IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v13y2021i4p2106-d500245.html
   My bibliography  Save this article

A European Emissions Trading System Powered by Distributed Ledger Technology: An Evaluation Framework

Author

Listed:
  • Rahel Mandaroux

    (Department of Finance, ESCP Business School, 14059 Berlin, Germany)

  • Chuanwen Dong

    (Department of Information and Operations Management, ESCP Business School, 14059 Berlin, Germany)

  • Guodong Li

    (Wolveshill Consulting Ltd., Orpington BR5 3QB, UK)

Abstract

The European Union Emissions Trading System (EU ETS) is a major pillar of the European energy policy to reduce greenhouse gas emissions. However, the reportedly pervasive frauds in this market are constraining the beneficial role of the EU ETS. In this conceptual paper, we propose to digitalize the EU ETS by distributed ledger technology (DLT), enabling the verification of authenticity and provenance, proof of ownership, and lifecycle traceability of carbon certificates and assets. Our platform allows verifiable credentials to validate emission allowances, real-time tracking of trading participants’ emissions, and the audit trail reporting of the decentralized trading records. Furthermore, we complement the DLT application concept with a structured interdisciplinary evaluation framework. Our framework and analysis aim to stimulate further interdisciplinary research in this area to support regulators, such as the European Commission, in designing effective digital emissions trading systems.

Suggested Citation

  • Rahel Mandaroux & Chuanwen Dong & Guodong Li, 2021. "A European Emissions Trading System Powered by Distributed Ledger Technology: An Evaluation Framework," Sustainability, MDPI, vol. 13(4), pages 1-21, February.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:4:p:2106-:d:500245
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/13/4/2106/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/13/4/2106/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Karpf, Andreas & Mandel, Antoine & Battiston, Stefano, 2018. "Price and network dynamics in the European carbon market," Journal of Economic Behavior & Organization, Elsevier, vol. 153(C), pages 103-122.
    2. Catherine Boemare & Philippe Quirion & Steve Sorrell, 2003. "The evolution of emissions trading in the EU: tensions between national trading schemes and the proposed EU directive," Climate Policy, Taylor & Francis Journals, vol. 3(sup2), pages 105-124, December.
    3. Bailu Fu & Zhan Shu & Xiaogang Liu, 2018. "Blockchain Enhanced Emission Trading Framework in Fashion Apparel Manufacturing Industry," Sustainability, MDPI, vol. 10(4), pages 1-19, April.
    4. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    5. Karl Widerquist, 2018. "The Bottom Line," Exploring the Basic Income Guarantee, in: A Critical Analysis of Basic Income Experiments for Researchers, Policymakers, and Citizens, chapter 0, pages 93-98, Palgrave Macmillan.
    6. Adamu Sani Yahaya & Nadeem Javaid & Fahad A. Alzahrani & Amjad Rehman & Ibrar Ullah & Affaf Shahid & Muhammad Shafiq, 2020. "Blockchain Based Sustainable Local Energy Trading Considering Home Energy Management and Demurrage Mechanism," Sustainability, MDPI, vol. 12(8), pages 1-28, April.
    7. Raphael Calel & Antoine Dechezleprêtre, 2016. "Environmental Policy and Directed Technological Change: Evidence from the European Carbon Market," The Review of Economics and Statistics, MIT Press, vol. 98(1), pages 173-191, March.
    8. Walid Al-Saqaf & Nicolas Seidler, 2017. "Blockchain technology for social impact: opportunities and challenges ahead," Journal of Cyber Policy, Taylor & Francis Journals, vol. 2(3), pages 338-354, September.
    9. Bel, Germà & Joseph, Stephan, 2015. "Emission abatement: Untangling the impacts of the EU ETS and the economic crisis," Energy Economics, Elsevier, vol. 49(C), pages 531-539.
    10. Chen, Yongmin, 2020. "Improving market performance in the digital economy," China Economic Review, Elsevier, vol. 62(C).
    11. Fangyuan Zhao & Wai Kin (Victor) Chan, 2020. "When Is Blockchain Worth It? A Case Study of Carbon Trading," Energies, MDPI, vol. 13(8), pages 1-28, April.
    12. Eugénie Joltreau & Katrin Sommerfeld, 2019. "Why does emissions trading under the EU Emissions Trading System (ETS) not affect firms’ competitiveness? Empirical findings from the literature," Climate Policy, Taylor & Francis Journals, vol. 19(4), pages 453-471, April.
    13. Andoni, Merlinda & Robu, Valentin & Flynn, David & Abram, Simone & Geach, Dale & Jenkins, David & McCallum, Peter & Peacock, Andrew, 2019. "Blockchain technology in the energy sector: A systematic review of challenges and opportunities," Renewable and Sustainable Energy Reviews, Elsevier, vol. 100(C), pages 143-174.
    14. Seong-Kyu Kim & Jun-Ho Huh, 2020. "Blockchain of Carbon Trading for UN Sustainable Development Goals," Sustainability, MDPI, vol. 12(10), pages 1-32, May.
    15. Marco Schletz & Laura A. Franke & Søren Salomo, 2020. "Blockchain Application for the Paris Agreement Carbon Market Mechanism—A Decision Framework and Architecture," Sustainability, MDPI, vol. 12(12), pages 1-17, June.
    16. Hasbrouck, Joel, 1993. "Assessing the Quality of a Security Market: A New Approach to Transaction-Cost Measurement," The Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 191-212.
    17. Jun-Ho Huh & Seong-Kyu Kim, 2019. "The Blockchain Consensus Algorithm for Viable Management of New and Renewable Energies," Sustainability, MDPI, vol. 11(11), pages 1-26, June.
    18. Mattila, Juri, 2016. "The Blockchain Phenomenon – The Disruptive Potential of Distributed Consensus Architectures," ETLA Working Papers 38, The Research Institute of the Finnish Economy.
    19. Hua, Weiqi & Jiang, Jing & Sun, Hongjian & Wu, Jianzhong, 2020. "A blockchain based peer-to-peer trading framework integrating energy and carbon markets," Applied Energy, Elsevier, vol. 279(C).
    20. Sam Hartmann & Sebastian Thomas, 2020. "Applying Blockchain to the Australian Carbon Market," Economic Papers, The Economic Society of Australia, vol. 39(2), pages 133-151, June.
    21. Medina, Vicente & Pardo, Ángel & Pascual, Roberto, 2014. "The timeline of trading frictions in the European carbon market," Energy Economics, Elsevier, vol. 42(C), pages 378-394.
    22. Quentin Dupont & Jonathan M. Karpoff, 2020. "The Trust Triangle: Laws, Reputation, and Culture in Empirical Finance Research," Journal of Business Ethics, Springer, vol. 163(2), pages 217-238, May.
    23. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-641, August.
    24. Pasquale Giungato & Roberto Rana & Angela Tarabella & Caterina Tricase, 2017. "Current Trends in Sustainability of Bitcoins and Related Blockchain Technology," Sustainability, MDPI, vol. 9(12), pages 1-11, November.
    25. Katharine Ricke & Laurent Drouet & Ken Caldeira & Massimo Tavoni, 2018. "Country-level social cost of carbon," Nature Climate Change, Nature, vol. 8(10), pages 895-900, October.
    26. Khaqqi, Khamila Nurul & Sikorski, Janusz J. & Hadinoto, Kunn & Kraft, Markus, 2018. "Incorporating seller/buyer reputation-based system in blockchain-enabled emission trading application," Applied Energy, Elsevier, vol. 209(C), pages 8-19.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Qingqing & Shi, Jinbo & Ni, Kan & Wang, Ruohan & Zhang, Chongyi & Yang, Nan & Yang, Yifei & Shen, Yifan & Guo, Ru & Liao, Zhenliang, 2024. "A highly credible and efficient real-time carbon MRV + O system for delicacy management of distributed carbon abatement behaviors," Applied Energy, Elsevier, vol. 355(C).
    2. Yutao Lei & Xuan Zhang & Wenxiang Peng, 2022. "Can China’s Policy of Carbon Emissions Trading Optimize Manufacturing Structure? Evidence from Guangdong Based on a Synthetic Control Approach," Sustainability, MDPI, vol. 14(6), pages 1-23, March.
    3. Jan Wrana & Wojciech Struzik & Piotr Gleń, 2022. "Natural Energy Stored in Groundwater Deposits as a New Way of Obtaining Green Energy for Urban Planners, Architects and Environmentalists," Energies, MDPI, vol. 15(13), pages 1-13, June.
    4. Siying Yang & Wenxuan Sun & Zhouyi Wu & Yang He, 2022. "Can the SO2 emission trading system promote urban emission reduction?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(4), pages 963-974, June.
    5. Aleksander Jakimowicz, 2022. "The Energy Transition as a Super Wicked Problem: The Energy Sector in the Era of Prosumer Capitalism," Energies, MDPI, vol. 15(23), pages 1-31, December.
    6. Arsenii Vilkov & Gang Tian, 2023. "Blockchain’s Scope and Purpose in Carbon Markets: A Systematic Literature Review," Sustainability, MDPI, vol. 15(11), pages 1-27, May.
    7. Fernando Mata & Meirielly Santos Jesus & Concha Cano-Díaz & Maria Dos-Santos, 2023. "European Citizens’ Worries and Self-Responsibility towards Climate Change," Sustainability, MDPI, vol. 15(8), pages 1-13, April.
    8. Bokolo Anthony Jnr. & Waribugo Sylva & Josue Kuika Watat & Sanjay Misra, 2024. "A Framework for Standardization of Distributed Ledger Technologies for Interoperable Data Integration and Alignment in Sustainable Smart Cities," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 12053-12096, September.
    9. Marcin Olkiewicz & Anna Olkiewicz & Radosław Wolniak & Adam Wyszomirski, 2021. "Effects of Pro-Ecological Investments on an Example of the Heating Industry—Case Study," Energies, MDPI, vol. 14(18), pages 1-24, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Changping Zhao & Juanjuan Sun & Yu Gong & Zhi Li & Peter Zhou, 2022. "Research on the Blue Carbon Trading Market System under Blockchain Technology," Energies, MDPI, vol. 15(9), pages 1-17, April.
    2. Arsenii Vilkov & Gang Tian, 2023. "Blockchain’s Scope and Purpose in Carbon Markets: A Systematic Literature Review," Sustainability, MDPI, vol. 15(11), pages 1-27, May.
    3. Flori, Andrea & Borghesi, Simone & Marin, Giovanni, 2024. "The environmental-financial performance nexus of EU ETS firms: A quantile regression approach," Energy Economics, Elsevier, vol. 131(C).
    4. Xiangyang Yu & Xiaojing Wang, 2023. "Research on Carbon-Trading Model of Urban Public Transport Based on Blockchain Technology," Energies, MDPI, vol. 16(6), pages 1-21, March.
    5. Quemin, Simon & Trotignon, Raphaël, 2021. "Emissions trading with rolling horizons," Journal of Economic Dynamics and Control, Elsevier, vol. 125(C).
    6. Golinucci, Nicolò & Tonini, Francesco & Rocco, Matteo Vincenzo & Colombo, Emanuela, 2023. "Towards BitCO2, an individual consumption-based carbon emission reduction mechanism," Energy Policy, Elsevier, vol. 183(C).
    7. Naif Al Azmi & Ghaleb Sweis & Rateb Sweis & Farouq Sammour, 2022. "Exploring Implementation of Blockchain for the Supply Chain Resilience and Sustainability of the Construction Industry in Saudi Arabia," Sustainability, MDPI, vol. 14(11), pages 1-17, May.
    8. Baudry, Marc & Faure, Anouk & Quemin, Simon, 2021. "Emissions trading with transaction costs," Journal of Environmental Economics and Management, Elsevier, vol. 108(C).
    9. Yildizbasi, Abdullah, 2021. "Blockchain and renewable energy: Integration challenges in circular economy era," Renewable Energy, Elsevier, vol. 176(C), pages 183-197.
    10. Ahmad A. A. Khanfar & Mohammad Iranmanesh & Morteza Ghobakhloo & Madugoda Gunaratnege Senali & Masood Fathi, 2021. "Applications of Blockchain Technology in Sustainable Manufacturing and Supply Chain Management: A Systematic Review," Sustainability, MDPI, vol. 13(14), pages 1-20, July.
    11. Rui Sun & Dayi He & Jingjing Yan & Li Tao, 2021. "Mechanism Analysis of Applying Blockchain Technology to Forestry Carbon Sink Projects Based on the Differential Game Model," Sustainability, MDPI, vol. 13(21), pages 1-18, October.
    12. Alessandra Chiarini & Lorenzo Compagnucci, 2022. "Blockchain, Data Protection and P2P Energy Trading: A Review on Legal and Economic Challenges," Sustainability, MDPI, vol. 14(23), pages 1-20, December.
    13. Ahl, Amanda & Goto, Mika & Yarime, Masaru & Tanaka, Kenji & Sagawa, Daishi, 2022. "Challenges and opportunities of blockchain energy applications: Interrelatedness among technological, economic, social, environmental, and institutional dimensions," Renewable and Sustainable Energy Reviews, Elsevier, vol. 166(C).
    14. Agime Gerbeti, 2021. "Market Mechanisms for Reducing Emissions and the Introduction of a Flexible Consumption Tax," Global Journal of Flexible Systems Management, Springer;Global Institute of Flexible Systems Management, vol. 22(2), pages 161-178, December.
    15. Karpoff, Jonathan M., 2021. "The future of financial fraud," Journal of Corporate Finance, Elsevier, vol. 66(C).
    16. Borghesi, Simone & Flori, Andrea, 2018. "EU ETS facets in the net: Structure and evolution of the EU ETS network," Energy Economics, Elsevier, vol. 75(C), pages 602-635.
    17. Manuel Casquiço & Bruno Mataloto & Joao C. Ferreira & Vitor Monteiro & Joao L. Afonso & Jose A. Afonso, 2021. "Blockchain and Internet of Things for Electrical Energy Decentralization: A Review and System Architecture," Energies, MDPI, vol. 14(23), pages 1-26, December.
    18. Hanghang Dong & Jun Yang & Xiaoming Li & Lan Xu, 2024. "Explore the Impact Mechanism of Block Chain Technology on China's Carbon Market," Computational Economics, Springer;Society for Computational Economics, vol. 64(1), pages 105-135, July.
    19. Ren, Shenggang & Yang, Xuanyu & Hu, Yucai & Chevallier, Julien, 2022. "Emission trading, induced innovation and firm performance," Energy Economics, Elsevier, vol. 112(C).
    20. Li, Qingqing & Shi, Jinbo & Ni, Kan & Wang, Ruohan & Zhang, Chongyi & Yang, Nan & Yang, Yifei & Shen, Yifan & Guo, Ru & Liao, Zhenliang, 2024. "A highly credible and efficient real-time carbon MRV + O system for delicacy management of distributed carbon abatement behaviors," Applied Energy, Elsevier, vol. 355(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:13:y:2021:i:4:p:2106-:d:500245. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.