RegTech: Improving the Effectiveness of Environmental Regulation

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By FINTECH Books Contributor, Inna Amesheva
Follow: @Inna_Amesheva 

Regulatory Technology (RegTech) is not confined to just revolutionising the financial services or FinTech industry. Indeed it has the potential to spur numerous breakthroughs in diverse areas such as consumer protection and environmental sustainability among others.

RegTech can ensure the effectiveness of environmental regulatory measures such as cap-and-trade greenhouse gas reduction schemes aimed at tackling climate change. Cap-and-trade measures allow businesses to trade a certain number of ‘carbon credits’. Thus, polluting enterprises are required to purchase the right to pollute from companies that are either not involved in very carbon-intensive activities, or from those that have already installed the necessary technological improvements that curb emissions and hence have an excess of carbon credits at their disposal.

At the same time, the overall level of emissions is held constant, so that emissions credits are being redistributed to those willing to pay the market price for pollution. However, a major problem with global cap-and-trade schemes is the double counting that occurs when emissions reductions are being counted twice, both on the books of the seller and the buyer of the carbon credits.

RegTech has the potential to streamline and even revolutionise the monitoring of cap-and-trade schemes. This can be done through the adoption of ‘smart meters’ in the premises of polluting enterprises, which measure and report real-time data of a company’s emissions. Compliance can also be facilitated by ‘smart contracts’, which make sure that both parties are aware of their reporting and monitoring obligations, so that no double counting occurs.

Correctly tracing, reviewing and taking account of the data generated by carbon-intensive enterprises and industries, with the help of RegTech has the potential to restore the credibility of flailing carbon trading projects and to ensure that they result in substantive environmental improvements.