The energy sector has faced intense pressure from environmental activists, the media and general public to shift fuel production to greener alternatives. Energy companies are investing significant sums of money into technologies to achieve a carbon neutral position, or better yet, reverse the environmental damage to date.

Shifting consumer behaviour can be a significant preventative measure, but technological innovation can also facilitate greener energy consumption. Blockchain technology, and NFTs, is at the forefront of innovation and can be used to reduce the carbon footprint.

This article will focus on the application of blockchain and NFTs within the energy industry.

• Industry Background

• Industry Challenges & Blockchain/NFT Solutions

• Real World Case Studies

• Risk Considerations

• Closing Remarks

The total energy supply (“TES”) globally is circa 600m terajoules, according to the International Energy Agency. This [exceeds the total consumption by roughly 200m](https://https://Source: https://www.mckinsey.com/industries/oil-and-gas/our-insights/global-energy-perspective-2022) terajoules. This surplus is either traded between nations or held in reserve in the event of a shortage.

The COVID-19 Pandemic reduced global energy consumption by 4.5%, as global travel was halted to restrict the spread of the virus. This was short lived with a 5% rebound the following year as the global population returned to business as usual.

The top 10 energy companies make up $4 trillion USD market capitalization (“MC”). Saudi Aramco leads with a valuation of $2.3 trillion USD, equating to most (58%) of the top 10 MC.

Despite having the largest MC, Saudi Aramco only generated the third largest revenue from energy sales. Two Chinese companies lead the way, partly due to different domestic market conditions ($billion USD):

The war in Ukraine has led to concerns over the supply of fuel, driving energy prices up. The US has placed a ban on Russian oil imports, resulting in a squeeze on alternative, more expensive sources. Simultaneously, Europe is experiencing the ‘Nord Stream 1’ gas tap being cut causing a continuous up tick in European prices:

According to Mckinsey, fuel consumption is predicted to be circa 50% electricity and hydrogen by 2050. The following diagram shows the projected consumption (TJ or terajoules) by source:

Investment is expected to ramp up over the coming years, with a quarter projected to be spent on decarbonization technologies by 2035. The following illustrates the expected annual investment ($b USD):

Technological efficiencies are where blockchain and NFTs can drive innovative solutions for positive change on the environment and sustainable consumption. Let’s take a look.

Following a significant decline during 2020, carbon emissions showed a strong rebound in 2021, almost returning to pre-Pandemic levels. Tackling carbon emissions is at the forefront of the energy industry agenda, with an existential threat being posed to those organizations that are isolated to carbon fuel sources. Carbon credits are a method governments use to regulate the amount of pollution they are able to emit into the atmosphere.

NFTs can be used to represent ownership of carbon credits and be traded as a security on the open market. This has the benefit of promoting better behaviour when it comes to climate change. While carbon credits are already implemented, the NFT tech provides enhanced verification of ownership and therefore the ability to transfer these as separate assets more fluidly on the secondary market. The application of NFTs as carbon credits is already coining the term “ReFi” (Regenerative Finance).

A Power Purchase Agreement (“PPA”) is an agreement between a renewable developer and a consumer for the purchase of energy. Verification of this flow of renewable energy can be expensive.

Blockchain and NFTs provide an easily traceable source. Tokenizing the flow of energy using NFTs can prove that the source is renewable and not from carbon based fuel sources. ESG disclosures require information on energy sources for all public companies. These companies can be subject to significant fines in the event of inaccurate information on statements made so need to have reasonable due diligence procedures in place to support the accuracy of the disclosures. Having an immutable, transparent record of this energy flow validates these statements and can reduce the compliance costs to commission inspections of the energy flows.

The energy sector has several different types of plant and machinery required in the process of converting materials or natural energy into storable, usable energy sources. Keeping a reliable register of this machinery can be costly. Auditors need to verify the existence and valuation of this equipment for the purpose of financial reporting, given these are relatively sizeable numbers on the balance sheet.

Recording the assets as NFTs on a permissioned blockchain can help make the verification process more efficient and secure. The real world assets can be tokenized as NFTs which enables the attributes of the assets to be recorded as properties and the condition of the asset to be reflected as the meta data, refreshed to reflect its real time status. Management can also track which assets require repairs or maintenance, reducing lag and reporting times. This has the knock on effect of minimizing energy production downtime and maximizing production efficiencies, and ultimately revenue. Portable machinery can also have the location tracked once digitized, similar to existing supply chain blockchain solutions.

The earlier Mckinsey report on energy investment highlights that there is an expected uplift in forecast spend on new carbon reducing technologies - this tech is going from niche to mainstream. This additional capital needs to come from somewhere - either increased revenue, reduced costs redirected from other savings or additional capital contributed from shareholders or investors.

Revenue growth and capital injections can be expensive and lengthy processes. Cost cutting through innovation, using new technologies, can be one of the most efficient means of sourcing additional funds by cutting back on unnecessary or inefficient expenditure. Embracing tokenization with blockchain and NFTs can facilitate this through reduced compliance costs and enhanced transparency, leading to lower administration/processing costs and more reliable data sources. Blockchain and NFTs compliment the decarbonization agenda, and provided it contributes to achieving a greener outcome, could also be allocated a portion of this tech budget.

Transporting, storing and tracking energy throughout the supply chain can be a challenge especially for something that’s intangible. Keeping track of the upfront property, plant and equipment required for the infrastructure can also be difficult.

Tokenizing the assets and the corresponding energy flow as NFTs on the blockchain, can improve visibility over the position in the ecosystem’s supply chain. Energy companies will be able to track the chain of custody for grid materials. Those responsible for making decisions will have access to real time data which will enable them to make informed decisions, based on reliable data. If there are delays anticipated with machine delivery for a power plant, then operations or production can be adjusted to allow for a more continual flow of energy. Alternatively, surplus energy can be purchased from other producers to prevent shortages.

By 2050, there is a drive to transition 50% of energy production to electricity and hydrogen sources, rather than carbon. Continual analysis and monitoring of progress is required to be tracked against global targets to ensure delays do not go unnoticed, given the severe adverse impact on the environment.

Blockchain and NFTs enable the ability to analyze and monitor the flow of energy through digitization of renewable sources via energy certificates. This next iteration of digitization facilitates an immutable, reliable source of data that can be used as a basis for analysis. The more the industry is digitized using a secure decentralized database, then the better the underlying data source will be for authorities to track performance against targets. Incentives or penalties can then be adjusted based on real time data so as to change corporate behaviour for the better.

Increasing renewable energy production is one means of reducing the carbon footprint, but carbon capture is a way of reducing the amount of carbon emitted through the energy production process, or extracting CO2 that has already been released into the atmosphere.

Blockchain can support the tracking of the carbon capture progress using verifiable, immutable data on the amounts taken out of the atmosphere. As an example, IBM Japan partnered with Mitsubishi to develop a CCUS blockchain solution. This tracks the capture and re-usage of CO2. Mitsubishi is responsible for the physical infrastructure that captures the CO2 and IBM is in charge of the digital platform to trace it.

The natural resources energy sector is complex. The levels of paperwork involved in a contract for oil and gas are significant, and hold-ups at any stage of the process have knock-on effects throughout the supply chain. It is common practice for many participants in the energy ecosystem to maintain a surplus of energy within their storage facilities to reduce the occurrence of supply shortages.

The slow processing times mean that a lag can have ripple effects. Complying with local standards and tracing renewable energy back to renewable sources can be arduous and times consuming. Tokenizing the energy and the production assets can reduce the verification time and increase the reliability of this data. Allowing a permissioned blockchain to be used by all supply chain participants will allow real time access to this data and reduce the occurrence of bottlenecks.

Up front infrastructure costs can be expensive. Constructing the plant and machinery to a point where they are ready for production can take months or even years, during which no revenue is being generated.

EaaS removes the need for end users to manage the performance of an energy producing asset. This includes financing, installing and owning the energy asset. It makes it easier for businesses to focus on their core activities, and outsource energy production to a specialist third part provider.

EaaS generated $65 billion in revenue in 2021, and is forecast to double by 2029. It typically comes in the form of a subscription for electrical devices, owned by a service company. This has benefited consumers by promoting advanced technology, including the deployment of low-carbon technologies. The following diagram (Source: Deloitte) predicts the future power market, which is underpinned by distributed ledger technology.

The energy sector is relatively advanced in its adoption of blockchain and NFTs. Let’s take a look at some real world examples, already implemented.

Energy Attribute Certificates (“EACs”) are used to label the physical flow of electricity with unique characteristics (attributes) and enable consumers to choose their preferred energy source.

NFTs for renewable energy certification have been implemented with FlexiDAO, therefore creating a tradable and immutable digital attribute that can be audited and used to report carbon-free electricity achievements at any given point.

Iberdrola group have started a pilot project based on using blockchain to guarantee, in real time, that the energy supplied and consumed is 100 % renewable. This enables the group to link plants where electricity is produced to specific points of consumption, allowing the source of the energy to be easily traced.

Energy Web deploys digital operating systems for energy grids with a global community of more than 100 energy market participants. Individuals who produce their own energy will have the ability to trade it with their neighbors and peers.

The Energy Web Decentralized Operating System (EW-DOS) has three layers that work together to enable development and deployment of decentralized applications for the energy sector.

Power Ledger, has launched a platform (“uGrid”) which enables energy tracking and trading within embedded networks & microgrids.

Microgrids currently exist as a layer on top of the national grid, but they can be separate and self-sustaining. Peer to peer grids are becoming viable alternatives to a national grid as more participants create their own energy and have surplus energy available to trade. Being able to openly trade surplus energy on the secondary market could be more lucrative than selling it back to the original supplier.

• Transitioning all energy companies, regulators and other supply chain participants to one harmonized global blockchain would be a huge challenge. However, if the data is stored on a leading chain, such as Ethereum, then applications can be built by each of the supply chain participants to extract the relevant information required for their own bespoke needs. There may be concerns over sensitivity of the data and the level of data transparency. Depending on the confidentiality requirements, a private blockchain may be preferable.

• The traditional mining of cryptocurrencies has long been criticized for its energy intensity, hence current media press is not favorable for adoption of the tech - this misconception will need to change before companies can adopt without putting their reputation at risk. Tides are changing though, crypto farms could be co-located with renewable energy generation, mining only when there is an abundance of energy and therefore benefiting the overall system by supporting the integration of renewables. El Salvador is now implementing Bitcoin mining facilities close to the geothermal energy emitted from the nation’s volcano.

• There is legal risk around developing energy certificates as NFTs/proof that energy is renewable via tokenization. The existing NFT trading platforms have a relatively low barrier to enter, whereas traditional centralized marketplaces would have more stringent due diligence procedures in place, making it more difficult for bad actors to trade. Currently all that is required to trade NFTs on Opensea is a crypto wallet, which has minimal KYC procedures in place. Secondary market infrastructure may need to be better developed to ensure verified participants are transacting tokenized energy assets.

• The value of NFT transactions and the widespread use of cryptocurrency inevitably raises concerns about whether these transactions are being used to circumvent anti-money laundering regulations. Wash trading

Technological development within the energy sector is ramping up, made apparent by the projected decarbonization tech investment projections. It is likely that blockchain and NFTs will fall under this category, so unlike other industries the energy sector could have the catalyst for adoption sooner than expected. When an existential threat to the future of the planet becomes apparent, global authorities can incentivize companies to allocate budgets to make real change.

There are a number of use cases already being tested. NFTs as energy certificates, monitoring energy flows in real time on chain and disintermediation via decentralized peer to peer energy trading platforms are live. The pace of progress is likely to gain momentum as decarbonization targets and consequential penalties become more stringent. It’s only a matter of time before blockchain and NFTs are embedded throughout the energy sector.

At OriginsNFT we leverage data-driven decision making, educational resources, and proprietary analytics to remain ahead of the curve with respect to blockchain tech and specifically NFTs. To find out more, please visit our website or Twitter.

The energy sector has faced intense pressure from environmental activists, the media and general public to shift fuel production to greener alternatives. Energy companies are investing significant sums of money into technologies to achieve a carbon neutral position, or better yet, reverse the environmental damage to date.

Shifting consumer behaviour can be a significant preventative measure, but technological innovation can also facilitate greener energy consumption. Blockchain technology, and NFTs, is at the forefront of innovation and can be used to reduce the carbon footprint.

This article will focus on the application of blockchain and NFTs within the energy industry.

• Industry Background

• Industry Challenges & Blockchain/NFT Solutions

• Real World Case Studies

• Risk Considerations

• Closing Remarks

The total energy supply (“TES”) globally is circa 600m terajoules, according to the International Energy Agency. This [exceeds the total consumption by roughly 200m](https://https://Source: https://www.mckinsey.com/industries/oil-and-gas/our-insights/global-energy-perspective-2022) terajoules. This surplus is either traded between nations or held in reserve in the event of a shortage.

The COVID-19 Pandemic reduced global energy consumption by 4.5%, as global travel was halted to restrict the spread of the virus. This was short lived with a 5% rebound the following year as the global population returned to business as usual.

The top 10 energy companies make up $4 trillion USD market capitalization (“MC”). Saudi Aramco leads with a valuation of $2.3 trillion USD, equating to most (58%) of the top 10 MC.

Despite having the largest MC, Saudi Aramco only generated the third largest revenue from energy sales. Two Chinese companies lead the way, partly due to different domestic market conditions ($billion USD):

The war in Ukraine has led to concerns over the supply of fuel, driving energy prices up. The US has placed a ban on Russian oil imports, resulting in a squeeze on alternative, more expensive sources. Simultaneously, Europe is experiencing the ‘Nord Stream 1’ gas tap being cut causing a continuous up tick in European prices:

According to Mckinsey, fuel consumption is predicted to be circa 50% electricity and hydrogen by 2050. The following diagram shows the projected consumption (TJ or terajoules) by source:

Investment is expected to ramp up over the coming years, with a quarter projected to be spent on decarbonization technologies by 2035. The following illustrates the expected annual investment ($b USD):

Technological efficiencies are where blockchain and NFTs can drive innovative solutions for positive change on the environment and sustainable consumption. Let’s take a look.

Following a significant decline during 2020, carbon emissions showed a strong rebound in 2021, almost returning to pre-Pandemic levels. Tackling carbon emissions is at the forefront of the energy industry agenda, with an existential threat being posed to those organizations that are isolated to carbon fuel sources. Carbon credits are a method governments use to regulate the amount of pollution they are able to emit into the atmosphere.

NFTs can be used to represent ownership of carbon credits and be traded as a security on the open market. This has the benefit of promoting better behaviour when it comes to climate change. While carbon credits are already implemented, the NFT tech provides enhanced verification of ownership and therefore the ability to transfer these as separate assets more fluidly on the secondary market. The application of NFTs as carbon credits is already coining the term “ReFi” (Regenerative Finance).

A Power Purchase Agreement (“PPA”) is an agreement between a renewable developer and a consumer for the purchase of energy. Verification of this flow of renewable energy can be expensive.

Blockchain and NFTs provide an easily traceable source. Tokenizing the flow of energy using NFTs can prove that the source is renewable and not from carbon based fuel sources. ESG disclosures require information on energy sources for all public companies. These companies can be subject to significant fines in the event of inaccurate information on statements made so need to have reasonable due diligence procedures in place to support the accuracy of the disclosures. Having an immutable, transparent record of this energy flow validates these statements and can reduce the compliance costs to commission inspections of the energy flows.

The energy sector has several different types of plant and machinery required in the process of converting materials or natural energy into storable, usable energy sources. Keeping a reliable register of this machinery can be costly. Auditors need to verify the existence and valuation of this equipment for the purpose of financial reporting, given these are relatively sizeable numbers on the balance sheet.

Recording the assets as NFTs on a permissioned blockchain can help make the verification process more efficient and secure. The real world assets can be tokenized as NFTs which enables the attributes of the assets to be recorded as properties and the condition of the asset to be reflected as the meta data, refreshed to reflect its real time status. Management can also track which assets require repairs or maintenance, reducing lag and reporting times. This has the knock on effect of minimizing energy production downtime and maximizing production efficiencies, and ultimately revenue. Portable machinery can also have the location tracked once digitized, similar to existing supply chain blockchain solutions.

The earlier Mckinsey report on energy investment highlights that there is an expected uplift in forecast spend on new carbon reducing technologies - this tech is going from niche to mainstream. This additional capital needs to come from somewhere - either increased revenue, reduced costs redirected from other savings or additional capital contributed from shareholders or investors.

Revenue growth and capital injections can be expensive and lengthy processes. Cost cutting through innovation, using new technologies, can be one of the most efficient means of sourcing additional funds by cutting back on unnecessary or inefficient expenditure. Embracing tokenization with blockchain and NFTs can facilitate this through reduced compliance costs and enhanced transparency, leading to lower administration/processing costs and more reliable data sources. Blockchain and NFTs compliment the decarbonization agenda, and provided it contributes to achieving a greener outcome, could also be allocated a portion of this tech budget.

Transporting, storing and tracking energy throughout the supply chain can be a challenge especially for something that’s intangible. Keeping track of the upfront property, plant and equipment required for the infrastructure can also be difficult.

Tokenizing the assets and the corresponding energy flow as NFTs on the blockchain, can improve visibility over the position in the ecosystem’s supply chain. Energy companies will be able to track the chain of custody for grid materials. Those responsible for making decisions will have access to real time data which will enable them to make informed decisions, based on reliable data. If there are delays anticipated with machine delivery for a power plant, then operations or production can be adjusted to allow for a more continual flow of energy. Alternatively, surplus energy can be purchased from other producers to prevent shortages.

By 2050, there is a drive to transition 50% of energy production to electricity and hydrogen sources, rather than carbon. Continual analysis and monitoring of progress is required to be tracked against global targets to ensure delays do not go unnoticed, given the severe adverse impact on the environment.

Blockchain and NFTs enable the ability to analyze and monitor the flow of energy through digitization of renewable sources via energy certificates. This next iteration of digitization facilitates an immutable, reliable source of data that can be used as a basis for analysis. The more the industry is digitized using a secure decentralized database, then the better the underlying data source will be for authorities to track performance against targets. Incentives or penalties can then be adjusted based on real time data so as to change corporate behaviour for the better.

Increasing renewable energy production is one means of reducing the carbon footprint, but carbon capture is a way of reducing the amount of carbon emitted through the energy production process, or extracting CO2 that has already been released into the atmosphere.

Blockchain can support the tracking of the carbon capture progress using verifiable, immutable data on the amounts taken out of the atmosphere. As an example, IBM Japan partnered with Mitsubishi to develop a CCUS blockchain solution. This tracks the capture and re-usage of CO2. Mitsubishi is responsible for the physical infrastructure that captures the CO2 and IBM is in charge of the digital platform to trace it.

The natural resources energy sector is complex. The levels of paperwork involved in a contract for oil and gas are significant, and hold-ups at any stage of the process have knock-on effects throughout the supply chain. It is common practice for many participants in the energy ecosystem to maintain a surplus of energy within their storage facilities to reduce the occurrence of supply shortages.

The slow processing times mean that a lag can have ripple effects. Complying with local standards and tracing renewable energy back to renewable sources can be arduous and times consuming. Tokenizing the energy and the production assets can reduce the verification time and increase the reliability of this data. Allowing a permissioned blockchain to be used by all supply chain participants will allow real time access to this data and reduce the occurrence of bottlenecks.

Up front infrastructure costs can be expensive. Constructing the plant and machinery to a point where they are ready for production can take months or even years, during which no revenue is being generated.

EaaS removes the need for end users to manage the performance of an energy producing asset. This includes financing, installing and owning the energy asset. It makes it easier for businesses to focus on their core activities, and outsource energy production to a specialist third part provider.

EaaS generated $65 billion in revenue in 2021, and is forecast to double by 2029. It typically comes in the form of a subscription for electrical devices, owned by a service company. This has benefited consumers by promoting advanced technology, including the deployment of low-carbon technologies. The following diagram (Source: Deloitte) predicts the future power market, which is underpinned by distributed ledger technology.

The energy sector is relatively advanced in its adoption of blockchain and NFTs. Let’s take a look at some real world examples, already implemented.

Energy Attribute Certificates (“EACs”) are used to label the physical flow of electricity with unique characteristics (attributes) and enable consumers to choose their preferred energy source.

NFTs for renewable energy certification have been implemented with FlexiDAO, therefore creating a tradable and immutable digital attribute that can be audited and used to report carbon-free electricity achievements at any given point.

Iberdrola group have started a pilot project based on using blockchain to guarantee, in real time, that the energy supplied and consumed is 100 % renewable. This enables the group to link plants where electricity is produced to specific points of consumption, allowing the source of the energy to be easily traced.

Energy Web deploys digital operating systems for energy grids with a global community of more than 100 energy market participants. Individuals who produce their own energy will have the ability to trade it with their neighbors and peers.

The Energy Web Decentralized Operating System (EW-DOS) has three layers that work together to enable development and deployment of decentralized applications for the energy sector.

Power Ledger, has launched a platform (“uGrid”) which enables energy tracking and trading within embedded networks & microgrids.

Microgrids currently exist as a layer on top of the national grid, but they can be separate and self-sustaining. Peer to peer grids are becoming viable alternatives to a national grid as more participants create their own energy and have surplus energy available to trade. Being able to openly trade surplus energy on the secondary market could be more lucrative than selling it back to the original supplier.

• Transitioning all energy companies, regulators and other supply chain participants to one harmonized global blockchain would be a huge challenge. However, if the data is stored on a leading chain, such as Ethereum, then applications can be built by each of the supply chain participants to extract the relevant information required for their own bespoke needs. There may be concerns over sensitivity of the data and the level of data transparency. Depending on the confidentiality requirements, a private blockchain may be preferable.

• The traditional mining of cryptocurrencies has long been criticized for its energy intensity, hence current media press is not favorable for adoption of the tech - this misconception will need to change before companies can adopt without putting their reputation at risk. Tides are changing though, crypto farms could be co-located with renewable energy generation, mining only when there is an abundance of energy and therefore benefiting the overall system by supporting the integration of renewables. El Salvador is now implementing Bitcoin mining facilities close to the geothermal energy emitted from the nation’s volcano.

• There is legal risk around developing energy certificates as NFTs/proof that energy is renewable via tokenization. The existing NFT trading platforms have a relatively low barrier to enter, whereas traditional centralized marketplaces would have more stringent due diligence procedures in place, making it more difficult for bad actors to trade. Currently all that is required to trade NFTs on Opensea is a crypto wallet, which has minimal KYC procedures in place. Secondary market infrastructure may need to be better developed to ensure verified participants are transacting tokenized energy assets.

• The value of NFT transactions and the widespread use of cryptocurrency inevitably raises concerns about whether these transactions are being used to circumvent anti-money laundering regulations. Wash trading

Technological development within the energy sector is ramping up, made apparent by the projected decarbonization tech investment projections. It is likely that blockchain and NFTs will fall under this category, so unlike other industries the energy sector could have the catalyst for adoption sooner than expected. When an existential threat to the future of the planet becomes apparent, global authorities can incentivize companies to allocate budgets to make real change.

There are a number of use cases already being tested. NFTs as energy certificates, monitoring energy flows in real time on chain and disintermediation via decentralized peer to peer energy trading platforms are live. The pace of progress is likely to gain momentum as decarbonization targets and consequential penalties become more stringent. It’s only a matter of time before blockchain and NFTs are embedded throughout the energy sector.

At OriginsNFT we leverage data-driven decision making, educational resources, and proprietary analytics to remain ahead of the curve with respect to blockchain tech and specifically NFTs. To find out more, please visit our website or Twitter.