Emission Trading and Border Adjustments with Distributed Ledger Technology

Abstract

A reformed European Emission Trading System is proposed that supports the European Union to achieve net-zero consumption-based CO2 emissions by 2050. The mechanism regulates emissions upstream by limiting the supply of CO2 emitting resources like coal, natural gas, oil, calcium carbonate and the reduction of carbon stock in biotopes. Import and export border adjustments prevent the distortions of competition. Distributed-ledger technology is used to determine fair export border adjustments for European companies by tokenizing CO2 allowances and tracking those tokens along the European value chains.