would you avoid double counting if each hierarchy holds a different registry and accounting system (eg. cities and countries are keep logs in different repositories)?
  • How would you solve nested accounting when a company retires a climate asset (eg. a carbon offset) but it operate in many states, and even countries? Should one consider the place of legal incorporation (eg. the state that holds the LLC company, eg. Delaware), where the company operates, or where its HQ is located ? Can/should retired assets that represent offsets be linked to a 'Retired Site' where emissions occur (eg. the exact location of a factory or building)?
  • Can you think of how smart contracts can be use for this process? Eg. Create smart contracts which are associated to each Climate Actor in the spatial registry (mentioned in the other task) where each smart contract is also linked to the other smart contracts and Climate Actor based on their 'nested hierarchy.' Then if an asset is retired by one actor, it can be 'burnt' or 'locked' so as to ensure it cannot get moved, but that it also produces a shadow credit to the actor/smart contracts that are higher above its nested hierarchy.
  • Simulate the nested accounting process with demo climate asset, considering the metadata schema of the asset (eg. a forest carbon credit, or a renewable energy certificate), with schema being the structure and collection of key-value pairs eg. : 'Place generate' 'Type of Action' 'Value' 'Methodology used' 'Verifier entity' 'Associated data' 'Retired site' etc.
Last modified 2yr ago