Revolutionizing Emissions Tracking: Blockchain and NFTs Solve Scope 3 Challenges

AUBURN, Ala., December 22, 2024 – In an innovative ​study published in The Accounting Review, Jenkins, J.G., Negangard, E.M. and Sheldon, MD, Auburn University and ​John Carroll ​University, respectively, explore an innovative approach to monitoring and reporting greenhouse gas (GHG) emissions. His research integrates block chain technology, sustainable chips and smart contracts to ​simplify the presentation of GHG emissions in business ​value chains. The study addresses the problems of unreliable emission data, in particular emissions from range ​3, while providing a real-time verifiable reporting system.

The authors demonstrate the technological feasibility of using ​block chain systems for emission reporting, the use of NFT to represent specific programs related to individual products and smart contracts to automate data validation and transfer. The proposed system not only increases the reliability of ​data, but also ​ensures confidentiality, providing organizations with a ​sustainable way to meet regulatory requirements and improve environmental accountability.

Background

Monitoring and ​reporting of GHG emissions has become an urgent issue in light of global climate initiatives and regulatory mandates. The ESA final rule 2024 on climate-related revelations underlines the importance of reporting ​emissions in range 1 and 2 but excludes mandatory data ​in ​range 3 because of their inherent complexity. Range 3 emissions, which represent upstream and ​downstream emissions ​in the value chain, often represent most of a company’s total emissions, making accurate data collection a ​major challenge ​for many organizations. Despite regulatory problems, jurisdictions ​such as ​California and the ​European Union have started submitting full emission reports, highlighting the need for innovative solutions.

The ​Jenkins et al. study is based ​on ​the Design Science Research Methodology (MDRM), which identifies key emission reporting challenges, such as lack of ​data reliability, lack of confidentiality guarantees and logistical complexity. In synthesizing these questions, the authors propose a block chain ​model that simplifies emission monitoring while addressing scalability ​and governance concerns associated with existing reporting frameworks.

Main findings and implications

The study presents a detailed block chain ecosystem designed to record emission data at each stage ​of the value chain. The NFT serves as a numerical ​proxy for emission data, capturing information such as production emissions (field 1), energy consumption (field 2) and value chain emissions (field 3). Smart ​contracts automate the extraction, ​transfer and ​validation of ​NFTs, ensuring accurate and efficient aggregation of data. This approach allows companies to generate ​a ​source of emissions from cradle to harvest for each product, thereby ​improving the transparency and integrity of data across the value chain.

The authors’ prototype shows that the system can solve long-standing problems, including real-time emission reports, safeguard confidential data and improve ​collaboration among ​value chain participants. For ​example, the NFT containing aggregated emission data is burned ​and replaced by new chips at key events in the value chain, thus avoiding ​double counting ​by keeping a detailed history.

Technological and practical aspects

The professionals consulted for the study highlighted several advantages of this block chain-based ​system, including its ​potential to transform sustainability reporting standards. The study also recognizes the main obstacles such as the latency of ​the block chain, the impact ​on the costs of consortium governance and the need to encourage strong participants. Despite these challenges, researchers demonstrate that block chain ecosystems adapted to emission ​reporting can help companies meet increasing regulatory requirements, improve their performance in environmentally sound management ​systems, and simplify compliance efforts.

As regulatory frameworks evolve, integration of the block chain, ​NRT and smart contracts could redefine how organizations report and report on ​environmental ​impacts. The ​findings of ​Jenkins and others are a crucial step forward, providing a technologically viable solution to one of the most complex sustainable accounting challenges.