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Using blockchain and market mechanism to unlock investment in carbon reduction
by  Damien Gerard
Industrial consumers are often driven by the same emotions buyers of day-to-day products are—the strongest of which is trust. So, how do industrial producers introduce “greener” options in a way that is as secure and lucrative for them as it is traceable and trustworthy in the eyes of their customers? Enter voluntary market mechanisms built on the blockchain.
6 min read

One of the key issues in reducing emissions from large stationary sources like power plants or cement factories is the sheer cost associated with capturing the carbon dioxide (CO2) and storing it underground. It’s a daunting prospect even for large industrial players.

US policymakers have already taken a first step with supporting policies, but in most cases, a tax credit is just not sufficient justification for making a carbon capture, utilization, and sequestration (CCUS) investment. So, how do we get started without relying on new or expanded policies, which might take a while to arrive?

Introducing voluntary market mechanisms

The answer is in the development of voluntary market mechanisms that allow consumers (such as a construction company buying tons of cement and steel) to purchase totally decarbonized products if they so wish. This assumes a few things:

  1. green products exist
  2. consumers are willing and able to pay a premium for a green product
  3. the mechanism in place is verifiable and trustworthy for all parties

We’re already offered plenty of “green” choices in our personal lives, from offsetting the carbon footprint of our air travel to paying a premium for a super-efficient washer dryer. These are voluntary decisions driven by our means and convictions but, in most cases, we have little or no way of knowing whether the profit reaped from these initiatives is being reinvested into greener ventures. When someone gives $10 to offset the carbon footprint of a flight, it’s not entirely transparent whether the airline uses the proceeds to plant trees—the donator simply trusts that they do.

The good news is that technology can foster a similar spectrum of choices in the industrial energy market, and it can probably do so much faster than what governments can do on the policy front.

Take cement manufacturing as an example

Let’s start with the producer of goods, like a cement manufacturer who has been busy implementing energy efficiency solutions, switching to renewable fuel, and optimizing their curing process. These initiatives have already reduced the carbon intensity of cement by quite a margin. But it’s only by implementing CCUS that zero or near-zero carbon cement can be produced.


Producers can sell green product from their carbon credit banks to any client in the world.

Now, imagine that same producer takes a leap of faith and implements CCUS on one of their plants. They’re now producing 1 million tons of green cement each year. The producer has essentially created a “bank” of carbon credits—the calculation of which stems from assessing and certifying the life cycle footprint of an asset compared with the industry average.

The next step is to unbundle the decarbonized cement from its environmental attribute. This means that, regardless of where the CCUS plant is located, the producer can sell green product from its “bank” to any client in the world, even if the product is not physically delivered from the CCUS-enhanced plant. Every time a consumer chooses to buy green cement, the corresponding amount is debited from the producer’s carbon credits. This allows for the CCUS cost to be spread across a much broader consumer base and for the CCUS plant to be deployed where it makes most sense.

This kind of unbundling already exists in other markets. Take electrical power, for example. When a consumer decides to buy green power from a local utility, the electrons consumed do not come from any specific solar plant—they simply come from the grid. But what consumer commitment has enabled is for the utility to finance a solar plant. In other words, a dissociation between the physical attribute (the electron) and the environmental one (a green electron) has occurred. The same could apply to other commodities.

Do customers want to invest in decarbonized options at scale?

Producers looking to introduce decarbonized options must first test the concept with their customers. Do they have customers willing to pay a premium (or a carbon credit) and, if yes, how much would those buyers pay for a green(er) product? If the potential uptake is sufficient, then a producer can justify investing in a CCUS plant—the recovery of the investment is basically guaranteed if customers commit themselves for a certain period.

A carbon credit bank would also provide tremendous flexibility. Let’s assume that the cost of CCUS would add a 100% premium on the price of cement, which only a very small portion of consumers could absorb. Other consumers might still be able to afford a 10% premium, for example. In that case, when they buy cement with 10% lower carbon intensity, the bank would simply be debited by one-tenth of a credit rather than a full credit. (The same concept applies to any intensity.)

Blockchain technology is a novel but clear way to encourage consumer trust.

For voluntary market mechanisms to be effective, consumers must play their part and commit to buying a greener product, but they must first be given the choice to do so. And, as seen in our personal travel behaviors, the most important part is that consumers remain confident that the premium they’re paying is really associated with a physical reduction in emissions somewhere in the world.

Using blockchain to build trust

A novel, but clear way to encourage consumer trust is by implementing blockchain technology. Such a system would not only ensure that each ton of CO2 reduced is properly accounted for and not duplicated, but it would also allow for a verifiable process with infinite potential to scale, thereby eliminating fraud and misallocations.

Producers should begin testing such concepts in their core markets if they haven’t done so already, and work with local regulators to put in place acceptable solutions. They could gauge market adoption while testing how such an accounting system would work in their own industry. The unbundling would allow producers to implement carbon reduction solutions where it makes most sense, meaning where fantastic geological storage close to a plant and a very progressive regulator are both found.

Such voluntary carbon markets are emerging, but standards must still be established around life cycle, monitoring, reporting, auditing, etc. These mechanisms will require a concerted effort. We can’t continue to rely solely on policy to instill change. I’d rather see us induce a market transition with solutions over which we have much greater control. 


Damien Gerard

VP, Carbon Capture and Storage

Damien has 20 years of experience in the energy transition space. Prior to joining SLB in 2020, he was the lead investor at the Oil & Gas Climate Initiative, covering sectors such as CCUS, methane emissions, and energy efficiency.

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