An enhanced DLT-based CO2 Emission Trading System

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 balancing the supply of CO2 emitting resources like coal, natural gas, oil, calcium carbonate, and the reduction of carbon stock in biotopes with the carbon uptake of forest, peatlands and human-made installations. Import and export border adjustments prevent the distortions of competition. Due to the vastly decentralized character of the emission sources and the certificate ownership, distributed-ledger technology is used. This helps to create an automated process to monitor this balance and to determine fair export border adjustments for European companies. CO2 allowances are tokenized to track them along the European value chains. Owners of natural and artificial offsets are incentivized to protect biotopes and invest in carbon dioxide removal, by receiving CO2 tokens regularly.