Julia Benz

About Julia Benz

Posts by Julia Benz:

24 Apr 2024 updates

How Blockchain’s Intersection with Sustainability is Giving Power Back to the People

How Blockchain’s Intersection with Sustainability is Giving Power Back to the People presented by Julia Benz at SBS Earth 2023

26 Jun 2023 updates

Decarbonizing our Grid and our Corporations

Julia Benz

How policymakers can help create a more efficient, effective, and equitable renewable energy credit market

Policymakers play a crucial role in fostering an efficient, effective, and equitable renewable energy credit (REC) market that accelerates the decarbonization of both the grid and corporations. By addressing the limitations of the current REC market, policymakers can unlock their full potential to encourage the transition of the electricity grid to reach carbon-free energy 24/7. This article explores key areas where improvements are needed and proposes actionable steps for policymakers to facilitate the transition to a cleaner and more sustainable energy future through REC market improvements.

Why the current REC market is lacking and how it can be improved

RECs represent the “property rights to the environmental, social, and other non-power attributes of renewable electricity generation”. RECs place a price on renewable energy generation, or 1 MWh of renewable energy. The idea was to create a global market where businesses could buy and sell renewable energy on a global scale thus allowing a corporation to take credit for renewable energy produced. Using a market structure has helped put a price on renewables and help fund new sustainable developments.

However, the market system has not reached its full potential. There are four main limitations of the current market: lack of temporal information, lack of locational information, lack of granularity of REC value (1MWh), and lack of equitability and social value accounted for.

Lack of temporal information: energy produced is priced the same even when produced at different times.

Ideally, renewable energy would be used at all hours of the day and where it is needed most on the grid. Without widespread, and more efficient batteries than we have today, solar and wind cannot provide consistent renewable energy; additional resources like hydropower are interspersed, while hydrogen remains in an early growth stage.

However, with information about when renewables are being used (temporal information), companies can understand this information and better plan to reach 24/7 carbon free energy for every hour, every day, throughout the year.

Companies, as well as electric grid planners and renewable developers, can benefit from this information. Temporal information can reveal the types of renewables best suited to cover the remaining times, or gaps of renewable energy throughout the day. For example, if solar was already prevalent, perhaps an investment should prioritize batteries or other renewables to supplement renewable generation at night when the sun is not shining and there is no solar production.

Times during the day or areas where more renewables are needed can be targeted for new renewable developments. Large companies like Google can make informed investment decisions on renewables to invest in and work with developers to implement them to cover all hours of the day with renewables. In this way, companies can fully, truly decarbonize and work towards using renewable energy all the time rather than simply offsetting the attributed cost.

2. Lack of locational information: renewable generation does not have to be geographically close to the REC buyer.

Therefore, “even with a 100% match of generation to load, that consumer (in fact, all customers) will rely on the existing grid for physical energy. Thus, the physical electricity mix delivered to a renewable energy purchaser will always include generation from a mix of renewable, carbon-free, and/or non-renewable carbon emitting generators, until the entire grid is 100% renewable and non [carbon] emitting.” At any given point, the company taking credit for a REC is very likely not using all renewable energy, as there is an energy mix. So, by understanding the energy mix and what energy is being used where (and when), utilities and companies can more effectively decarbonize by creating a cleaner energy mix based on the specific location and grid load needs.

With more data, a more perfect marketplace could be created to displace the most carbon-intensive energy resources first. In this market, RECs would be valued at higher prices for replacing higher carbon-intensive resources. For example, on a very hot summer day when the electricity grid is constrained since everyone is using air conditioning if a large solar farm was able to displace a carbon-intensive coal-powered “peaker plant”, it is more valuable to the grid and the renewable energy transition and should be represented as such through the REC price.

3. Lack of granularity and flexibility within a REC value: 1MWh can be large for some players

RECs are not broken down past 1MWh. Small businesses and individuals can’t easily participate in the market since 1MWh is a somewhat large amount: it is equivalent to 1.2 months of usage of an average American home. Renewable energy projects that are smaller must be aggregated (in order to be measured in the system). Introducing the granularity of RECs, or RECs on a smaller scale, say .05MWh introduces a difficult task: a scalable market with much more trading available. However, adding in smaller, more granular RECs also opens up the market and could further incentivize small-scale renewable development. In turn, this could improve the previous points by introducing more spread-out renewables to assist in decarbonization.

4. Lack of equitability: the market does not fully account for the benefits of communities having access to renewables

Renewable energy resources are expensive, though less expensive than they used to be. They have high upfront costs, even with rebates and tax credits, but the lasting community will benefit from lower electricity bills and potentially less blackouts. Contextually, underserved communities experience more blackouts than affluent communities. With more and more solar coming online, it must be tracked and accounted for as well as accessible to all communities. The social benefits must be accounted for within the cost of a REC. For example, if a community solar project is built in an affordable income area that directly benefits the community, it is more valuable, especially if the community experiences blackouts.

Overall, the current REC market needs significantly more information to be tracked, transparency to the system, and value the pieces of the market that benefit the grid and its users.

Existing Players

There are organizations that have already had success in starting to change the REC market. Some include:

M-RETS is a digital platform that helps businesses match hourly consumption to renewable generation in the midwest. The system tracks renewable energy generation and records it on a traceable, digital certificate. This is the most successful and scaled granular REC case today.
EnergyTag is a coalition working to create standards around granular certificates, or time-based EACs, or T-EACs.
Powerledger’s TraceX platform uses blockchain to handle the trading of EACs
Solar Stewards (not currently using blockchain) is working to adding the social benefits to the price of RECs by quantifying the benefits of building renewable energy generation in income-qualified areas.

These organizations and platforms have made significant strides in showing and offering the benefits of a renewed REC marketplace. However, there are still hurdles to overcome to create a scaled, equitable, and efficient market. Primarily these challenges are:

Data access from utilities
Coordination between utilities, corporations, and renewable energy suppliers
Adoption and scaling of a global marketplace
Environmental justice and adding the social benefits to the cost of a REC

The blockchain debate

As a technology, Blockchian is very good at removing middlemen and democratizing transactions, all while keeping a transparent record. With blockchain’s ability to verify information and record transactions, blockchain-based solutions seem like a natural way to record renewable energy generation and trading of RECs (like Powerledger mentioned above). There are barriers for blockchain solutions, such as misunderstanding of blockchain technology and its perceived relationship to cryptocurrency. However, similar to many blockchain and web3 use cases, it is not about the technology behind it, but the capabilities of the technology to create the desired end result. So whether it’s blockchain or software tracking RECs, policymakers should support granular, equitable RECs.

Policymakers’ Actions and Beneficial Results

Provide support granular RECs through data standard requirements, encouraging use, project funding, and marketing
Implement further incentives or requirements for the REC market, grid operators, and companies to efficiently decarbonize
Assist in research and development of the most effective granular REC strategies and in helping provide standard project designs for the coordination of utilities, corporations, and renewable energy developers

Subsequent benefits:

Give companies large and small the capability, incentives, and tools, needed to decarbonize more effectively
The electricity grid will more effectively decarbonize with a truly free market where renewables are placed where they are needed in order to actually retire high emitting carbon resources like coal peaker plants
Help facilitate change in the electricity grid and private sector at the same time

Creating a more efficient and equitable REC marketplace, though challenging, has significant benefits. Companies want 24/7 renewable energy, and grid operators want to effectively transition to more renewable energy. A multi-faceted approach by policymakers is needed to continue to encourage these outcomes while using data-driven, granular RECs to help stakeholders reach their goals.

Sources:

24 Apr 2023 updates

How policymakers can ensure blockchain and Web3 will run sustainably

Julia Benz

"How policymakers can ensure blockchain and Web3 will run sustainably"

Climate change is looming large in the minds of policymakers, industry, and the public. As we adopt more decentralized technologies, there’s been a lot of talk about blockchain’s energy usage and its sustainability feasibility.

Bitcoin, the most prominent use case of blockchain, is always at the forefront of those conversations, and for good reason. Bitcoin uses a lot of energy to process and record transactions. In 2021, it was estimated that Bitcoin’s annual energy usage reached 130 TWh which is equivalent to the entire country of Argentina (1).

The reason that Bitcoin consumes so much energy is due to its consensus mechanism, proof of work (PoW), behind Bitcoin that requires significant energy, somewhat on purpose. However, while it is the first, it is not the only mechanism that blockchains can run on, and others are much less energy intensive. A consensus mechanism refers to “the entire stack of protocols, incentives and ideas that allow a network of nodes to agree on the state of a blockchain.” (2) The mechanism used by a blockchain can tell us a lot about how much energy is used that goes into records of transactions on the blockchain, whatever the transactions the blockchain may be recording from cryptocurrencies to carbon credits to supply chain trades. This blog will dive into different types of mechanisms and explore how blockchain technologies need not follow in Bitcoin’s energy-intensive footsteps.

It is essential that less energy intensive mechanisms behind blockchains are explored and used. As blockchains become more widespread and integrated into our daily lives, we can consider their climate impact early and prevent being put in a vulnerable position. As we have with technological innovation in the past, new technologies should not be required to fit into global and country-level goals of reaching climate action — especially when it is feasible and there are options.

Consensus Mechanisms

There are two common consensus mechanisms: proof of work (PoW) and proof of stake (PoS), though there are some other emerging mechanisms being used and developed. Their differences lie in the mechanisms that validator nodes use to reach consensus.

Proof of Work

As mentioned previously, Bitcoin uses the PoW consensus mechanism. Essentially, to validate a block onto the chain validator nodes race to solve complex math problems. These math problems take about 10 minutes to solve, but as more and more people become interested in Bitcoin and other PoW blockchains, more computers will be racing to solve these problems and encourage investment in more and more computational power. This computational power requires a lot of energy for the blockchain to run and record new transactions. In this way, Bitcoin and PoW-based blockchains actually incentivize and reward unsustainable behavior.

There has been significant effort by miners (people or organizations who have validator nodes) to use renewable energy, though this could be sped up and more widely adopted with policy support and regulation.

A recent report from the white house stated, “Global electricity generation for the crypto-assets with the largest market capitalizations resulted in a combined 140 ± 30 million metric tons of carbon dioxide per year (Mt CO2/y), or about 0.3% of global annual GHG emissions.” (3) For perspective, flying from Boston to London and back emits about one ton of CO2 per passenger (4). Though .3% of emissions may seem almost minimal compared to other industries, this is already occurring with half of Bitcoin operations using renewables, and a lot more growth is expected. Policymakers must act now to further encourage renewable investments by miners.

The large investments in solar farms and other innovations being used to make Bitcoin green may even be helping the larger renewable energy transition and electrification movement (5). Additionally, the US adopting renewables will lead to more sustainable mining operations as renewable prices drop further and are more easily integrated into the grid. However, miners are investing a lot now, and policymakers should specifically target them as they are being built and invested in.

Proof of Stake

Rather than requiring validators to use energy to solve math problems, PoS requires validator nodes to stake Ethereum which can be taken away if the validator acts “dishonestly or lazily” (6).

Increasingly, more blockchains are using PoS. PoS blockchains require upward of 95% less energy than PoW networks. PoS may also be quicker, more secure, and more scalable than PoW (7).

In the midst of high energy usage criticism, Ethereum switched from PoW to PoS in September 2022. This is particularly significant considering many applications and use cases for blockchain and Web3 are being built using the ethereum blockchain. Additionally, many other prominent blockchains like Tezos use PoS.

Proof of History and Other Mechanisms

There are multiple other consensus mechanisms popping up that offer similar energy savings and scalability. They may all be useful for different projects depending on varying goals. The less energy intensive the consensus mechanism, the more sustainable. The challenge is to have a complex enough mechanism to ensure the security of the blockchain while keeping it simple enough for computers to use minimal energy. I.e. the incentive for participating must not cost high energy usage, like PoW. The answer likely lies in a compromise: use PoW only for transactions that must be extremely secure and are few and far between, while other mechanisms like PoS, which are still very secure, can take on most blockchain use cases.

Proof of History (PoH), used by Solana, uses historical data to ensure validators are not bad actors. This type of data “fingerprint” may make PoH even faster and more scalable than PoS (8).

There are many other consensus mechanisms also being explored, such as Proof of Importance (PoI), Proof of Capacity (PoC), Proof of Elapsed Time (PoET), Proof of Authority (PoA), and Proof of Activity (PoA) (9).

Conclusion and Policy Implications

As blockchain technology becomes more widely used and applications scale in web3, energy intensity is extremely important to consider. Luckily, often the more scalable consensus mechanisms are the least energy intensive.

Naturally, PoW is the most energy-intensive mechanism. Though there has still been significant progress from the mining community around acquiring renewable energy resources to power mining operations, policy should support cleaner blockchains like Ethereum (PoS) for widespread adoption and web3 development. Most blockchain-based applications in sustainability (and more broadly?) are not using Bitcoin. They may, however, support or encourage the trading of blockchain as a reward. Ethereum is set up well to host other blockchain applications and is often used for sustainability-focused goals like carbon capture, energy trading, decentralized finance, supply chain tracking, and pollution records.

Bitcoin is not going away anytime soon. Policymakers should consider standards for consistent carbon reduction measures of blockchains, ideally reaching zero in the near future to ensure the US can reach carbon targets.Additionally encouraging projects to build on top of, use, and support more sustainable cryptocurrencies can further limit Bitcoin’s energy usage. This is also an opportunity to spur more renewable investments by using the market’s excitement and funding to create large renewable hubs on the grid while also pushing energy providers to adapt to renewable loads.

Sources:

"How policymakers can ensure blockchain and Web3 will run sustainably"