DLT-based CO2 Emission Trading System : Verifiable Emission Intensities of Imports

Abstract

The European Emission Trading System is the primary tool of the European Union to reach net-zero greenhouse gas emissions by 2050. However, it faces several challenges regarding its effectiveness. To address those issues, a new mechanism based on distributed ledger technology is proposed. Previous work has shown how consumption-based emissions of European consumers can be limited by a reshaped emission trading system. An upstream approach guarantees complete coverage of carbon dioxide emissions. In order to ensure that domestic firms stay competitive, both import and export border adjustments are proposed. This principle is further investigated for import border adjustments. It is shown that a decentralized bill of material could help foreign companies to prove their carbon footprint to European authorities when importing goods into the Union. To achieve verifiable proof, the models of verifiable object identity attributes and digital object memory storing carbon footprints of importing goods are used. It is shown how digital twins extend the concept to allow companies to increase supply chain efficiency.