Sustainability has come into focus not just for legislators but also for the general public. However, information is the foundation for customers to make sustainable market choices. Customers need reliable and comparable data to make informed choices. The European Union (EU) acknowledges this principle in its new Ecodesign for Sustainable Products Regulation (ESPR).
What is a Digital Product Passport?
The 2024 ESPR requires that products sold in the EU market feature a Digital Product Passport containing information about a product’s life. This includes information about the materials used, how long the product lasts, and how it can be recycled. Stakeholders, including consumers and businesses,
While consumers are typically interested in factors like durability and repairability, recyclers are especially reliant on information about ‘… the materials for proper end-of-life management’ (Annex I ESPR). The Passport will also provide details about the product’s environmental footprint. The core idea involves using the informed choice of the customer for more environmentally conscious purchasing decisions as a market regulation mechanism leading toward sustainable products by design (Recital 32 ESPR).
The information must be secure and easily accessible. Without the information being correct and reliable a sustainable customer choice cannot be formed. Blockchain technology offers unique possibilities for the storage and processing of information in precisely this regard.
Why Blockchain?
In simple terms, a blockchain is a digital ledger of information that saves data in a certain way so that the data is hard to change. The data is saved in linked blocks. If even one tiny data point in one block is manipulated later, the previous block becomes inconsistent with the next block. The manipulation becomes obvious, and thus the change is rejected. This characterises the blockchain as an immutable, chronological register.
Blockchain can contribute to making data secure and accessible:
(1) Secure Data:
Blocks of data are added through a decentralized consensus mechanism so that the system is only corrupted if the majority of the members are involved. Also, instead of storing data in one place where it could be easily attacked, blockchain spreads the data across many computers.
(2) Easily Accessible Data:
In order to empower consumers especially, the data needs to be easily available. Blockchain can make this easier by allowing different systems to talk to each other, and integrate blockchain with a digital web portal, as requested in Article 14 ESPR.
Implementing the Passport in the Blockchain: sustainability challenges
The best-known concept of blockchain nowadays is a blockchain with proof-of-work such as Bitcoin.
Proof-of-work means that validation of information relies on computing power. This process to validate information consumes a lot of energy. Bitcoin has an electricity consumption of 121,13 TWh in 2021. This is comparable to the electricity consumption of the whole of Norway (125 TWh). This model is not ideal to implement a regulation with a sustainability aim.
However, using a different consensus mechanism than proof-of-work can solve this problem: The popular cryptocurrency Ethereum only has an energy consumption of 0,0058 TWh. In the context of the Passport the ideal option is to set up a blockchain based on proof-of-authority, with the European Commission as the possible regulating authority. The European Commission then observes the network and its participants. This decreases the decentralization of the system (and thus its security) but minimizes energy consumption. With the European Commission as the data regulating authority the ‘oracle’ problem can be faced. If the consumer wants to rely on the information in the Passport secured through the immutable blockchain, this information must be fact-checked. This can be achieved through the European Commission’s control and validation.
This approach reduces energy consumption to a minimum. A Blockchain based on proof-of-authority thus offers a more sustainable solution.
Supply Chain Transparency: The Potential of Passports on Blockchain
Blockchain is already demonstrating its potential to revolutionize supply chain management. It creates a transparent, immutable registry where everyone in the supply chain can add product information remotely and in a decentralized way.
The ESPR does not operate in a vacuum. New EU sustainability legislation, like the Corporate Sustainability Due Diligence Directive (CSDDD), also focuses on supply chains. In terms of vertical integration of secondary EU legislation, it is key to ensure interoperability. Blockchain can help by making systems communicate smoothly.
The potential of blockchain technology goes even beyond this. Right now, there are EU-funded projects working on methods to combine blockchain technology with chemical traceability of products. The MaDiTraCe project for example implements physical chemical markers on raw materials to ensure their origin. Even though this project focuses on critical raw materials and their supply chains, it must be reviewed within the whole EU legislation regarding sustainability. If the immutable information is controllable via chemical markers, surveillance is ensured. This targets the ‘oracle’ problem as well.
Traceability across the supply chain is not the main focus of the ESPR, but it is still one of its objectives mentioned in its recitals. The ESPR also requires supply chain actors to provide information, and blockchain can help meet this need.
A Step Toward a Sustainable Future
For customers to make sustainable decisions, it is essential that the information the purchase is based on is reliable. Blockchain technology provides a secure, easy-access, and transparent way to enable stakeholders to exert their right to (un)sustainable data. By setting up a proof-of-authority based Blockchain with the European Commission as authority the electricity consumption can be minimised. Moreover, blockchain technology offers the unique opportunity to create an immutable, transparent register, perfect for supply chain traceability. Combining the Digital Product Passport with blockchain technology could be a significant step toward a more sustainable future.
