How can blockchain commercialize cleantech?
By: Aman Chahal
Tags: Sdgs, Innovation, Climate Change, Government Innovation, Blockchain

I have had the pleasure of spending the last few days surrounded by some of the greatest minds and hearts in blockchain. I had the chance to participate in the Cryptochicks hackathon and then attended the UN Blockchain for Impact summit in NYC. It was an inspiring experience to see how some of the brightest minds are working hard to develop solutions to help us achieve the Sustainable Development Goals, SDGs. While there are 17 SDGs in total, almost all of them are intertwined. With gender equality and climate change being paramount in most of them.

Figure 1: Sustainable Development Goals

In this post I would like to highlight how blockchain can be a vital tool in achieving some of the key SDGs. I have been fascinated with blockchain technology for a few years now. When I learned about the technology I worked at a funding agency that helped entrepreneurs create new solutions for helping fight climate change. A cause that is deeply important to me. When it came time to commercialize these technologies though, time and time again we saw huge difficulty in bringing them to market. It would have been easy to dismiss this by saying that these technologies were not up to the task, but something more institutional was to blame. In this post I would like to highlight how blockchain can help governments modernize and help in the commercialization of technologies vital to reducing carbon emissions.

Let us consider the challenges that clean technologies face and how blockchain can be one critical solution to help our global economies move forward.

The Why-

Globally we seem to recognize that there is a need to act now to change momentum and lower global GHGs to limit the impact we have on the living ecosystem. But progress is marginal, hard, and the path is complex. We are stuck in an innovation loop- unable to break orbit. A substantial number of technologies developed to reduce carbon emissions have proven that they work in demonstration and pilot projects, however these technologies seem unable to make the shift into commercialization. This is despite there being an established need in the market and more favorable economics when it comes to technologies like solar and wind generation.

To have any measurable impact on global carbon emissions- clean technologies need to diffuse in the system quickly, so the natural question arises- are these technologies not proven or is something else holding back their diffusion. For this question, let us first look at how technologies develop.

Figure 2: Technology Development Cycle for Cleantech

Figure 2 illustrates the key stages that a technology goes through on the path to commercialization. These key stages for technology development are illustrated to be linear but often have some degree of overlap. For instance it is vital to ensure that market development for a product happens before you fully scale the development, this stage can begin as early as demonstration. But for simplicity these are presented as being sequential.

As a technology becomes more prevalent, the need to create standards for that technology become more obvious. Its impacts on society become more evident leading for the development of regulations. Illustratively, social media is a technology class that is currently going through industry maturation. As conversations about how to regulate platforms like facebook become mainstream- governments take positions on how to execute these mandates. Conversations about who will regulate the industry, what standards are developed for the industry lend themselves to considerations of which regulatory bodies to create and how to manage them.

One vital point to note is that when an industry becomes worthy of standardization and regulation, there are established incumbents. And our view of an industry is shaped by those incumbents. Facebook will be the main incumbent that is studied to understand how social media should be regulated. Therefore regulations will use established platforms to create an understanding of how to shape industries. Being an incumbent when an industry matures means that the incumbent becomes entrenched as the status quo. Changing an industry after this stage creates huge barrier to entry for disruptors because they may not fit within the regulated norm. This is one critical fact that shapes the challenges faced by cleantech companies.

Unlike facebook and social media, all cleantech would diffuse in established industries with strong incumbents and mature standards and regulatory environments. Cleantech tends to be disruptive, it does not fit within the norm and cannot be standardized based on prior standards. Adding to the challenge is how we created institutions that govern industries. It is often easy to dismiss these challenges by blaming “the government”- without studying the underlying reasons for developing those systems.

How do these institutions create barriers to entry for new firms?

In the current industry set up, cleantech companies face a huge barrier to entry. They are not only innovating to solve technical problems, but they also have to learn to maneuver the complex web of government institutions that govern their industry. And if they happen to intersect multiple industries…well their government relations have to get very sophisticated very fast for two polar reasons:

Governments incentivize development of cleantech through a patchwork of funding instruments through some government institutions. Another set of government institutions becomes barriers to the actual adoption and diffusion of those clean technologies being created.

To be a successful tech start-up you need a great idea, some investors, and engineers to build your product. To be a successful cleantech startup you need a great idea, engineers, a government relations person who understands regulations and standards for your industry, another government relations person who understands how the funding instruments work and very patient investors who understand that after the tech is built- the government regulations need to change before you can sell. Then you may not find yourself in the well known start up “valley of death”.

Figure 3: Canadian Public Sector

Even governments recognize the need for the constraints on companies trying to innovate in established industries. The idea of “regulatory sandboxes” is becoming prominent to encourage innovation in cleantech and fintech- two technology families looking to make a change in highly regulated and established industries. Regulatory sandboxes are essentially industry experiments that test out how certain technologies can lead to greater efficiency. However, when industries span jurisdictions, it can be hard to implement these experiments on a grander scale.

How can blockchain help?

The inherent challenge in these industries is in being able to align individual institutions, that are designed to be independent and autonomous, to one cohesive direction of change. Part of the reason we have built such a system is to ensure that checks and balances are maintained. Powers are spread between different government levels to ensure that no one actor can over-reach. However, in the interest of limiting political interference, often no information is exchanged between institutions and this creates greater division between them. Blockchain can serve to be the platform that, without centralizing, opens channels of communication between these groups and enables them to align and realize efficiencies.

Fundamentally all established industries need to make innovation easier, that is just good practice. But the burden of regulations, codes and standards and other similar instruments becomes onerous in these industries leading to a few big players emerging. Even Oil and Gas industries need to innovate, because until we create meaningful impact on new fuels and new sources of energy, we are all going to be taking planes, trains and automobiles that need some oil or gas in them for the foreseeable future.

One way to change the current architecture is to re-invent the system, to break it and re-create it in a more efficient way. Hulk smash the whole thing and re-do it ground up. But I do not like working harder than I have to. So, if you cant beat em- join em. Literally, the easiest thing would be to create a link between institutions that would enable audit-able, information to flow effortlessly between different parties. If you can ensure the authenticity and reliability of information that flows while maintaining privacy, then you can increase efficiency in the whole system. Part of the reason we regulate heavily is that we cannot trust actors to self-audit.

Here Blockchain offers a unique opportunity to connect different actors in the ecosystem with key information, while auditing that information at the individual transaction level. One challenge in the ecosystem is that the different government agencies responsible for parts of the industry operation are independent and autonomous. During steady state industry operation, this does not slow down the industry. However when industries are going through disruption and seeing an unprecedented amount of new technologies diffusing in this ecosystem, these silos can significantly hamper innovation. Blockchain can help connect these actors, while maintaining their autonomy.

Lets see an example

In Canada, for any technology to be used in the construction industry it has to part of the building code. The building code often calls for technologies and materials to meet the technical standards that are created by the Standards Council of Canada. It can take up to 25 years for a new standard to be created and socialized in all relevant jurisdictions in Canada. The intention of this process is to ensure the safety of the public an create cohesion across the sector. Construction is an industry that hasn’t seen too much innovation in a while and therefore this process doesn’t tend to impact many companies.

The building code may refer to a standard that a group of technologies has to fit, say for instance insulation- all insulation that can be put into a building in a living space should adhere to a standard that the SCC has created for insulation. If your technology can prove that it fits within that standard, you can sell into the market. You would do this by going to labs that are certified to test for SCC standard compliance. They would test your product and give you an essential report card to see if your product meets the test requirements.

Figure 4: How the construction industry adopts a code

To ensure steady operation and autonomy the Standards Council of Canada is not technically part of the federal government. It is rather managed by a board and separate from the political arm of the government. This becomes a key part when trying to change how the current ecosystem works.

Now, many technologies that fall within the cleantech classification are unique and often disruptive so no standards really exist for this class of technologies. For instance, the best building material that meets the standards has already been discovered, to create a more sustainable and clean building material you might have to do something unique, mix materials that have not been combined before. Hypothetically lets say you found a way to reduce the amount of cement needed in a building because you found a new adhesive that can be mixed with cement, reduces GHGs and is just as strong. This cement isn’t really cement anymore — it’s a cement-hybrid. Thus your product wont really fit the current standard for cement in the code, if you don’t fit the code builders cant really trust the product because it hasn’t been validated therefore it will be really hard for you to convince a builder to take the liability of using this product. The may violate the local codes if they use your product, that may impact how their building is insured. Etc etc. You as the product developer also don’t have 25 years of capital to wait and lobby the council to get yourself a standard.

So what is an entrepreneur to do? You can go to another group created within NRC to validate your claims of the technology. This process would indicate to the market that the Canadian government has tested the product and validates your claims. The steps for this are highlighted in Figure 5:

Figure 6: Shortcut to commercial test for product

Now bear in mind that the above process will grant you some assurance with builders because the CCMC process validates that your claims about your product are accurate. However, this does not imply you are in the building code. Additionally, this process is not linked to the development of standards.

Blockchain can help simplify and connect these processes. Since there are several independent and autonomous parties, a blockchain solution would not require any centralization of the process. Additionally, you would easily share only specific information about the technology and process and easily encrypt any sensitive information. Let us take a look at what information could be shared amount the different parties:

Figure 6: Information about the product that could be shared on the blockchain

By sharing the specific information indicated in Figure XX, you could leverage the process for granting a CCMC code to develop a standard. If the SCC has a view of the types of tests being done for new batteries being developed for home use, they can leverage that information to develop a standard for that category of product without creating added complexity for the company. The process could easily be executed with the blockchain technology highlighted in Figure 7.

Figure 8: Potential blockchain solution architecture

The solution could be executed without adding any additional data input requirements for the various actors by leveraging existing databases. This would both reduce human entry error and ensure data privacy is maintained. The following would be a breakdown of how this process could be executed:

Static AI Layer

The static AI layer would merely be an interpretive layer of the existing data. For instance when CCMC creates the panel of experts to develop the testing protocol, the names of those experts would be encrypted but select information about their credentials could be shared with SCC to ensure transparency. When a test protocol has been created, this can be automatically shared with the network to allow all participants to easily track the information flow. Additionally, while the actual test results may not want to be shared the end result and the completion of the test could be shared to help transparency.

Zero knowledge/ Signed Proof

The intention of this step is to automate some part of the analysis done by CCMC to create the final number as well as indicate to the other parties that a standard should be developed.

By digitally connecting parts of the process for development of the standards, entrepreneurs and innovators can see an easier and faster path to market. Canadian innovators are some of the best in class and Canada is often sited as an incubator of technology creation. Unfortunately, our entrepreneurs face the hardest path to market in their home country which can impede their ability to access other markets as well. Cleantech especially suffers this unfortunate challenge. Connecting actors that influence the path to market, while also maintaining their autonomy is the best path to ensure that new technologies are adopted and innovation is fostered throughout the ecosystem.