Carbon and Energy Trading Integration within a Blockchain-Powered Peer-to-Peer Framework

Climate change poses a grave threat to our planet, demanding bold solutions for greenhouse gas emission reduction. Carbon trading has emerged as a pivotal tool to incentivize emission reductions, allowing polluters to offset their impact by acquiring carbon credits from entities that have reduced their emissions. However, traditional carbon trading systems have faced criticism due to inefficiencies, a lack of transparency, and high transaction costs. Blockchain technology presents a promising solution to these challenges, enabling the creation of a more transparent, efficient, and equitable carbon market [1,2]. Carbon trading is a market-based approach to reducing greenhouse gas emissions, which allows companies to buy and sell permits to emit carbon dioxide and other greenhouse gases. The idea behind carbon trading is to create a financial incentive for companies to reduce their emissions by allowing them to offset their impact by acquiring carbon credits from entities that have reduced their emissions. This approach has been widely adopted by governments and organizations worldwide, with the European Union Emissions Trading System (EU ETS) being the largest carbon market in the world [3]. Despite the potential benefits of carbon trading, traditional systems have faced several challenges, including inefficiencies, a lack of transparency, and high transaction costs. These issues have hindered the effectiveness of carbon trading as a tool for climate change mitigation [4]: (1) Inefficiencies: Traditional carbon trading systems often suffer from inefficiencies due to the complex nature of the market and the lack of standardization in carbon credit verification. This can lead to delays in the trading process and increased costs for participants. (2) Lack of transparency: The lack of transparency in traditional carbon trading systems can lead to fraud and manipulation, undermining the credibility of the market. This can discourage participation and reduce the effectiveness of carbon trading as a tool for climate change mitigation. (3) High transaction costs: The high transaction costs associated with traditional carbon trading systems can deter participation and limit the effectiveness of the market. These costs can include fees for verification, registration, and trading, as well as the costs of managing and maintaining the carbon credit registry. Blockchain technology presents a promising solution to the challenges faced by traditional carbon trading systems. By providing a decentralized, transparent, and secure platform for carbon trading, blockchain can help to address the inefficiencies, lack of transparency, and high transaction costs that have hindered the effectiveness of carbon trading as a tool for climate change mitigation [5,6]: (1) Transparency: Blockchain technology provides a transparent and immutable record of all carbon credit transactions, ensuring that the market is free from fraud and manipulation. This can help to build trust and confidence in the carbon market, encouraging participation and increasing the effectiveness of carbon trading as a tool for climate change mitigation. (2) Efficiency: Blockchain technology can help to streamline the carbon trading process by automating many of the tasks associated with carbon credit verification, registration, and trading. This can reduce delays and increase the efficiency of the market, making it more attractive to participants. (3) Low transaction costs: Blockchain technology can help to reduce the transaction costs associated with carbon trading, by eliminating the need for intermediaries and centralized authorities. This can make the market more accessible to a wider range of participants, increasing the effectiveness of carbon trading as a tool for climate change mitigation. In addition to the benefits of blockchain technology for carbon trading, the transition to renewable energy sources like solar, hydroelectric, and wind energy can also play a crucial role in climate change mitigation. By replacing fossil fuels with renewable energy sources, we can reap significant environmental benefits, including reduced greenhouse gas emissions, improved air quality, and conservation of natural resources [7]. Moreover, the transition to renewable energy fosters job creation, economic growth, and resilience to climate change, contributing to a more sustainable and environmentally friendly energy system. As such, the combination of blockchain technology for carbon trading and the transition to renewable energy sources represents a powerful approach to addressing the challenges of climate change and building a more sustainable future for our planet.

Carbon trading has emerged as a critical mechanism for mitigating climate change, by providing financial incentives to reduce greenhouse gas emissions [1]. Blockchain technology, with its decentralized, immutable, and transparent nature, has the potential to transform carbon trading by enhancing transparency, reducing transaction costs, and improving the overall efficiency of the market. This section presents a literature review of carbon trading platforms based on blockchain, examining their key features, benefits, and challenges. The emergence of blockchain technology has indeed catalyzed the development of innovative carbon trading marketplaces, promising to revolutionize the way carbon credits are bought and sold. Below are some of these systems:

The current state of the art in carbon and energy trading on blockchain demonstrates the potential of this technology for addressing the challenges of the global energy market. The research methods employed in these studies, including the use of systematic literature reviews and the analysis of key findings and contributions, provide a solid foundation for future research in this field. As the adoption of blockchain technology continues to grow, it is likely that carbon and energy trading on blockchain will play an increasingly important role in the transition to a low-carbon economy [8].

The proposed trading model for carbon allocation in distribution networks, as outlined in Figure 1, is a multi-level system that involves various players, including the ”microgrid-trader (MT)"”. It operates on a daily basis, to plan energy usage and conduct transactions for the following day. The system is divided into three levels: transactions focused on the prosumer, trading centered around the MT, and a direct peer-to-peer trading platform. Prosumers, who actively engage in carbon markets and energy systems using distributed renewable energy sources (DRESs), participate in this system to gain personal benefits such as cost reductions and environmental objectives. The increasing adoption of DRESs in distribution networks has fueled interest in carbon trading as a mechanism to incentivize the reduction of greenhouse gas emissions. However, existing carbon trading models are not tailored to distribution networks, as they are typically designed for large-scale generators. The proposed model addresses this gap by providing a framework for carbon trading that is specifically designed for the unique characteristics of distribution networks.

The market transaction acts as the main nodes in the transaction system, providing the necessary energy for schemes and receiving rewards for successfully mining blocks. Prosumers and microgrid traders (MTs) operate as lighter mechanisms, storing the head chain and verifying operations. As these are lighter phases, prosumers and MTs do not need high-powered systems, allowing transactions to be conducted using innovative meters or even mobile phones. Figure 1 illustrates three trading modules.

This section delves into the evaluation of the hierarchical three-phase transaction model as shown in Figure 1. It also explores the decentralized low-carbon incentive system. In traditional power structures, monitoring the emissions from extended energy-powered fuels is crucial. In order to adhere to carbon regulations, these expansive systems are required to disclose their yearly fuel consumption and electricity generation, in order to assess their efficiency. By simplifying the network characteristics, we can evaluate the carbon emissions generated by the actions of prosumers at each bus point.

To incorporate the ‘IEEE 37-bus adaptor’ reported in Figure 2, case scenarios were conducted. The distribution was divided into linked microarrays, with randomly allocated diesel propellants and DRESs, such as solar, wind, and bioenergy [8]. Permanent system demand data were collected using the KAHRAMAA tracking hub. KAHRAMAA tracking hubs were also used to gather demand data for residential loads. The Qatari solar provision of clients provided data on solar power production. The Qatari power retail market and carbon mechanisms were the sources for centralized energy and carbon allowance price data [4]. These centralized prices served as the minimum acceptable bid for each vendor, ensuring that buyers could offer higher prices by utilizing their objective operations to determine the best prices.

In order to assess the effectiveness of the suggested decentralized trading system (shown in Figure 3), we conducted experiments using the modified IEEE 37-bus trial as a testing platform. This trial incorporated practical consumption patterns and generation capacities, making it an ideal environment for simulating energy trading scenarios. By comparing the results of the decentralized approach with those of centralized and aggregator-based methods, we were able to evaluate its performance. In Figure 4, we present the daily energy transfer, while the other figure illustrates the daily reduction in carbon emissions achieved using the three different trading methods.

The proposed trading framework, displayed in green, has been gaining attention due to its superiority in both aspects of energy transmission and carbon emission reduction. This article aims to further explain the reasons behind this phenomenon, focusing on the positive excess carbon allocation and the decentralized low-carbon incentive mechanism. A positive excess carbon allocation signifies that the transmission network’s overall emissions are lower than the designated carbon allocation. This is a result of the proposed trading framework’s ability to optimize energy transmission routes, ensuring that the most efficient and low-carbon routes are utilized. By doing so, the framework reduces the overall carbon emissions associated with energy transmission, leading to a positive excess carbon allocation. This positive excess carbon allocation is a clear indication of the framework’s effectiveness in reducing carbon emissions. It demonstrates that the proposed trading framework is not only capable of meeting the designated carbon allocation but also surpassing it, resulting in a more environmentally friendly energy transmission system. Conversely, a negative excess carbon allocation indicates that the emissions from the transmission pattern exceed the carbon allocation. This can occur when the energy transmission system is not optimized, leading to inefficient routes and higher carbon emissions. The proposed trading framework aims to minimize the occurrence of negative excess carbon allocations by promoting the use of low-carbon energy sources and optimizing transmission routes. The decentralized low-carbon incentive mechanism is a key component of the proposed trading framework. This mechanism encourages energy producers and consumers to adopt low-carbon practices by offering financial incentives for reducing carbon emissions. By doing so, the framework promotes the use of renewable energy sources and energy-efficient technologies, leading to a significant decrease in daily carbon emissions. During the thirty-sixth to forty-eighth scheduling period, the decentralized low-carbon incentive mechanism resulted in a substantial reduction in carbon allocations. This was due to the increased adoption of low-carbon practices by energy producers and consumers, who were motivated by the financial incentives provided by the framework. The proposed trading framework’s superiority in both aspects of energy transmission and carbon emission reduction can be attributed to its positive excess carbon allocation and decentralized low-carbon incentive mechanism. By optimizing energy transmission routes and promoting the use of low-carbon energy sources, the framework significantly reduces daily carbon emissions, making it an environmentally friendly solution for energy transmission. As more regions adopt this framework, we can expect to see a decrease in global carbon emissions, contributing to a more sustainable future. Although trading through aggregators also resulted in carbon savings during this period, this could lead to emissions exceeding the allocation during the twenty-second to thirty-fifth period. These outcomes surpassed those of current centralized and aggregator-based methods, highlighting the potential of decentralized approaches in promoting low-carbon energy consumption. The results depicted on Figure 5 clearly show that the proposed trading framework outperformed both the centralized and aggregator-based models. The approach not only reduced the overall carbon emissions but also provided a more efficient and cost-effective solution. By eliminating intermediaries, the framework reduced the transaction costs, making it more attractive for organizations to participate in the carbon market. Furthermore, the decentralized model promotes transparency and accountability, which are crucial in achieving the goals of carbon trading. With real-time tracking of emissions, organizations can accurately measure their carbon footprint and take the necessary steps to reduce it. This approach also encourages innovation and allows for the inclusion of small and medium-sized organizations, making it a more inclusive and comprehensive solution.

Additionally, Figure 6 displays the optimal power allocation and costs for each prosumer, determined using the proposed approach, in comparison to a scenario without the initial presumption. In the microgrid, during scheduling periods where prosumers are unable to generate excess energy for trading, there are no energy sellers and therefore, no bidding price. This highlights the interface between organizing and innovative contracts. The proposed auction process is executed using a cutting-edge system on the ‘Ethereum blockchain’.

The aim of this experiment was to evaluate the effectiveness and efficiency of the carbon allocation auction system in microgrid 5, as depicted in Figure 7. The primary focus of the analysis was to comprehend the functioning of the energy trading among prosumers within the microgrid, with a specific emphasis on the distribution of carbon credits. The experiment was carried out in microgrid 5, with prosumers at ‘bus 706’ and ‘bus 724’ acting as power vendors, offering 319 Wh and 109 Wh of energy, respectively. The energy auction involved multiple buyers and sellers, with the prosumer at bus 724 offering 109 Wh of energy and attracting participation from prosumers at bus 725 and bus 722 as bidders. The auction utilized a bidding process, where prosumers submitted their bids for the available energy, and the highest bidder was declared as the winner. Data were collected on the energy offers from the power vendors (prosumers at bus 706 and bus 724), including the amount of energy offered and the associated carbon emissions. Additionally, bidding data were recorded, documenting the bids submitted by participating prosumers (bus 725 and bus 722) in response to the energy offer at bus 724. The winning bid and the price per kWh were also recorded, along with any other relevant information about the outcome of the auction.

This analysis focused on the energy offers and carbon emissions of power vendors within a microgrid, with the aim of evaluating the sustainability of the energy being traded. The bidding behavior of prosumers was also examined, to understand their competitiveness in acquiring energy, taking into account factors such as bid prices, strategies, and patterns. The auction mechanism’s efficiency in allocating energy resources was assessed by analyzing the outcome of the auction, including the winning bid and the identity of the successful prosumer. The results revealed any discrepancies or trends in the distribution of energy offers and bids among participating prosumers. Additionally, the impact of carbon allocation on bidding behavior was explored, as prosumers may prioritize bids that align with their sustainability objectives. The effectiveness of the auction mechanism was demonstrated by the winning bid reflecting the market value of the traded energy. The discussion compares the experimental findings to the existing literature on energy trading and carbon allocation mechanisms in microgrids. Furthermore, the implications for policy-making and system optimization are considered, including the potential for incentivizing sustainable energy practices through carbon credit allocation.

This research delved into the intricate dynamics of energy trading and carbon allocation within microgrids, shedding light on the effectiveness of auction mechanisms and their impact on prosumer behaviors. The study underscored the significance of efficient market designs in fostering the adoption of renewable energy sources and mitigating carbon emissions in decentralized power systems. To address the challenges of maintaining a regional energy balance and reducing carbon emissions in distribution networks, the authors proposed a peer-to-peer trading system for power allocation exchange. The system leverages a standardized, self-enforcing smart contract that incorporates prosumer algorithms for determining optimal bid and sale prices, along with decision-making for energy reshaping. This innovative contract provides a structured framework for prosumer algorithms to optimize their energy management strategies. The world is witnessing a rapid shift towards renewable energy sources, and microgrids are playing a pivotal role in this transition. Microgrids are localized grids that can operate independently or in parallel with the main grid, providing a more resilient and sustainable power supply. However, managing energy trading and carbon allocation within microgrids remains a complex challenge. This article discusses a novel approach to addressing these challenges through a peer-to-peer trading system for power allocation exchange. This study highlighted the importance of efficient market designs in fostering the adoption of renewable energy sources and mitigating carbon emissions in decentralized power systems. By promoting competition and transparency, market designs can encourage prosumers to invest in renewable energy technologies and adopt energy-efficient practices. To address the challenges of maintaining a regional energy balance and reducing carbon emissions in distribution networks, the authors proposed a peer-to-peer trading system for power allocation exchange. This system leverages a standardized, self-enforcing smart contract that incorporates prosumer algorithms for determining optimal bid and sale prices, along with decision-making for energy reshaping. The innovative contract provides a structured framework for prosumer algorithms to optimize their energy management strategies. By enabling prosumers to trade energy directly with each other, the system reduces the need for intermediaries and centralized control, thereby increasing the efficiency and resilience of the microgrid. The proposed peer-to-peer trading system offers several benefits over traditional energy trading mechanisms: 1. Enhanced efficiency: By eliminating intermediaries and centralized control, the system reduces transaction costs and increases the speed of energy trading. 2. Increased transparency: The standardized smart contract ensures that all prosumers have access to the same information, promoting fairness and transparency in the trading process. 3. Improved sustainability: The system encourages prosumers to invest in renewable energy technologies and adopt energy-efficient practices, thereby reducing carbon emissions and promoting a more sustainable energy future. 4. Greater resilience: The decentralized nature of the system makes it more resilient to disruptions and failures, ensuring a more reliable power supply for consumers. The peer-to-peer trading system proposed in this study offers a novel approach to energy trading and carbon allocation in microgrids. By leveraging a standardized, self-enforcing smart contract, the system enables prosumers to optimize their energy management strategies and trade energy directly with each other. This innovative approach has the potential to enhance efficiency, increase transparency, improve sustainability, and promote greater resilience in decentralized power systems. As the world continues to transition towards renewable energy sources, the adoption of such systems will be crucial in ensuring a more sustainable and resilient energy future.

Future research should focus on further exploring the unique characteristics of individual prosumers, including their sensitivity to price variations for power and carbon allocation, as well as their willingness to adjust consumption during peak times. Understanding these individual traits will enable more accurate planning and optimization of bid and sale prices, leading to more efficient and sustainable energy management in microgrids. The application of blockchain technology in the actual trading market holds great promise for revolutionizing energy trading and carbon allocation within microgrids. The proposed peer-to-peer trading system offers a promising solution for power allocation exchange, leveraging a standardized, self-enforcing smart contract that incorporates prosumer algorithms for determining optimal bid and sale prices, along with decision-making for energy reshaping. However, further research and development are needed to address the challenges of understanding individual prosumer characteristics, enhancing prosumer algorithms, ensuring scalability and security, and integrating the system with existing energy infrastructure. The proposed system aims to create a more transparent, efficient, and decentralized energy market, where prosumers can actively participate in the trading process and benefit from the adoption of renewable energy sources. By enabling prosumers to trade energy and carbon credits directly with each other, the system can reduce transaction costs, increase market liquidity, and promote the growth of renewable energy generation. Moreover, the use of blockchain technology can enhance the security and reliability of the trading system, as it provides a tamper-proof and transparent ledger of all transactions. This can help to build trust among prosumers and encourage greater participation in the energy market. In conclusion, this research on energy trading and carbon allocation within microgrids highlights the importance of efficient market designs and the potential of blockchain technology to revolutionize the energy sector. The proposed peer-to-peer trading system offers a promising solution for power allocation exchange, but further research and development are needed to address the challenges of understanding individual prosumer characteristics, enhancing prosumer algorithms, ensuring scalability and security, and integrating the system with the existing energy infrastructure. By addressing these challenges, we can create a more sustainable and efficient energy market that benefits both prosumers and the environment.