The 2018 Katowice Climate Package (i.e. the ‘Paris Rulebook’) (English)
Many provisions of the Paris Agreement (PA) are obligatory but not legally binding. This is primarily defined by the legal language used in each article. Use of the word ‘shall,’ for example is considered legally binding, whereas ‘should’ or ‘may’ are less so. The underlying concept of the PA is that countries should present their Nationally Determined Contributions (NDCs) to the aggregate climate action efforts (preventing warming below 2oC with efforts below 1.5oC). In general, there is no recourse for failing to achieve ones NDC other than the fact that nations around the world use political pressure to hold each another accountable. The most important obligation countries have is to actually submit and report their NDCs and inventories.
Our current work has focused on translating the legal language into a ‘thoughtware’ document that provides the guidelines for a ‘software’ translation into a digital smart contract.
The most relevant PA articles identified are:
Article 2, which sets the overall climate target goal
Article 4, which presents the mechanism for NDCs and 5 year stocktake periods to evaluate and increase ambitions of these NDCs
Article 6, which opens up avenues for cooperation and managing trading of international transfer of mitigation outcomes (ITMOs)
Article 13, which encourages transparency amongst nation-states, as they must submit greenhouse gas inventories and information on their progress towards implementing their NDCs.
Considering these digitizable aspects, the current PA smart contract puts forth the main temperature goal —whose progress can be tracked by the on-chain record described in the previous section, the mapping and public address assignment to the involved actors (i.e. countries parties to the UNFCCC COP that ratified the PA), their presented commitments (i.e. article 4, NDCs) as well as the stocktake process and other key articles that are compatible with contractual digitization (eg. article 6, ITMOs, and 13, transparency).
We identify three use-cases of smart contract within the Paris Agreement
Digital transformation of the Paris reporting process: This pertains specifically to the analysis described above and has been the focus of our prototyping work. Its core value it to operationalize transparency (i.e. Article 13) and provide efficiency and automation (standardization of report formats, consensus on submissions etc.). For example, countries currently submit their NDC in a PDF format, which requires independent actors to interpret the file and extract key metrics such as baseline year, target year, and emission reduction target.
Creation of utility tokens, which can be used purely as an accounting mechanism to keep records based on two variables:
Reporting actions: have countries reported, Yes or No? Is the report a high quality report? (i.e. meets methodologies and accepted formats)
Emissions tracking: Did countries meet their emission reduction targets? Or are they in track to do so? Yes or No? By how much?
Alternative and unofficial parallel mechanisms. Based on the information of 1. and 2. above, these can involve any reward/penalty mechanisms that can be designed and adopted voluntarily by a group of countries —or subnational actors tied to NDCs— and could be executed automatically given the associated formal records.
Following from use-cases 2 and 3 above, perhaps the most valuable aspect of smart contracting the PA, is that its basic functions can be used to add multiple other digital functions that countries may want to engage with, which could automatically execute with little operational effort.
Some of our first tests of this includes application of tokenomics. A specific test implementation has been to issue tokens equal to the GHG reduction goals set by parties in their NDC, where 1 token = 1 ton of CO2. These tokens are locked on the PA smart contract address (i.e. escrow) and hold a specific high value, currently set at $1000/ton but with the option to be subject to how ambitious the NDCs are and the aggregate temperature effects. The value can be linked to locked funds on a contract or equitable in credit lines from international development banks or other international funds. Parties can redeem these tokens at each stocktake year upon presentation of NDC progress in the form of digital certificates of mitigation outcomes. Parties hold a function to allow or reject the incorporation of certified mitigation outcomes from non-state actors as part of the NDC progress, and the capacity for these to automatically redeems the escrow held tokens and/or receive other fiscal compensations from the corresponding country.
We expect smart contract innovation proposals can be highly valuable for implementation of both for unofficial and voluntary schemes, as well as those developed and presented by the governing bodies of the Paris Agrement (eg. the APA).