Analysis: How Blockchain Can Power Canada’s Hydrogen Transition

Across the world, “build back better” has become the rallying cry for industry’s recovery from the COVID-19 crisis. There is an overwhelming sense, globally, that we stand at an inflection point where a new world is possible — one that is more sustainable, efficient, inclusive and crisis-resilient.

Canada’s oil and gas sector, spurred by unprecedented federal and provincial support for green innovation, is now pivoting at all levels toward cleaner energy, including major emerging projects in Alberta for the production of blue hydrogen from natural gas. This is an exciting time that offers the promise of lasting transformation and Canadian leadership in generating the fuel of the future.

Through leveraging existing petroleum infrastructure like our natural gas production, steam reformation facilities and pipeline networks, Canada’s blue hydrogen shift can move quickly. For it to reach its full potential, however, our clean energy industry needs a new technological foundation — an integrated digital platform that will protect our energy future from the problems of the past.

Conventional data management in oil and gas is typically asymmetric — one party, such as a producer, has access to information that they trust, and a counterparty, like a regulator or stakeholder, is required to spend time, money and effort to verify that this data is true. These asymmetries, found at all levels of the resource value chain, result in friction, disputes and environmental waste, preventing growth and technological advancement.

A system in which conflicts and waste are commonplace is not the right model for a sustainable new industry. As we develop our networks for hydrogen production and distribution, Canada needs to create a parallel digital system that builds trust, improves ESG performance and attracts global green investment.

With diverse global projects underway in both clean energy and conventional oil and gas, blockchain is a powerful tool for our emerging hydrogen economy. Fundamentally, it is a technology of trust — a shared, secure digital network that allows all authorized parties access to cryptographically verified data.

More than just a decentralized database, private blockchain networks are the foundation for an incredible range of applications that benefit industries like energy at all verticals, including for automating financial transactions, verifying environmental certifications, and managing complex supply chains.

Self-executing smart contracts use the trusted information in the database to automate labour and time-intensive processes such as royalty settlements, purchase agreements and resource supply chains. Blockchain can turn the massive amount of data generated by IoT measurement devices into digital units of exchange for commodities and carbon credits. Other applications can support innovative ways of raising international investment for resource projects by providing fractionalized ownership.

According to James Graham, CEO of Calgary-based data intelligence and digital finance firm GuildOne, interest in blockchain for the energy sector has boomed over the last year, with a growing awareness of both its environmental benefits and new economic opportunities.

“Some of the most exciting projects GuildOne is working on are NFTs [non-fungible tokens] for carbon and renewable energy credit trading. We’re developing a Canadian marketplace for ESG tokens and project financing that will help inject capital into our clean energy industry while proving our high environmental standards to the world with blockchain-certified carbon impact data.”

Maggie Hanna, Fellow at the Energy Futures Lab, views blockchain as a way to measure and track carbon intensity variables from producing hydrogen to help consumers make better choices.

“Any hydrogen traded internationally will likely require a blockchain carbon token on every kilogram/tonne. In addition to recording the hydrogen price, blockchain tokens are a powerful way of certifying the carbon footprint of hydrogen throughout the entire fuel value chain, including carbon footprint of feedstocks, production facility operations, carbon utilization and sequestration, any conversion to other forms for transportation, and the transport itself,” she said.

“The tokens might even include the overall jurisdictional carbon footprint for a complete picture of the fuel’s impact, recording a holistic environmental rank used to inform potential consumers.”

Sustainability

Cleaner industries need greener data management, and the data automation enabled by blockchain reduces waste, paperwork and energy consumption to support a far higher standard of industry ESG.

While large, energy-intensive public blockchains like Bitcoin are most familiar, private cloud networks, which do not require mining, are low energy consumers. Green data needs to become a leading priority in the hydrogen transition, because the impact can be surprisingly massive.

According to the UAE’s Emirates Blockchain Strategy, the government predicts that putting 50 per cent of its processes on blockchain will eliminate almost 400 million printed documents a year — and save billions of dollars in G&A.

Transparency

Canada’s hydrogen economy needs to start from a fair foundation. Information asymmetries in resource projects leave stakeholders like Indigenous communities at a major disadvantage, in addition to causing frequent disputes in partnerships and high regulatory compliance costs.

For blue hydrogen, which relies on natural gas production, many of the same challenges faced by the oil and gas sector still apply. Blockchain is emerging around the world as a way for stakeholders such as Indigenous groups to access immutable and verified production data for royalties, participate in resource projects through tokenization, and have more trust in environmental performance through blockchain certifications.

Investment

It’s hard to imagine a more urgent priority for Canada’s energy sector, especially for Alberta, than finding innovative ways to bring in external investment, and funding the infrastructure of our hydrogen economy will be a vast undertaking.

Our success in attracting this capital requires an understanding of the digital evolution of the financial sector, and the global pivot towards blockchain investment vehicles. The market for NFTs — digital assets that represent real-world value — is a high demand and low cost way of commoditizing diverse assets such as real estate, art, carbon credits and resource projects. Increasingly adopted by major financial institutions and companies, NFTs can help fund Canada’s hydrogen projects, transport pipelines and retail Hydrogen Highway.

Future Vision

In the future, blockchain technology could power all levels of the clean energy value chain. NFTs will democratize access to hydrogen project funding across a wide global pool of small and large green investors. Data captured during hydrogen production and transport will be transparently shared across users on the blockchain network, building trust with regulators and stakeholders while backing certified carbon and renewable energy credits, immediately tradeable on a decentralized international market.

Enabled by tamper-proof records and smart contracts, processes across the hydrogen industry — from production to retail distribution — will reach a new level of automation and efficiency, and provide high-quality data ready for advanced analytics. On the blockchain network, supply chains, transactions and relationships will move forward seamlessly without disputes, human-caused errors or redundant paperwork, protected from security threats through virtually unbreakable cryptography.

The future vision for blockchain is both compelling and achievable — but the path to reaching it needs support. Much like Canada’s hydrogen sector, blockchain requires infrastructure and investment, and this needs to come from a diversity of supporters across the public and private sector.

The rest of the world is moving forward into a new digital economy, and the challenges are worth it, however intimidating. Canada has both the talent and technology to fully participate to our great benefit, and a greener, more prosperous and equitable future is waiting if we take the first step.

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