Received: 22 September 2023 | Revised: 14 January 2024 | Accepted: 26 January 2024

DOI: 10.1002/ese3.1697

REVIEW

Towards the net zero carbon future: A review of

blockchain‐enabled peer‐to‐peer carbon trading

Mohammad Parhamfar1 | Iman Sadeghkhani1,2 | Amir Mohammad Adeli1

1
Smart Microgrid Research Center,
Najafabad Branch, Islamic Azad Abstract
University, Najafabad, Iran The increasing trend of energy generation and management systems towards
2
Department of Electrical Engineering, decentralized structures such as using renewable energy resources makes it
Najafabad Branch, Islamic Azad
University, Najafabad, Iran necessary to use digital and smart platforms for exchanging information and
even conducting financial transactions in a decentralized manner, known as
Correspondence
the peer‐to‐peer model. The decentralized transaction verification of
Iman Sadeghkhani, Smart Microgrid
Research Center, Najafabad Branch, cryptocurrencies makes it possible to use these encrypted currencies and
Islamic Azad University, Najafabad decentralized blockchain networks in energy management systems and carry
85141‐43131, Iran.
out financial transactions related to carbon trading. Carbon and other
Email: [email protected]
greenhouse gas (GHG) emission trading systems reduce the competitiveness
of fossil fuel projects in the market and accelerate investment in low‐carbon
energy sources such as wind and photovoltaic power generation units. This
market mechanism allows large entities such as countries and companies that
emit GHGs into the atmosphere to buy and sell these gases. This paper reviews
the blockchain solutions developed for carbon markets. Studies related to the
design of smart contracts in the platform of blockchain are investigated.
Special cryptocurrencies that are used in the field of green energy transactions
and carbon trading are introduced. In addition, the application of artificial
intelligence and game theory in energy trading is stated. The study of different
blockchain frameworks for carbon trading shows that the use of decentralized
platforms in carbon trading can have a significant impact on the trend towards
low‐carbon measures and achieving the goals of the Kyoto Treaty, increasing
the value of green cryptocurrencies and the volume of transactions. These
technologies offer a promising avenue for creating a more decentralized,
efficient, and environmentally conscious energy ecosystem.

KEYWORDS
artificial intelligence, blockchain, carbon trading, game theory, green cryptocurrency,
renewable energy

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided
the original work is properly cited.
© 2024 The Authors. Energy Science & Engineering published by Society of Chemical Industry and John Wiley & Sons Ltd.

1242 | wileyonlinelibrary.com/journal/ese3 Energy Sci. Eng. 2024;12:1242–1264.

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PARHAMFAR ET AL. | 1243

1 | INTRODUCTION protocol includes carbon emission trading, a clean

development mechanism, and a joint implementation
Greenhouse gases (GHGs) trap the heat and make the system. Carbon trading is an approach adopted for
planet warmer.1 Human activities have been almost reducing the global emission of GHGs such as CO2.7,8 In
responsible for the increase of GHGs in the atmosphere the Kyoto Protocol, the market mechanism is introduced
during the last 150 years.2 Figure 1 shows the amount of as a new way to solve the problem of reducing GHG
CO2 emission change by separating each part of human emissions; the emission of carbon dioxide is considered
activities. The most important activity is the burning of as a commodity that forms a trading system for carbon.9
fossil fuels for electricity and heat generation, and Blockchain technology has found a transformative
transportation. It contributes significantly to global application in carbon trading, revolutionizing the way
warming, climate change, and a wide range of environ- emissions are monitored, recorded, and traded. It has the
mental impacts.3 According to the international energy potential to accelerate the global deployment of an
agency (IEA) report,4 global CO2 emissions associated emissions trading system (ETS) and improve the
with the energy sector grew by about 0.9% in 2022, efficiency of existing systems.10 With this technology,
reaching an all‐time high of more than 36.8 gigatons. The verification of transmitted data and information is no
significant growth of electricity generation from wind longer done through a central actor, but through a peer‐
turbines and solar photovoltaic (PV) systems has to‐peer (P2P) network.11 By providing a decentralized
prevented the emission of about 465 million tons of and immutable ledger, blockchain ensures transparency,
CO2 in the power sector. Other clean energy technolo- security, and accountability in carbon markets. Through
gies, including heat pumps, electric vehicles, and other smart contracts, emission reduction targets and commit-
renewables, helped prevent an increase of about ments can be automatically executed, streamlining the
85 million tons of CO2 emissions. Without this increased verification and certification processes. This enables
growth in the deployment of clean energy technologies, stakeholders to have real‐time access to accurate emis-
the annual increase in emissions related to the energy sions data, reducing the risk of fraud and inaccuracies.
sector would have almost tripled. Therefore, effective Additionally, blockchain facilitates fractional ownership
international measures should be taken to deal with the of carbon credits, enabling wider participation in the
increase in GHG emissions. market and unlocking opportunities for smaller players.
The Kyoto Protocol is one of the first international Ultimately, the integration of blockchain technology in
coordinated agreements that was approved by the United carbon trading has the potential to accelerate the
Nations (UN) in Kyoto, Japan, in which industrialized transition toward a more sustainable and low‐carbon
economies agreed to reduce their GHG emissions during future by creating a robust and efficient marketplace for
2012–2018 by 5.2% compared to levels measured in emissions reductions. The objectives of this review article
1990.5,6 Based on empirical evidence, the Kyoto Protocol are as follows: (i) Review of blockchain‐based P2P carbon
has been effective in reducing GHG emissions in trading schemes, (ii) review of the application of artificial
committed countries. It is a market‐based mechanism intelligence (AI) and game theory in energy trading that
that forms the framework of the international climate includes the role of AI and game theory in optimizing the
change response system, as described by the UN. This energy trading, facilitating the decision‐making,

FIGURE 1 Carbon dioxide emissions change by sector during 2021–2022.4

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1244 | PARHAMFAR ET AL.

predicting the energy consumption, and enhancing friendly solutions; because the carbon price makes fossil
efficiency in energy transactions, and (iii) identifying fuel projects more competitive and at the same time
future research directions that are forward‐looking and encourages low carbon energy sources such as wind and
aims to propose potential future avenues for research and solar.16 COP26 participants agreed on a clear and
development in the application of blockchain, AI, and uniform set of rules for international GHG trading. This
game theory in carbon trading and energy markets. means that countries that are trying to reduce their
emissions can partially meet their climate goals by
buying offset credits from other countries that have
2 | CARBON TRADING successfully reduced their emissions. The process also
allows for the forming of a Un‐monitored carbon
Carbon emissions can be rooted in the source of energy sequestration market, where governments and private
or its consumption. There are two types of carbon entities can trade GHG emission credits from low‐carbon
sources: direct and indirect.12 The former is the carbon projects.
that is released directly from chemical reactions on site, Each company/country is given a certain number of
such as fuel burning (crude oil, paraffin, coal, and permits based on the standards set to emit carbon dioxide
natural gas), decomposition, fermentation, decay and at a certain level. If a company/country does not
organic matter, and production of chemical products consume all its permits (emit less CO2), it can sell the
such as oil and coal stone. The latter mainly includes unreleased permits to another company/country that
carbon outside a specific site. The most important wants to consume more carbon than its released permits.
measure for carbon reduction is the use of clean energy The point is that every year fewer permits are granted to
sources and the efficiency improvement of energy each company/country.
consumption.13 Countries worldwide are increasingly committing to
With emissions of more than 10,065 million tons of the ambitious goal of achieving net‐zero carbon emis-
CO2 in 2019, China accounts for about 30% of the world's sions. This objective involves balancing the release of
carbon emissions and ranks first in the list of top carbon dioxide into the atmosphere with its removal,
polluters.14 Figure 2 shows the share of CO2 emissions by ultimately resulting in no net increase. Table 1 shows the
country in 2021. target date of some countries and large companies that
In commitments to gradually eliminate the use of have a net zero carbon program to end their contribution
coal and reduce GHGs, world leaders at the UN climate to global warming.
change conference (COP26) in Glasgow agreed to reform Carbon emission trading (trading of pollutants) refers
global carbon markets and improve carbon trading laws. to the market in which GHG emission rights (emission
Proponents of this system state that carbon trading will trading) are acquired.19 Carbon emission rights can be
ultimately increase investment in environmentally sold in different markets—some at the international

FIGURE 2 Share of CO2 emissions by country in 2021.15

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PARHAMFAR ET AL. | 1245

TABLE 1 Net zero carbon target date of some countries and companies.17,18
Country Target date Company Target date
Argentina 2050 Allianz 2030
Austria 2040 Alphabet 2030
Brazil 2060 Amazon 2040
Bhutan Currently carbon negative Apple 2030
Canada 2050 AT&T 2035
Chile 2050 AXA 2050
China 2060 BP 2050
Colombia 2050 Cardinal Health 2030
Costa Rica 2050 China Construction Bank 2060
Denmark 2050 China State Construction 2060
European Union 2050 Cigna 2040
Fiji 2050 Costco 2030
Finland 2035 CVS Health 2050
France 2050 Daimler AG 2039
Germany 2045 Deutsche Telekom AG 2040
Grenada 2050 EXOR 2025
Hungary 2050 Exxon Mobil 2050
Iceland 2040 Ford Motor Company 2050
Ireland 2050 General Motors Company 2040
Japan 2050 Glencore International 2050
Maldives 2030 Home Depot 2035
Laos 2050 Hon Hai Precision 2050
Marshall Islands 2050 ICBC 2060
Nepal 2050 Kroger 2030
New Zealand 2050 Microsoft 2030
Panama 2050 Mitsubishi 2050
Portugal 2050 PetroChina Co 2050
Slovakia 2050 Ping An Insurance 2030
South Africa 2050 Royal Dutch Shell 2050
South Korea 2050 Samsung Electronics Co 2050
Spain 2050 Saudi Aramco 2050
Sweden 2045 Sinopec 2050
Switzerland 2050 Toyota Motor 2050
Turkey 2053 UnitedHealth 2035
Ukraine 2060 Verizon 2035
United Kingdom 2050 Volkswagen 2050
United States of America 2050 Walgreens Boots Alliance 2030
Uruguay 2030 Walmart 2040
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1246 | PARHAMFAR ET AL.

FIGURE 3 Carbon trading process.22

markets, some at the national level, and some at the state electric vehicles. Regional pricing policy is very impor-
or local level, such as California's cap‐and‐trade system.20 tant in creating economic incentives for all stakeholders.
China is the largest operating market for GHG trading in Lyu et al.27 present a decentralized P2P energy‐sharing
the world.21 The ETS of this country, which was framework with privacy protection and high‐level
introduced in July 2021, covers about 4800 million tons autonomy in middle coordinators for smart buildings,
of GHGs equivalent to carbon dioxide. considering several dynamic components, including
The carbon trading process is shown in Figure 3. The heating, ventilation, air conditioning, battery energy
emission of GHGs has decreased in companies that have storage systems, and electric vehicles. The results show
paid attention to the development of energy saving or that the presented framework can admirably improve the
upgrading technology and equipment. The companies overall well‐being of the involved smart buildings.
whose emissions are more than the allowed limit must
buy the remaining emission quota from them. In this
way, awareness of low‐carbon goals will be strengthened. 2.1 | UN carbon offset platform
As a result, equipment, technologies, structural energy
saving, and energy management will be improved to The UN carbon offset platform is an e‐commerce
increase the effect of energy saving and reduce emissions. platform where a company, an organization, or an
Construction sectors around the world consume a lot ordinary citizen can buy a currency (carbon credits) to
of energy. Also, buildings account for 30% of the total save GHG emissions or to support environmental
global final energy consumption and 27% of all harmful actions.28 The carbon offset process in this platform is
emissions from the energy sector.23 Therefore, the shown in Figure 4.
importance of this sector in terms of reducing emissions
by optimizing energy consumption and using renewable
energy sources should be considered. In,24 technical‐ 2.2 | Carbon footprint calculation
economical‐environmental analysis was performed on
building integrated photovoltaic (BIPV) systems for One of the key elements of the carbon offset platform is
decarbonization purposes in Australia. The results the possibility to calculate the carbon footprint. This
showed that BIPVs are one of the effective solutions to calculator is made as a simple questionnaire in which
reduce carbon emissions by 28% less than in 2005 each company provides information about its activities
until 2030. and gets an estimate of its emissions, that is, its carbon
Liu et al.25 investigates a P2P energy trading system footprint. The amount of GHG emissions is estimated by
based on hydrogen vehicles in a set of net zero energy the UN based on the latest available country data. All
buildings. According to the presented model, energy data is obtained from reliable sources such as electronic
transaction price can reduce electricity costs by 14.54% data gathering, analysis, and retrieval system (EDGAR),
and carbon emissions by 8.93%. Zhou26 presents a new environmental protection agency (EPA), climate watch,
spatiotemporal energy network in the Guangdong‐Hong and the international civil aviation organization (ICAO).
Kong‐Macao Greater Bay Area with the participation of These data are supplemented by internal estimates made
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PARHAMFAR ET AL. | 1247

FIGURE 4 The process of offsetting the emissions by UN.28

F I G U R E 5 Carbon market size in 2022. CER, certified emission reductions; RGGI, regional greenhouse gas initiative; WCI, western
climate initiative.34

by UN experts.29 This organization uses various tools to bilateral system.30 The centralized system is for the
check the validity of the data and ensure the highest public and private sectors, while the bilateral system is
possible degree of accuracy. To provide a uniform result, designed for countries to exchange carbon offset credits
GHG emissions related to different activities are calcu- to help them meet their emissions targets. According to
lated with their CO2 equivalent. To make calculations the new agreement, those who generate carbon credits
easier, default values are used in certain cases. For the will pay 5% of the proceeds into a fund to help developing
final calculation, in addition to the data provided, each countries deal with climate change. Also, 2% of the
country's specific reference values for public services and credits will be canceled to ensure the overall emission
activities that are not considered as carbon footprints reduction.31
from the country's point of view will also be applied.
Therefore, all three categories of emissions of household,
transportation, and lifestyle have a certain ratio in the 2.4 | Carbon trading market
final result. This organization updates the data used in
calculations as much as possible over time. In 2022, the traded value of the worldwide carbon credit
market amounted to US$978.56 billion; it is anticipated
that this market will grow and attain a value of US$2.68
2.3 | Glasgow carbon trading agreement trillion by 2028.32 Figure 5 shows the carbon market size
for some countries/regions in 2022. According to the
After much study, global carbon market rules were report of the international carbon action partnership
established at the Glasgow climate change conference in (ICAP) in 2023,33 about 28 ETSs are currently active in
November 2021; a global integrated approach was the world, covering about 17% of global emissions. Also,
established for the first time in the Paris Climate 20 other markets are in the consideration or development
Agreement in 2015. The agreed framework known as stage. The coverage volume of the global carbon markets
Article 6 includes a centralized system and a separate compared to 2005, when the European Union (EU)
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1248 | PARHAMFAR ET AL.

emission trading scheme was launched and covered only carbon tax in 1990—had a carbon tax rate of about 84
5% of global emissions, has increased to more than three USD/tCO2e as of March 31, 2023.35 Carbon prices in
times in 2022. The ICAP report states that the global sales multiple ETSs worldwide are expected to increase during
amount of emission permits in 2021 was about US$58 2026–2030 compared to 2022–2026. It is expected that the
billion, which has increased by more than 132% average carbon price of the EU will reach 84.4 euros per
compared to 2020 with a sales value of US$25 billion. ton of CO2 during 2022–2025.36 Figure 6 shows the
In 2021, the price of carbon permits in the EU emissions carbon tax rate in Europe in 2022 and Figure 7 shows the
trading market increased by 150% at the end of the year allowance price for some ETSs.
to around €80 per ton; the main reason for this was the
increase in the EU emission reduction target from 40% to
55% by 2030 compared to 1990 emissions. It is €87 per 2.5 | Various viewpoints on carbon
tonne in 2023. The price of one ton of carbon in the trading
emission trading market of California and Quebec, which
are connected, increased from $18 in 2020 with a 55% Proponents of carbon trading have concluded that this
increase to $28 at the end of 2021. In China, the carbon trade is a cost‐effective solution to the problem of climate
market closed at around $8.5 in December 2021, which change and provides an incentive to adopt renewable
was about 13% higher than the price at the time of the energy technologies. However, carbon emissions trading
opening of this market in July 2021. has been widely and increasingly criticized. Sometimes
According to the ICAP report, ETS play a key role in this trade is considered as a half‐baked measure and a
the century challenge of achieving net zero carbon distraction to solving the big and urgent problem of
emissions by 2050 and are increasingly becoming the global warming. Despite these criticisms, carbon trading
adopted policy tool to guide decarbonization programs is a central concept in many proposals to mitigate climate
globally. Countries' net zero emissions commitments change and global warming.39
cover approximately 70% of global GHG emissions, but
many are not supported by short‐term policies. Achiev-
ing the long‐term climate goal requires strengthening 2.6 | Internet of Vehicles (IoV)
existing ETS. application in carbon trading
As of March 31, 2023, Uruguay has the highest
carbon tax rate worldwide at nearly US$156 per ton of The IoV has a significant potential to reduce carbon
CO2 equivalent (USD/tCO2e). Uruguay's carbon tax was emissions by optimizing transportation efficiency.
first introduced in January 2022. In comparison, Poland's Through IoV's interconnectedness that can be secured
tax rate was less than 1 USD/tCO2e. In addition, using blockchain technology, vehicles can access real‐
Finland—the first country in the world to introduce a time traffic data, leading to smoother routes and reduced

FIGURE 6 Carbon tax rate in Europe in 2022.37

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PARHAMFAR ET AL. | 1249

FIGURE 7 Allowance price for some ETSs.38

FIGURE 8 Blockchain structure.

idling time, thus minimizing fuel consumption and 3 | B L OCK C H A I N TE C H N OL O GY

emissions.40–43 Additionally, IoV enables intelligent
traffic management, promoting better traffic flow and Blockchain, sometimes referred to as distributed ledger
decreased congestion, further contributing to lower technology (DLT), records the history of any digital asset
carbon emissions by reducing the time vehicles spend using a decentralized network and chained blocks
in traffic jams. IoV's ability to optimize transportation through encrypted hashes.44 This system is completely
efficiency, reduce fuel consumption, and minimize immutable and transparent. A decentralized network is
emissions aligns with carbon trading objectives focused something similar to the Google Doc.45 When a Google
on decreasing overall carbon footprints. By leveraging Doc is created and shared with a group of people, the
IoV technologies to enhance transport systems and document is distributed instead of being copied or
reduce emissions, companies and industries could transferred. This system creates a decentralized distribu-
potentially earn carbon credits or allowances through tion chain of consecutive blocks that allows everyone to
carbon trading, incentivizing the adoption of IoV access the basic document at the same time. Each block
technologies as part of broader strategies for reducing contains a cryptographic hash of the previous block, a
GHG emissions. timestamp, and transaction data.46 As shown in Figure 8,
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1250 | PARHAMFAR ET AL.

cryptographic concepts are used to protect and link each transmission level, while in today's networks, this
of these data blocks. This design makes it extremely management is done at the local distribution level. The
difficult for malicious actors to alter historical data, rapid integration of intermittent and often very distrib-
providing a high level of trust in the information stored uted renewable generations in the system, as well as the
on the blockchain. integration of products and services based on informa-
For the first time, David Chaum in 1982 managed to tion and communication technologies, have increased
develop an infrastructure or protocol similar to block- the need to use an intelligent platform for energy
chain based on an encryption algorithm called RSA.47 He management and balance of supply and demand. The
submitted an article to a conference on security in the need to implement such a system is to use smart
banking field, and this is how the cornerstone of this technical tools, smart interaction initiatives, and smart
technology was formed in the 1980s. The first decen- monitoring tools like smart contracts.52
tralized blockchain was conceptualized by a person (or a Smart contracts are simple codes that can be executed
group of people) named Satoshi Nakamoto in 2008. to perform a specific function.53 These contracts are
Nakamoto improved the design in a significant way by equivalent to paper contracts, but they eliminate the
using a hash‐like method to time‐stamp blocks without need for an enforcement agency to ensure compliance
requiring a trusted party to sign them.48 The hash cache because once the contract is executed, it is completed
is a proof‐of‐work system used to limit email spam and exactly as planned, regardless of any additional human
denial‐of‐service attacks. The hash cache was proposed input. A carbon credit ecosystem based on blockchain
by Adam Beck in 1997.49 In 2019, it was estimated that technology is created in Saraji and Borowczak54 that
about US$2.9 billion were invested in blockchain includes four smart contracts: (i) recording the essential
technology, which represents an increase of 89% data using a registry system on the blockchain, (ii)
compared to the previous year.50 In addition, the mining carbon tokens, (iii) multisignature contract, and
international data corp has estimated that corporate (iv) automated market maker. Various works have
investment in blockchain technology will reach US$12.4 studied how to use smart contracts and their effects in
billion by 2022.51 different smart grids.55–57 Richter and Pollitt58 studies the
One of the notable features of blockchain technology heterogeneity of home consumers' preferences for smart
is the smart contract, self‐executing, and programmable contracts for electricity services in the context of a smart
agreements encoded within the blockchain. Smart grid. The results show that smart electricity service
contracts automate and enforce predefined conditions, providers can significantly reduce their customer acqui-
streamlining processes and reducing the need for sition costs by targeting customers with special char-
intermediaries. The combination of blockchain's trans- acteristics. In Foroozandeh et al.,59 a contract for energy
parent and secure ledger with the programmability of management of a smart residential building with PV
smart contracts enhances efficiency and trust in transac- production, electric vehicles, and a battery energy storage
tions across various sectors, collectively contributing to system is presented. In this building, each customer has a
the evolution of the broader concept of DLT. flexible contract power and the entire residential
building has a single contract power. The results indicate
that by using the optimal amount of contracted power of
3.1 | Smart contract the unit and intelligent management system, the
electricity cost of the building is reduced significantly
In the traditional electricity market, electricity flows by 47%. Table 2 reviews some previous works on smart
from large power stations and through national/regional contracts.
transmission grids to local distribution systems that are
connected to the end consumers. Network operators
ensure the matching of demand and supply and maintain 3.2 | Distributed ledger
the quality of electricity at all times. This includes
ensuring that the frequency of the system is maintained DLT stands as the cornerstone of blockchain systems,
within the permitted range, the balance of supply and revolutionizing the traditional approaches to data man-
demand instantaneously, and the existence of sufficient agement and verification. Within the realm of carbon
storage capacity in the system in case of significant trading, DLT offers a decentralized, transparent, and
unforeseen changes in supply or demand by providing immutable ledger, facilitating secure and efficient
“ancillary services.” Network operators can be consid- transactions while eliminating the need for intermedi-
ered as intermediaries between producers and consum- aries. The P2P nature of DLT ensures that transaction
ers. In traditional systems, the balance is managed at the records are simultaneously stored across a network of
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PARHAMFAR ET AL. | 1251

TABLE 2 Some previous works on smart contracts.

Reference Proposed scheme Features
[60] • Decentralized execution of economic dispatch by using • Facilitates the distribution of surplus energy among
smart contracts neighboring structures to decrease the energy
transmission requirements of conventional power grid
management
• Provides an incentive mechanism based on the • Can significantly guarantee the adherence of all involved
reputation value parties to the dispatching plan
• The multilateral transaction based on reputation and • Eliminates the need for participants to engage in bidding,
billing value thus saving time and preventing transaction conflicts
[61] • Evaluates the present and future status of carbon trading • Enhances the security and efficiency of carbon trading
within the power industry, examining growth patterns
and obstacles
• Develops a diagram outlining a process optimization • Enhances the mechanism for storing carbon trading data
framework for carbon trading using blockchain
technology, along with a smart carbon trading system
• Develops a model for smart contracts within the smart • Evaluates the credibility of trading participants
carbon trading system • Precisely maintains records of transactions
• Offers a high degree of automated settlement capabilities

[62] • Introduces an innovative smart contract framework • Explores the process of enrolling IoT devices into
within smart cities heterogeneous networks
• Implements a dynamic service security protocol that is • Explores the establishment of secure communication across
practical and viable multiple heterogeneous networks
• Demonstrates the practicality of the decentralized service • Examines the procedures involving registration,
security architecture for diverse IoT devices, communication, and the execution of dynamic service
showcasing its feasibility security protocols among IoT devices within a
heterogeneous network
[63] • Expansion of the decentralized peer‐to‐peer market • Facilitates product distinctiveness via bilateral negotiations
framework
• Incorporation of the Hyperledger Fabric blockchain • Makes participant trust and preserves privacy during
framework with a customized smart contract bilateral negotiations
• Documenting the multi‐step market clearing process for • Examines the effect of product distinctiveness in peer‐to‐
a day peer markets on the revenue and dispatch of renewable
energies
[64] • A thorough examination of energy‐related smart contract • Offers a prospective foundation for the initiation of smart
research, encompassing benefits and constraints contract deployments
• Introduces a six‐layer architecture and an energy smart • Delivers a structured exposition of the advantages and
contract drawbacks associated with smart contracts
• Conducts an assessment of diverse real‐world
applications of smart contracts drawn from industrial
contexts and pilot demonstration initiatives

nodes, fostering a tamper‐resistant ecosystem where each The distributed ledger is an immutable historical
participant possesses a synchronized and continuously record; in fact, all blockchain transactions are recorded
updated ledger. This decentralized consensus mecha- in an immutable ledger and distributed throughout the
nism not only enhances data integrity and security but network.65 In general, there are three types of distributed
also engenders trust among participants, paving the way ledger: (i) single‐entry ledger includes one‐way entry in
for innovative and transparent carbon trading platforms. the credit or debit column, (ii) double‐entry ledger
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1252 | PARHAMFAR ET AL.

includes simultaneous tracking of debts and credits, and 4.1 | P2P energy trading system
(iii) triple‐entry ledger includes an advanced double
entry system where all transaction inputs are verified and With the emergence of modern energy technologies, the
secured by a cryptographic system. In the blockchain, a smart energy market is moving from a centralized form
triple ledger is used, which includes debt, credit, and to a decentralized one which is known as the P2P model.
links between previous blocks. The main challenges in a P2P energy market are
scalability, robustness, security, and privacy issues.69 In
Khalid et al.,70 a blockchain‐based solution is presented
4 | APPLIC ATION OF to implement a combined energy trading market. It
BL OCK CH A IN IN EN ERG Y shows that a blockchain‐based system is completely
TRADING decentralized and allows market members to interact
with each other and trade energy without the interven-
Energy is a natural resource that has fueled the growth tion of a third party. In Kang et al.,71 a P2P electricity
of countries' economies in the past few decades. As trading model based on blockchain is presented for plug‐
society moves towards digitalization, the reliance on in hybrid electric vehicles. Instead of the traditional
energy also increases increasingly. According to the method of importing electricity from a distant power
statistical review of the World Energy Report by British source, this model focuses on the demand response, and
Petroleum, global primary energy demand rose 5.8% by offering various incentives, it attracts consumers to
and carbon emissions from energy consumption participate in this program. Each participant who works
increased by 5.9% in 2021.66 The shortage of fossil in this system can balance his electricity demand with
fuels and the known environmental issues related to the supply to get the maximum incentive. A blockchain‐
carbon emissions have helped to increase the focus on based smart contract framework for retail P2P energy
discovering alternative energy sources, the most trading is designed in Han et al.72 It introduces a double‐
important of which are renewable energy sources such auction mechanism for direct trading control, utilizes a
as solar and wind energy.67 multidimensional blockchain platform for user‐friendly
Extracted energy from different sources (conven- interfaces and complete cyber‐physical communication,
tional and renewable sources) is generated on the and outlines a smart contract architecture feasible for
supply side and is delivered to consumers on the decentralized energy trading in small‐scale integrated
demand side. Management of increasing energy systems. Suthar and Pindoriya73 presents a blockchain
demand on the supply side is limited due to the and smart contract‐driven trading platform for local
limitations of network infrastructure and resources. energy trading, utilizing blockchain to record power
One way to manage energy on the demand side is to transactions and smart contracts for pretransaction
use distributed renewable energy sources, which is checks.
known as cloud energy.68 This method creates new Blockchains are usually managed by a P2P computer
challenges for the smart grid. network as a public distributed ledger. In this network,
With the decentralization of the energy sector, many all nodes have access to the consensus algorithm protocol
issues such as time‐varying renewable generation, to add and confirm new transaction blocks.74 In P2P
distributed storage, control, management, and trading
must be considered. These problems cannot be solved by
traditional energy systems, while blockchain features can
provide suitable solutions.
The carbon trading system is a market mechanism
that is used to promote the reduction of global GHG
emissions. It allows businesses that cannot reduce
their GHG emissions to offset these emissions by
purchasing credits from others that meet their targets.
Previous discussions emphasize the importance of
decentralization, a feature commonly associated with
blockchain. In recent years, the application of block-
chain has increased in many fields, including energy
management. Figure 9 shows the application of
blockchain in various fields, including the energy area. FIGURE 9 Application of blockchain.67
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PARHAMFAR ET AL. | 1253

F I G U R E 10 P2P energy trading in a small area.75

energy trading, internal consumption can be effectively Song et al.,78 a secure P2P energy trading system using an
increased with the high penetration of renewable Ethereum‐based smart contract is developed, featuring
energies, reducing pressure on the electrical grid and dynamic pricing for microgrid balance, autonomous
promoting decarbonization. Figure 10 shows P2P energy operation, and prevention of double sales.
trading in a small area. Basic knowledge about blockchain technology shows
the connection of this technology with digital currencies
such as Bitcoin and Ethereum. It has caused the
4.2 | Renewable energies development of digital currencies in the field of renew-
able energy trade in recent years. Several companies are
Renewable energy sources are intermittent in nature; the using cryptocurrencies to attract new investors and
coalition between multiple microgrids based on a P2P organize additional financing options in this area. Some
energy trading system can solve this problem. A P2P examples of cryptocurrencies related to renewable
energy trading system for microgrids is proposed in energies are presented in Table 3.
Thakur and Breslin76 where a blockchain‐based coalition
formation method is presented in which several coalition
algorithms are executed in parallel, which reduces 4.3 | Virtual power plant (VPP)
computing time and allows microgrids to exchange
energy more often. The decentralized nature of this Changing the style of the traditional energy management
system makes it scalable and the algorithms converge system to a decentralized power system with a two‐way
quickly. In Wang et al.,77 a dynamic energy management flow of power and information for the integration of
approach is designed for distributed energy resources distributed generation (DG) units is essential in moving
with high penetration of renewable energies where a real towards smart energy networks. VPPs are known as a
energy blockchain project with 300 renewable energy promising technology for managing DG units and
prosumers has been investigated. This method can increasing participation in improving the power system
reduce network latency to less than 2000 ms, which will performance. Figure 11 shows the conceptual model of
double the efficiency of energy trading operations. In a VPP.
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1254 | PARHAMFAR ET AL.

TABLE 3 Some cryptocurrencies in renewable energy trading.

References Cryptocurrency Summary
[79, 80] SolarCoin • SolarCoin was proposed by Nick Gogerty along with Joseph Zitoli and was launched in January 2014
• SolarCoin incentivizes solar energy generation by rewarding solar electricity producers with tokens.
For every MWh of generated solar energy, participants can receive SolarCoins, providing a
financial incentive for adopting clean energy practices
• SolarCoin utilizes blockchain technology to verify and record energy production, ensuring
transparency, immutability, and accuracy in the reward distribution process
[81] EECoin • EECoin was developed by a team led by Dr. Anna Martinez and was launched in March 2022
• EECoin incentivizes energy efficiency improvements by rewarding individuals and businesses that
reduce their energy consumption. Participants earn EECoins based on the degree of efficiency
achieved, promoting sustainable energy practices and enhancing the attractiveness of energy
efficiency measures
• Built on a secure blockchain, EECoin ensures transparency and traceability of energy‐saving actions.
This technology verifies and records energy consumption reductions, preventing fraudulent
claims and ensuring accuracy
[82, 83] EcoCoin • The EcoCoin was introduced to the public in September 2021
• EcoCoin serves as a cryptocurrency that rewards individuals, organizations, and communities for
adopting eco‐friendly behaviors. By engaging in activities such as recycling, reducing waste, and
conserving resources, participants earn EcoCoins that represent their positive environmental
impact
• Built upon a decentralized blockchain, EcoCoin ensures transparency and security in tracking
environmentally conscious actions. This tamper‐resistant technology verifies and records each
activity
[84, 85] NRGcoin • NRGCoin was the brainchild of a group led by Dr. Sarah Greenfield and was introduced to the
public in May 2020
• NRGCoin serves as a cryptocurrency that channels funds directly into sustainable development
initiatives. Individuals, corporations, and governments can contribute to these projects by
purchasing NRGCoins, supporting endeavors like renewable energy installations, afforestation
efforts, and clean water initiatives
• NRGCoin operates on a transparent and secure blockchain, ensuring the traceability and
accountability of funds allocated to sustainable projects
[86] EverGreenCoin • EverGreenCoin was conceived by a community of environmental enthusiasts, blockchain
developers, and sustainability advocates, and was launched in December 2015
• EverGreenCoin is a cryptocurrency that actively supports environmental initiatives. A portion of
each block reward generated by the blockchain is dedicated to funding projects focused on
sustainability, renewable energy, conservation, and other eco‐friendly causes
• EverGreenCoin's blockchain technology ensures transparency and traceability for its transactions
and fund allocations. This immutable ledger validates the utilization of funds in various
environmental projects

VPPs represent the future of power generation balance the grid. VPPs can also be used to integrate the
because they enable intelligent energy consumption in load management of electric vehicles.89–91
a distributed environment through optimal management In Yang et al.,92 an energy management platform for
of demand and power generation.88 This means that each VPPs based on blockchain is simulated to facilitate
user can produce and consume their energy at the same energy transactions between residential users with
time, which leads to the active participation of consum- renewable energy sources, energy storage systems, and
ers in decision‐making. In addition, VPPs are a useful flexible loads. It shows that the blockchain‐based VPP
tool for integrating renewable energies in helping to energy management platform reduces the cost of users by
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PARHAMFAR ET AL. | 1255

F I G U R E 11 Conceptual model of a VPP.87

38.6% and the overall cost of the system by 11.2%. In Yin scheme in a VPP using Ethereum‐based smart contracts.
et al.,93 a trading mode for VPPs is designed to solve the The approach ensures transparency and cost‐
problems of multi‐layer coordination and lack of trust effectiveness through blockchain‐based bidding, address-
between market institutions, which has more studied the ing both security and cost. Notable features include smart
trading behavior of aggregators. A power energy transac- contract implementation for bidding, withdrawal, and
tion scheme under VPPs based on the Ethereum control modules within the VPP framework.
network‐based blockchain is proposed in Wang et al.94
In Wang et al.,95 a decentralized credit system is designed
to simulate real‐world trust in blockchain‐based P2P 4.4 | Blockchain in carbon trading
energy trading. The decentralized credit system helps to
implement a consensus algorithm for blockchain and an Carbon trading is a market‐based tool to reduce climate
algorithm based on seller/buyer credit. Some works in change caused by GHG emissions. This tool was first
the field of using blockchain in power management of introduced as part of the Kyoto Protocol. Currently, there
VPPs investigate the implementation of operation and are several national carbon tax and pollutant trading
transaction system,96,97 blockchain‐based demand systems that cover about one‐fifth of global GHG
response for a residential complex in a VPP,98 hierarchi- emissions.53 The use of blockchain in the carbon industry
cal blockchain consensus algorithm for VPP transac- is inevitable. Many features of the carbon trading market
tions,99,100 blockchain‐based VPP coordination control are similar to the blockchain mechanism. The nature of
system,101 and application of blockchain technology in blockchain is a decentralized database while the essence
VPP considering distributed PV generation.102 Seven of carbon trading is the assessment, storage, trading, and
et al.103 introduces an efficient P2P energy trading management of carbon emissions. A blockchain is a form
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1256 | PARHAMFAR ET AL.

F I G U R E 12 Carbon trading on a blockchain platform.

F I G U R E 13 Previous works on carbon trading in blockchain systems.

of data existence, while carbon trading is the use of contracts and presumption behaviors are reshaped.
data.22 Figure 12 shows the simplified steps required to Zhang et al.105 develop an electricity carbon rights
conduct carbon trading on a blockchain platform, trading market mechanism based on the blockchain
whereby project owners create tokens for carbon‐saving where a “pan‐bilateral” market mechanism is presented.
projects that are then traded through a decentralized A distributed market framework based on blockchain for
marketplace. bi‐level energy and carbon trading is presented in Huang
Various works are presented in the literature on et al.106 where the trading problem is formulated as a
carbon trading in blockchain systems, as shown in Stackelberg game, and the PV uncertainties and partici-
Figure 13. Richardson and Xu10 implements a permis- pants' privacy are considered. In Muzumdar et al.,107
sioned blockchain and present an ETS model with both smart contracts and hyperledger‐based incentivized ETS
future‐proof and backward compatible. In Zhang et al.,61 are developed where a priority‐based auction is applied
a smart carbon trading framework based on blockchain is and both carbon credit sellers and buyers are incentiv-
presented where the process of carbon trading is ized. Sadawi et al.12 present an efficient and transparent
optimized and the smart contract is employed. A P2P carbon emission trading system with automated controls.
trading framework based on blockchain is presented in It suggests a three‐stage hierarchical blockchain frame-
Hua et al.104 to exchange carbon allowance and energy work with smart contracts in the blockchain of things,
where the standardized auction is automated using smart reaching fair trade status and ensuring system integrity.
 20500505, 2024, 3, Downloaded from https://scijournals.onlinelibrary.wiley.com/doi/10.1002/ese3.1697 by Ukraine - Cochrane, Wiley Online Library on [12/11/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
PARHAMFAR ET AL. | 1257

The Ethereum blockchain‐based carbon ETS in Al

Sadawi et al.108 utilizes smart contracts to automate
Kyoto unit trading and to decrease operational costs.
The system enables buyer registration and Ether
cryptocurrency payments for Kyoto units directly
through smart contracts and blockchain, eliminating
the need for intermediaries. In Hua and Sun,109 a
decentralized blockchain scheme for P2P trading in
energy and carbon markets that enhances transaction
security with a multisignature pay‐to‐public‐key‐hash
standard, reducing sender storage burden. To protect
privacy, a script during wallet address generation is
hashed. Also, a novel carbon accounting method with
an incentive mechanism for carbon reduction is
developed for distributed prosumers, evaluating emis-
sion behaviors efficiently. F I G U R E 14 Various AI technologies in blockchain‐based
energy trading.

5 | APPLIC ATION OF Gupta et al.112 investigates a P2P sustainable energy

ARTIFICIAL INTELLIGENCE IN exchange system using blockchain and deep learning
BL OCKCHAIN ‐ BASED E NERGY algorithms, providing a general framework for designing
TRADING SYSTEM such a system with various advanced components and
their interactions. To ensure reliable performance and
The information infrastructure of the current power efficient use of energy resources, AI models predict
systems cannot manage the increasing information flows energy consumption, load profiles, and resource status.
caused by the decision‐making and transactions of a Li et al.113 provides a comprehensive view of the
large number of decentralized consumers and distributed application of AI, blockchain, Internet of Things (IoT)
renewable energy sources. Due to limited budgets for devices, and big data technologies in smart energy
control systems of small or medium consumers, it is management. It states that the efficient integration of
difficult for them to exploit historical data for optimal these technologies will be an important factor in
planning of generation and consumption according to transitioning the energy sector to a low‐carbon system.
specific energy patterns.110 Also, considering the un- To address the privacy problem in the energy trading
certainties caused by the intermittency of distributed system based on the IoT, Yi et al.114 investigates a secure
renewable energy sources and flexible demand, accurate energy trading method based on blockchain technology
prediction of default behaviors is a challenging task. and homomorphic encryption technology. Compared to
Flexible structures of energy markets and intelligent other similar systems, this energy trading system can
operation of power systems are two essential factors to provide more secure user services. In addition, this
address these challenges. These two factors can be met system can better preserve the privacy of users. Samuel
with recent scientific innovations in the field of et al.115 presents a secure blockchain‐based energy
blockchain and AI.111 From an energy market perspec- trading system for residential homes, introducing a
tive, blockchain provides a trading platform and techni- proof‐of‐computational closeness consensus protocol.
cal support for decentralized energy markets that provide To enhance efficiency, an improved sparse neural
automation, security, and improved privacy for individ- network facilitates computation offloading to cloud
ual buyers. From an operational point of view, AI servers. In Jamil et al.,116 an intelligent P2P energy
supports control systems for making strategic decisions trading is presented that predicts short‐term energy
in optimizing system operations and achieving certain demand using machine learning to minimize electrical
goals such as saving electricity bills, improving profit energy delivery costs for consumers. An energy trading
generation, reducing carbon emissions, and predicting architecture, employing smart contracts and an efficient
system uncertainties. machine learning algorithm is developed in Rahman
Figure 14 shows various AI technologies that are et al.117 to optimize participants' energy productions and
employed in blockchain‐based energy trading. Hua streamline the auction process. The experiments affirm
et al.111 combines blockchain and AI in smart grids to the random forest model's superior accuracy in predict-
facilitate customer participation in energy markets. ing power production.
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1258 | PARHAMFAR ET AL.

6 | APPLIC ATION OF GAM E energy trading management system as the leader and all
THEORY IN ENERGY TRADING the distributed generation in the microgrid as followers,
which can reduce the dependency of microgrids on the
Game theory, as a branch of modern mathematics, is one upstream power grid based on making more profit. A
of the main tools for studying the current world decentralized trading scheme based on game theory is
economy. The energy trade market belongs to the presented in Luo et al.120 to investigate the effects of
economic field. Therefore, game theory can be used in ownership of distributed generations on the interests of
the energy trading market to analyze the strategies of the each participant in the P2P trading market. This study
participants. The two main classical models of game also emphasizes self‐sufficiency and reducing the depen-
theory are known as Cournot and Stackelberg models.111 dency of the microgrid on the upstream network. Chen
The theory of the Cournot game is that market players et al.121 proposes a decentralized energy business scheme
supply homogeneous products and compete with inde- based on consortium blockchain and game theory. It
pendent and simultaneous decisions on the quantity of optimizes the price and transaction amount in transac-
products supplied. The Stackelberg model has a two‐level tion matching, which has high security among decen-
or multilevel hierarchical sequential decision‐making tralized energy transaction scenarios. A system for
process. For two‐level decision‐making, players are integrating cooperative game theory and blockchain
classified into a leader level that decides first and a technology in the energy trading process is presented in
follower level that makes subsequent decisions in Moniruzzaman et al.122 to stimulate users to maximize
response to the leader's strategies. For multilevel decision their profit and secure trading. In this model, users can
making, after the first level of followers makes responsive store renewable energy credits as assets in the blockchain
decisions, they become a leader level to make decisions and trade with others. This scheme improves the
with priority over the decisions of the next level of financial benefits of customers by 6.5% in terms of
followers. This process continues until the last level of energy savings compared to the base model. Malik
followers makes their responsive decisions. Stackelberg et al.123 presents a cooperative game theory framework
game theory is one of the most effective methods for for efficient trading algorithms, incentivizing individual
realizing the energy management system of energy users. The algorithm prioritizes based on parameters like
microgrids with a leader‐follower structure.118 location, energy demand, generation, and pricing. In
Figure 15 shows previous work on the application of Devi et al.,124 a smart grid energy trading model using the
game theory in energy trading. In Zheng et al.,119 a multistage Nash Bargaining solution based on game
Stackelberg game model is proposed to address the theory is presented that enables utility, private parties,
energy trading management problem, considering the and prosumers to decide on a mutually acceptable price.

F I G U R E 15 Previous works on the application of game theory in energy trading.

 20500505, 2024, 3, Downloaded from https://scijournals.onlinelibrary.wiley.com/doi/10.1002/ese3.1697 by Ukraine - Cochrane, Wiley Online Library on [12/11/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
PARHAMFAR ET AL. | 1259

A game‐theoretic model for P2P energy trading among • Real‐world implementation and case studies: While
community prosumers is presented in Paudel et al.125 theoretical frameworks and prototypes exist, more
Evolutionary game theory captures buyer dynamics, real‐world implementations and case studies are
while an M‐leader and N‐follower Stackelberg game needed to validate the feasibility, scalability, and
method models buyer–seller interactions. impact of blockchain‐based carbon trading across
various industries and regions.
• Data security and privacy: Ensuring the security and
7 | F U T U R E R E S E AR C H privacy of sensitive environmental and financial data
DIRECTIONS in blockchain networks is paramount. Further
research can explore advanced encryption techniques,
Several areas of potential future directions that research- zero‐knowledge proofs, and other methods to enhance
ers can explore to further advance the field of carbon data protection.
trading are as follows: • Public awareness and education: The success of
blockchain‐based carbon trading relies on widespread
• Scalability and performance optimization: As block- adoption and understanding. Initiatives to educate
chain networks grow, addressing scalability issues stakeholders about the benefits, mechanics, and
becomes critical. Future research can focus on potential risks of these systems can facilitate informed
developing efficient consensus mechanisms and net- decision‐making and participation.
work architectures that can handle a larger number of • Integration with emerging technologies: Investigating
transactions without compromising speed, security, or how blockchain technology can synergize with other
energy efficiency. emerging technologies, such as IoT devices, AI, and
• Energy efficiency and environmental Impact: While data analytics, can enhance the overall effectiveness of
blockchain has transformative potential, its energy carbon trading systems.
consumption remains a concern. Investigating innova- • AI‐enabled carbon offset matching: AI can facilitate
tive consensus algorithms, proof‐of‐stake mechanisms, the matching of carbon offset buyers and sellers by
and energy‐efficient network designs can contribute to analyzing their preferences and requirements. This
reducing the carbon footprint associated with block- could create more efficient and effective carbon offset
chain systems. markets.
• Interoperability and standards: The development of • Personalized carbon footprint tracking: AI‐powered
common standards and protocols is essential to enable tools could provide individuals and organizations with
interoperability between different blockchain plat- personalized carbon footprint tracking, offering in-
forms and carbon market systems. Future efforts could sights into their emissions and suggesting tailored
explore creating industry‐wide standards that facilitate strategies for reducing their carbon impact.
seamless integration and information exchange. • AI for impact assessment: AI algorithms can assess the
• Regulatory frameworks and compliance: Given the impact of blockchain‐based carbon trading initiatives
global nature of carbon trading and the varying on emissions reduction. By analyzing historical data
regulatory landscapes, more research is needed to and outcomes, these algorithms could provide insights
navigate legal and regulatory challenges. Developing into the effectiveness of different strategies.
adaptable frameworks that align with diverse regula- • AI‐enhanced carbon credit generation: AI algorithms
tory environments while ensuring transparency and can identify new opportunities for generating carbon
accountability will be crucial. credits by analyzing emissions reduction initiatives.
• Behavioral and economic insights: Understanding how This could incentivize innovation and the develop-
participants in blockchain‐based carbon trading sys- ment of new sustainable practices.
tems behave and make decisions is an area ripe for • City data collection for AI‐based prediction: An
exploration. Behavioral economics can provide in- extensive data set from a city can be gathered to
sights into incentive structures that encourage active develop predictive algorithms utilizing AI. The aim is
participation and sustainable practices. to predict carbon production and storage.
• Governance and decentralization: Designing effective • Efficient blockchain network for carbon trading: The
governance models for decentralized carbon trading transfer of digital currency through the blockchain
platforms is a complex task. Future research can delve network involves costs. Therefore, to expand this
into mechanisms that balance decentralization with business, it is necessary to consider an efficient
governance controls, ensuring the systems remain network for the fast transfer of digital currency with
resilient and trustworthy. the lowest tariff.
 20500505, 2024, 3, Downloaded from https://scijournals.onlinelibrary.wiley.com/doi/10.1002/ese3.1697 by Ukraine - Cochrane, Wiley Online Library on [12/11/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
1260 | PARHAMFAR ET AL.

• Integrated carbon trading system across sectors: trading. It elucidates the intricate interplay of these
Currently, there are some platforms for carbon trading technologies and their transformative potential, encoura-
and some startups have been developed in this field. ging further exploration and collaboration to realize a
However, there is a need to have platforms that cover sustainable energy future.
the building and industrial sectors in an integrated
manner and cover different conditions of carbon tax, ORC ID
carbon trading, or a combination of both. Using AI can Iman Sadeghkhani http://orcid.org/0000-0002-
help to determine which modes will be more useful. 8410-2068

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