Enabling end-to-end digital carbon emission tracing with shielded NFTs

In the energy transition, there is an urgent need for decreasing overall carbon emissions. Against this background, the purposeful and verifiable tracing of emissions in the energy system is a crucial key element for promoting the deep decarbonization towards a net zero emission economy with a market-based approach. Such an effective tracing system requires end-to-end information flows that link carbon sources and sinks while keeping end consumers’ and businesses’ sensitive data confidential. In this paper, we illustrate how non-fungible tokens with fractional ownership can help to enable such a system, and how zero-knowledge proofs can address the related privacy issues associated with the fine-granular recording of stakeholders’ emission data. Thus, we contribute to designing a carbon emission tracing system that satisfies verifiability, distinguishability, fractional ownership, and privacy requirements. We implement a proof-of-concept for our approach and discuss its advantages compared to alternative centralized or decentralized architectures that have been proposed in the past. Based on a technical, data privacy, and economic analysis, we conclude that our approach is a more suitable technical backbone for end-to-end digital carbon emission tracing than previously suggested solutions.