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The impact of the EU’s legislative agenda on the KlimaDAO ecosystem

Updated: Nov 14, 2023

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A recent communication from the European Commission to the European Parliament, the Council, the European Economic and Social Committee, and the Committee of the Regions on the digitization of the energy system was issued on October 18, 2022 (Digitizing the Energy System - An EU Action Plan - COM(2022) 552 final).

As per the EU explanation, the EU sees technology both improving the efficiency and reliability of the energy system, and accelerating its decarbonization. The communication frames the opportunity as follows: “digitalisation has an impact along the entire energy value chain, ranging from generation to transport, distribution, supply and consumption. A system-wide approach and the support of EU countries to promote the cooperation between digital and energy stakeholders are needed so that the digitalisation of energy can better contribute to reach the EU’s ambitious political priorities, including the European Green Deal and making the EU fit for the digital age.

As the technological transformation from analog to digital advances, digital technologies will make energy systems more connected, intelligent, efficient, reliable and sustainable over the coming decades. Technologies that can improve the way we use energy and help find solutions to decarbonise our energy systems include information and communication technologies (ICT), modern sensors, big data and artificial intelligence, and the internet of things.”

The EU’s action plan to digitalize the energy system

In this context, the EU has outlined a ‘system-wide digitalisation energy action plan’, which “aims to contribute to the EU energy policy objectives by supporting the development of a sustainable, (cyber)secure, transparent and competitive market for digital energy services, ensuring data privacy and sovereignty, and supporting investment in digital energy infrastructure.” The framing of the opportunity, and the objectives of digitizing the energy system, align with perspectives outlined in research developed by the UK Parliament in 2021.

The Action Plan references the role that blockchain technologies could play in enabling the development of a more efficient, digitized energy system, and also outlines one of the main shortcomings of the technology; namely, its carbon footprint. Paragraph 6.4 of the Action Plan highlights that the energy consumption of cryptocurrencies has effectively doubled in the last two years, amounting to about 0.4 percent of the world's electricity consumption, according to data from the Cambridge Bitcoin Electricity Consumption Index. The intention to influence the utilization of cryptocurrencies and other blockchain technologies is a clear goal of the EU, with a preference to see only the most energy- and carbon-efficient blockchains used. Implicitly this means avoiding Proof of Work, and prioritizing Proof of Stake systems.

Although evaluating the energy and environmental performance of blockchain technologies remains a technical and challenging discipline, there is a growing evidence base on the environmental impacts it may have. This year, KlimaDAO in partnership with Offsetra published an analysis of the Polygon Proof of Stake network and its likely carbon impact – with results showing that the majority (99%) of the network’s 90,000 tonnes of carbon emissions came from its dependency on Ethereum’s Proof-of-Work consensus mechanism.

Combined with well-considered technology choices – such as building on scalable, low-emissions infrastructure – the argument for using blockchain can increasingly resonate with lawmakers.

Expect requirements to declare the environmental footprint of crypto-assets

In addition, the EU’s regulation of crypto-asset markets (MiCA) requires disclosure of information on the environmental and climate footprint of crypto-assets, and by 2025 the European Commission will develop a report that also covers the environmental and climate impact of new technologies in the crypto-asset market. In anticipation of these measures, even in light of the energy crisis, it is clearly expected that Member States will be implementing proportionate measures to reduce electricity consumption and be prepared, if necessary, even to stop crypto-asset mining.

Meanwhile, the cryptocurrency ecosystem itself continues to develop at breakneck speed, and since the legislative plan was issued there have been advancements in the area of crypto sustainability. On September 15, 2022, Ethereum, the second-largest cryptocurrency by market cap globally, finalized its long-awaited transition from Proof of Work to Proof of Stake, referred to as “the Merge”. This move has reduced its energy and carbon consumption by more than 99%.

This is an exception and perhaps a watershed moment; prior to this, all of those blockchains that had already adopted Proof of Stake had been significantly less utilized than Ethereum, whilst the Ethereum ecosystem’s own adoption had arguably been curtailed because of environmental concerns that may now be allayed by the Merge. The Commission itself will promote "green" consensus mechanisms through the European Blockchain Service Infrastructure as the gold standard in Europe and around the world, including by developing an energy efficiency label for blockchains. The Ethereum ecosystem is well-positioned to be a part of this.

KlimaDAO will continue to drive momentum in helping blockchains become more sustainable

So while we can perhaps argue that “the exponential growth of cryptocurrencies has come at the expense of the environment”, for example as a result of transactions on Proof-of-Work networks, there has been progress within the space to meet environmental issues head on, not least with Ethereum’s merge.

The Polygon blockchain is another example of a blockchain taking action – it has offset its historical emissions associated with its dependency on Ethereum using Klima Infinity, with in excess of 90,000 tokenized carbon credits being retired on the platform.

Whilst the Ethereum ecosystem is estimated to have a debt of 17,000,000 tonnes of carbon dioxide emissions that have yet to be taken care of, there are clear pathways to compensate for this historical footprint by leveraging technologies such as those developed by KlimaDAO.

As the legislative agendas for cryptocurrency and the environment continue to intertwine, KlimaDAO will continue to develop products and services that enable those operating with and within the broader ecosystem to effectively and efficiently find solutions that suit their needs, not only to do their part for the climate but also to remain ahead of emerging climate agenda.

Disclaimer: The information provided in this blog post pertaining to KlimaDAO (“KlimaDAO”), its crypto-assets, business assets, strategy, and operations, is for general informational purposes only and is not a formal offer to sell or a solicitation of an offer to buy any securities, options, futures, or other derivatives related to securities in any jurisdiction and its content is not prescribed by securities laws. Information contained in this blog post should not be relied upon as advice to buy or sell or hold such securities or as an offer to sell such securities. This blog post does not take into account nor does it provide any tax, legal or investment advice or opinion regarding the specific investment objectives or financial situation of any person. KlimaDAO and its agents, advisors, directors, officers, employees and shareholders make no representation or warranties, expressed or implied, as to the accuracy of such information and KlimaDAO expressly disclaims any and all liability that may be based on such information or errors or omissions thereof. KlimaDAO reserves the right to amend or replace the information contained herein, in part or entirely, at any time, and undertakes no obligation to provide the recipient with access to the amended information or to notify the recipient thereof. The information contained in this blog post supersedes any prior blog post or conversation concerning the same, similar or related information. Any information, representations or statements not contained herein shall not be relied upon for any purpose. Neither KlimaDAO nor any of its representatives shall have any liability whatsoever, under contract, tort, trust or otherwise, to you or any person resulting from the use of the information in this blog post by you or any of your representatives or for omissions from the information in this blog post. Additionally, KlimaDAO undertakes no obligation to comment on the expectations of, or statements made by, third parties in respect of the matters discussed in this blog post.


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