PWC : blockchain technology could offer gamechanger solutions for global water sector challenges

A new report by global professional services firm PwC has suggested that blockchain technology could offer gamechanger solutions for global water sector challenges.

The report – Building block(chain)s for a better planet – is focussed on the application of blockchain to address urgent environmental challenges such as climate change, biodiversity loss and water scarcity.

“At its most fundamental level, it is a new, decentralized and global computational infrastructure that could transform many existing processes in business, governance and society”, the report says.

Currently, the most well-known blockchain applications and platforms include Bitcoin, which pioneered cryptocurrency (and crypto-assets), followed by Ethereum, a platform for building decentralized applications through smart contracts which has inspired a whole new “token economy”.

The report flags up enormous potential to create blockchain-enabled “game changers” which have the potential to disrupt, or substantially optimize, the systems that are critical to addressing environmental challenges and the ability to deliver transformative solutions.

Some of the applications could dramatically improve current systems and approaches, while others could completely transform the way humans interact with – and manage – natural resources and environmental stability.

Gamechangers include supply chain transparency, decentralized systems & new finance models

The game changers include:

Supply chain transparency and management: blockchain can create undeniable – and potentially unavoidable – transparency in supply chains, offering the potential for full traceability of products from source to store.

Decentralized and sustainable resource management: blockchain can enable the transition to cleaner and more efficient decentralized systems at scale. Platforms could collate distributed data on resources (e.g. household-level water and energy data from smart sensors) enabling more informed – and even decentralized – decision-making regarding system design and management of resources.

Raising trillions – new sources of sustainable finance via new financing models:blockchain-enabled finance platforms could potentially revolutionize access to capital and unlock potential for new investors in projects that address environmental challenges – from retail-level investment in green infrastructure projects through to enabling blended finance or charitable donations for developing countries.

On a broader level, the report says there is potential for blockchain to “facilitate a system shift from shareholder to stakeholder value” and to expand traditional financial capital accounting to also capture and realize non-financial value of natural, social and environmental capital.

Collectively, the changes could help raise the trillions of dollars required to finance a shift to low-carbon and environmentally sustainable economies.

Technology could deliver significant solutions to water sector challenges

Image credit: PwC

The report references more than 65 existing and emerging blockchain use cases for the environment, with solutions that are “particularly relevant across environmental applications”.

Potential applications where blockchain technology could deliver key benefits in terms of water security include:

• Asset-backed token system for clean, accessible drinking water
• Automated crop insurance for drought periods
• Blockchain-enabled peer-to-peer trading of excess water resources
• Cryptocurrency-enabled smart meters
• Decentralized, catchment-based approach to improving water quality
• Efficient water treatment systems
• Hyper-local data for monitoring water quality
• Micropayments for water meter donations
• Precipitation intensity monitoring and forecasting
• Water monitoring and management
• Water quality control in catchment areas

Potential step change in decentralized water management

The report makes the key point that centralized utility systems can often struggle to match supply and demand optimally, are prone to single points of failure, and suffer from distribution losses and leaks across the network.

“Blockchain could initiate a fundamental transition to global distributed utility systems. Platforms could collate distributed data on resources (e.g. household-level water and energy data from smart sensors) to end the current asymmetry of information that exists between stakeholders, enabling more informed – and even decentralized – decision-making in regards to system design and management of resources. “

This could include peer-to-peer transactions, dynamic pricing and optimal demand-supply balancing. It could also reduce intermediaries, make systems more efficient, cost-effective and resilient, and increase local sharing of resources to bolster efficient use of resources, which in turn would make distributed models more attractive.

Blockchain could play key role in enabling off-grid water resources

Blockchain could enable a step-change in the optimization of distributed water management and become a core part of the solution to enable “off-grid” water resources, similar to decentralized energy systems.

Realtime transparent data on water quality and quantity could also inform conservation, dynamic pricing and trading, and identify illegal extraction or water tampering.

Household smart meters can produce large volumes of data that can be used to predict water flows, spot inconsistencies and check leaks. Blockchain technology could also support peer-to-peer trading of water rights in a given basin, enabling water users looking to share their excess resources to become “prosumers” without going via an intermediary centralized authority.

The report says the next stage would be to combine the technology with the Internet of Things (IoT) Artificial Intelligence (AI) and machine learning in order to create a truly decentralized water system where local resources and closed-loop water-recycling gain value.

Regulation needed for assurance purposes and trading water resources

Realizing fully decentralized utility solutions would require sufficient regulation to assure the security and integrity of the software, ownership and control of intellectual property rights and the transferring and trading of resources, which, in some instances, will be virtual.

These are surmountable challenges, the report says.The reward would be “the critical transition of utility infrastructure and markets to a decentralized, decarbonized and more water-secure future.”

Raising the trillions: new sources of sustainable finance

Commenting on finance, the report says that employing blockchain-enabled finance platforms could potentially revolutionize access to capital and unlock potential for new investors in projects that address environmental challenges .

“Its ability to seamlessly manage complex financing environments means it can integrate a wide number of stakeholders, making it feasible for projects and ventures to crowdsource funds from a large number of diverse investors rather than just several large investors.”

A decentralized framework could also significantly lower transaction costs and increase efficiency, regardless of the number of investors, both formal and informal.

Blockchain examples cited in the report include the Clean Water Coin, which uses a blockchain platform to quickly and efficiently raise funds for clean-water projects worldwide, while the Natural Asset Exchange blockchain platform and its Earth Token cryptocurrency aims to create a Natural Asset Marketplace that connects certified producers of natural capital assets with consumers of these assets.

Looking further ahead, the report suggests that blockchain could also be a real game changer for “blended finance” investment in projects seeking to deliver the UN’s Sustainable Development Goals.

The UN estimates that there is a funding gap of $5 to $7 trillion per year to meet the SDGs, with an investment gap in developing countries of about $2.5 trillion. PwC says employing blockchain-enabled finance platforms could potentially revolutionize access to capital and unlock potential for new investors in projects that address environmental challenges – from retail-level investment in green infrastructure projects through to charitable donations for developing countries.

“A platform could efficiently facilitate the complexity of such transactions where different types of funding, traditional and non-traditional assets, and multiple stakeholders with multiple requirements are involved,” the report says.

Blockchain applications could also be deployed or created for reincentivizing markets for food, water, forests and conservation activities, even if investors have lower expectations of a financial return.

Spotlight on inefficiencies in the water sector

Commenting in more detail on the water sector, the report says that water has ranked among the top five global risks in the World Economic Forum’s annual Global Risks Report for seven consecutive years, “stubbornly remaining” while other risks have emerged and disappeared.

“Solving the water challenge has continued to elude the best and brightest decision-makers in the world”, according to the report which points out that about 4 billion people – 60% of the world’s population – live in areas of near-permanent water stress.

It also warns that climate change is forecast to make water supply more erratic and unpredictable, costing regions such as the Middle East and Africa up to 6% of their GDP by 2050 due to water-related impacts on agriculture, health and incomes.

According to the report, complex political realities and lack of investment have inhibited progress and have typically been underpinned by an “asymmetry of information” leading to inefficiencies in the allocation of water resources.

Blockchain technologies could help address the challenges e.g by enabling households, industry consumers, water managers and policy-makers to access the same data on water quality and quantity and make more informed decisions.

Transparency could also ensure authorities setting water allocations were more data-driven and mitigate corrupt behaviour in situations where there may be an incentive for local authorities to tamper with or withhold water-quality data. It could also help inform consumer decisions around when to conserve or use water.

New platform seeks to harness Blockchain and 4IR technologies to tackle water sector challenges

The report also highlights a new collaborative platform, Water Security Rewired, which is seeking to harness the potential of blockchain and other Fourth Industrial Revolution technologies, including AI and machine learning, to overcome a range of challenges facing the water sector, including the existing asymmetry of information and allocation inefficiencies.

The platform is supported by a range of influential stakeholders including the World Economic Forum, World Bank’s Water Global Practice, governments, development agencies, NGOs and other existing initiatives.