How to solve climate change, poverty and inequality with a token

Source: NPS.

TL; DR: We should attribute global emissions rights not to the countries or businesses, but individuals. If it is done in a form of a crypto token (like ERC20 Ethereum token), decentralized, free market for emissions rights will emerge. Apart from using decentralized technologies to tokenize emissions rights, this system needs (not proposed here) coordination mechanism which will globally enforce using emissions rights by companies.

We have a real problem with climate change and anthropogenic greenhouse gases emissions. We have not yet built an incentives system which would be widely accepted thus we fail to coordinate our actions globally to reduce emissions.

In the nutshell problem is as simple as follows:

  • we burn a lot of fossil fuels;
  • rich countries would need to pay a lot to scale down emissions rapidly;
  • developing countries need to increase emissions if they are to close development gap fast and at a low cost;
  • individuals every too often fail to understand and acknowledge problem because status quo is good for them (rich) or because they are hungry (poor).

I believe we could unblock the emissions reduction process by:

  • tokenizing global emissions rights (representing global emissions goal for the given year) and assigning emissions rights to all people around the globe on individual level;
  • requiring companies to present emissions rights (“burn” corresponding tokens) for all their emissions;
  • allowing emissions rights to be traded between the parties.

If we agree that global emissions target for a given year is E and global population is P, then everyone will get E/P of emissions rights. But individuals do not need emissions rights — they are needed by business, which has to obtain them from individuals. Economist would say that we have just created a market for negative externality caused by CO2 emissions. And as at the end of the day humans will suffer from climate change, we have just created a system which allows emitters to compensate humans for the damage they do to the environment. What is more, if we set a path with E decreasing over time, we should end up with efficient economic system incentivising transition, as (ceteris paribus) an unit of emission will cost more over time.

What are the economic and social consequences? We must remember that although most people live in developing countries, it is the rich minority that is responsible for most of the emissions. Effectively, the proposed system will help distributing wealth from developed to developing world, but it will be done in a fair way: the only thing we do is setting global emission level and deciding, that every human being has equal responsibility for the planet (and rich are not entitled to exploit it more than poor).

At least at the beginning, the proposed system needs an agent (like United Nations or other international organisation or very sophisticated decentralized organisation everyone will join) which will enforce usage of emissions rights by companies. This is for sure the most difficult part, but perhaps not as difficult as it sounds. One of the ways is to limit the system towards the monitoring of mining and drilling operations and require fossil fuels to get corresponding emissions rights while entering the system. The other is to start with the most emitting and already highly controlled sectors, like electricity production and transportation.

Regardless of how exactly decision on E is taken and how exactly enforcement of the system is solved, I believe it creates right incentives to all participants and will help to coordinate and to finance reduction of emissions, at the same time securing developing countries interests and reducing inequalities globally. And of course token representing global emission limit (for a given period of time), given in equal amount to every human, would make most sense as a technical way to ensure fair and efficient trading of emissions rights between people and businesses.

The presented concept was partially inspired by Gregory Landua, CEO of Terra Genesis International, and his ideas of incentivizing sequestration of CO2 (I’ve really enjoyed Gregory’s Devcon presentation). What I love about it is that it can be built in a bottom-up model, while what I have described needs a lot of coordination and cooperation between all the players to just launch the system. Yet, both ideas are in fact complementary.

Also, I am not the first one to think about the above. With a little research I found out that very similar concept was described already in 2002 by Jochem Jantzen — but for obvious reasons no crypto tokens were considered then. I believe that now we are close to creating technology which will make this approach possible.