Employing a new form of scalable regulation, we can launch a global cap-and-trade today that sidesteps politics and incentivizes the masses.
Regulation by Reputation
Until recently, if you sought regulation, you were obliged to lobby Congress. If Congress complied, action could be swift and forceful. If they didn’t, well tough luck, there were no other options. As a result, environmentalists desperate to reverse the climate crisis have had little choice but to target Congress.
Fortunately, this is no longer the case. A new form of regulation, Regulation by Reputation (RBR), has taken the world by storm. By allowing users to rate each other's actions, RBR provides the necessary carrot & stick for companies like Über, Airbnb, Amazon, eBay, LinkedIn, etc. Combined, these companies govern billions of users (and trillions of transactions) with minimal need for authorities.
Better still, RBR is apolitical and inexpensive, providing ultra-scalable regulatory power according to Metcalfe’s law (the addition of each user significantly increases network compliance). As a result, Facebook 'likes' and eBay ratings now dictate the behavior of billions, replacing institutions like the Better Business Bureau and civil suits. Because of RBR people now feel comfortable overnighting in strangers' houses (Airbnb) and riding home in a stranger's personal car (Über).
Sno-Caps aims to bring RBR to carbon emissions by pairing it with a global cap-and-trade. This combination solves a number of thorny issues not only with cap-and-trade but also with government oversight. Most importantly, through RBR, we can incorporate the one group that climatologists continue to marginalize - the people. With Sno-Caps all 7 billion people on earth will gain ownership of carbon and enjoy full and instant access to trading.
As a result, with Sno-Caps, we can provide:
- Simple, voluntary rules
- A robust free market
- Price discovery for carbon
- Scalable regulation
- Incentives to all individuals via equitable ownership
- A platform for congress to act upon
- Full global transparency with public ledgers
- An independent platform that can launch today
Category of the action
Mitigation - Helping U.S. enact carbon price legislation
What actions do you propose?
As the theory goes, Congress is ideally suited to cap carbon. But the elephant in the room is their willingness. Will they act in a timely fashion? Will their efforts be enough? Further, most current climate proposals are top-down, which does little to inspire individual voters. This is risky, as any regulations pushed through today could be revoked by a fickle public tomorrow. Given these concerns, we feel it is important to design a system that doesn't insist on government involvement.
So, heartened by the explosive success of global internet companies like Facebook and Twitter, we propose to build a non-governmental cap-and-trade that distributes equal shares to everyone on earth. Still, like Facebook and others, we will start slowly, adding users as they sign on. By combining the following technologies, we are confident we can build users and achieve significant reductions in carbon emissions:
The Three Technologies
1. Free Markets
Arguably the strongest social force in history, free markets provide trust, explosive power and excitement. As such, Cap-and-trade is a seminal idea for combating climate change and has been the centerpiece of many climate summits. Still, previous cap-and-trade schemes rely on hierarchy and exclusion – the government sets the cap, distributing shares to only a handful of corporations. This is a tragic mistake. The real strength of a free market comes through openness. By providing lifetime ownership shares to anyone who signs on, Sno-Caps incentivizes the masses and relieves the government of the expense of oversight. This means that Sno-Caps is bottom-up, and this focus on motivating the people could eventually inspire congress to participate as well.
2. Regulation by Reputation (RBR)
As mentioned in the summary above, RBR is changing how the world behaves by providing both trust and regulation without the need for authorities. Most importantly, RBR strengthens as it scales, allowing for the creation of powerful and inclusive global solutions.
3. Public Ledgers
Until 2009 there was no such thing as a public ledger. But Bitcoin has changed that. In the last five years, without the help of a single human accountant, the Bitcoin public ledger has tallied millions of transactions (over 30 billion dollars worth) without a single hiccup. And, it is truly public – the 20-gigabyte ledger can be queried and updated by all users, each maintaining a full copy. As such, individuals anywhere can track each and every transaction in the system in real time. This openness provides an explosive new form of transparency that has no precedent. **** Note, it is important to distinguish between Bitcoin - the volatile currency, and Bitcoin - the powerful ledger technology. ****
Our Secret Sauce: Individual Ownership
Combining the 3 technologies above, we can build a decentralized cap-and-trade platform that scales as more users sign in. This scalability is crucial. Feedback-based RBR means we can accommodate everyone on earth at no extra cost, providing atmospheric ownership to all the world's citizens. And this is key. As we know, most current capping schemes are exclusive, placing the ownership in the hands of a cartel of corporate shareholders or merely handing control over to the government. In contrast, with Sno-Caps, each citizen would be able to invest and lease their newfound asset in a vast free market. This is empowering. In turn, individuals can rate their interactions, providing public feedback for the world's corporate polluters. And, as we have seen with eBay, Airbnb and others, it is this feedback that drives self-regulation.
Question and Answer
Because our idea is so new, it raises a number of questions. As such, we decided to present the rest of our ideas through the voiced concerns of CoLab users and judges. We have highlighted in bold a couple of powerful market-based feedback loops that work to our advantage.
1. What is the cap? How is a cap set?
We like the cap Van Hollen proposed in his 2014 proposal. He has chosen to limit carbon emissions to 2005 levels and then ratchet down from there. This is not only simple and straightforward, but also easy to implement inside our software. Best of all, this means that our cap (and future reduction) is baked in, which improves understanding, allows for planning and reduces future conflict.
Coding the cap into our software is something most high schoolers could do. For a flat cap of say 8 gigatons, one would simply type in 8 billion, and the app will place that in the numerator. Then, as each new user signs in, the software will place the number of active users in the denominator. This division would determine the value (in carbon) of each share. So yes, the value of each share will drop as new users come onboard, but this does not necessarily mean a drop in price. Again, as Metcalfe’s Law suggests, the addition of each new user improves regulation and could incentivize companies to buy more shares. So as more users come onboard (lowering the amount of carbon controlled by each share), the payout per share could increase. Likewise, the code to design a cap that ratchets down over time (say 3% a year) is trivial and similar algorithms are employed in a number of iPhone games and apps.
Finally, the most important aspect of a cap is its durability. Decentralized systems have proven the most resilient to hacking, resulting in a cap that, once set, cannot be edited.
2. Why would a company sign up? How does the price per share get established?
Clearly, on the launch day of any global network, things are clunky. The owner of the first telephone or Skype account had no one to call. We expect the same gradual climb with Sno-Caps. This will be compounded by our suggestion that companies pay for something they have never needed to pay for (carbon emissions) – hardly an incentive to sign up. But the incentives are there (particularly for organizations aligned with reducing climate change). And these conscientious companies would likely be early adopters.
For example, say you are Whole Foods; do people really believe you when you claim your practices benefit the environment? Cynical consumers may look at your glossy seals of approval and think, “hmmm, I’ll bet Whole Foods is faking this stuff to gain customers.” But what if Whole Foods could prove their commitment by utilizing a universally and popularly understood metric? Provable commitment would be a powerful incentive for environmental companies. A public ledger offers this in spades. Every transaction on a public ledger is stored publicly, for all time. With Sno-Caps, suddenly, every corporation's commitment to the environment can be inspected in seconds, by anyone - everything updated in real time. And as users seek out these companies, the corporate incentives for complying increase. Indeed, for some firms this 'leaderboard' aspect could become part of their strategic plan to gain market share. It seems likely that such a feedback loop could not only drive adoption but also push up the price on carbon.
3. How can Sno-Caps drive meaningful emissions reductions?
Clearly, the day we launch, the initial cost per share will be next to nothing. And with limited consumer awareness, we’ll be forced to rely on companies making symbolic gestures in their purchase of shares (easy for them, because the price will be so low). With luck, these early companies might even push up the price to a couple cents per share. That is the big hope. If we get price jumps, we are sure to generate excitement. After all, we are offering free payouts for signing up.
Clearly, free money is a powerful incentive. And it makes sense that as the share price increases, the more people would sign up. But again, the more people that join, the greater the incentive corporations will have to purchase shares (their exposure is greater). As they purchase more, perhaps paying more, this will, in turn, draw in more users.
But this feedback loop doesn’t end there. With rising share prices creating financial incentive, the shareholders may choose to target companies who aren’t purchasing enough shares, and support those who do. Third parties could arise (similar to ASCAP and BMI for musicians), taking a percentage for tracking corporate emissions for groups of shareholders. With every transaction posted to a public ledger, irresponsible companies will suddenly find themselves utterly exposed. As it has been said so often, sunshine (transparency) can have a powerful cleansing effect. Corporations will be shamed and rewarded for acting appropriately. This is the beauty of regulation by reputation.
4. How can this policy response be made politically feasible?
We designed Sno-Caps from the ground up to be apolitical, amoral and areligious. As such, Sno-Caps can be launched without a single vote from congress. Our regulation is RBR. Our data is maintained by a distributed computer network. And our market is open to everyone. Once launched, there will be no room for the developers to profit or change the code. Because of this, it is our hope that Sno-Caps appears like a vast public good.
5. How is it possible to register citizens around the world without fraud?
Today, this is impossible. Even the USA suffers from voter fraud, corruption and identity theft. And for a decentralized system like ours, identity tracking is even more difficult, as networks can’t verify ids. Our troubles are further compounded by the fact that only half of the world currently has access to the Internet.
Still, there is good reason to be optimistic. A couple weeks ago, Stripe launched a new payment system (called Stellar) that proposes to give free shares to anyone, anywhere on earth. To handle registration, they have chosen to use a verified Facebook login to identify unique users. This is a smart technical choice. Currently Facebook is the global login leader, with 2 billion registered users. And experts consider Facebook as one of the best ways to confirm individual identity. Further, Zuckerberg, like Negroponte (of MIT), is on a campaign to provide internet access to the world, creating the Holy Grail of a global login. But best of all, Facebook's API is free to use and available to anyone.
It is important to note, however, that Sno-Caps can start reducing emissions with just a handful of users and build slowly. In that time, both global internet access and identity services will improve.
6. What about the (growing?) digital divide?
We feel that inclusion is important at all costs. Further, we are optimistic that with ever-increasing accessibility, this divide may soon disappear. Negroponte’s work has shown that children around the world, without instruction, can teach themselves how to use computers. Further, while the backbone of Sno-Caps is complex, it shouldn't limit the ability for end users to access the system.
7. Anything times 7 billion is impractical; what global organization will ensure that this system works correctly?
A primary design criterion of Sno-Caps is to obviate the need for a global organization. Again, our system is based on companies such as Amazon and eBay, which handle millions of transactions and are strengthened by the vast number of users through RBR.
8. Couldn’t such an open market be manipulated?
To avoid the perils of market manipulation, we will employ smart contracts to change the way we define ownership. In Sno-Caps, all shares will belong to the owner for life (acquired at birth and forfeited upon death). As such, all transactions would resemble leases controlled by the individual owners who can move their shares at will (for example, retracting their carbon credit from Burger King and moving it over to Whole Foods). This prevents a big fish from purchasing large numbers of shares and controlling the market. Better still, by maintaining ownership of their share, individuals will continue to be incentivized to limit carbon emissions.
Real-time apps will allow for one-click trading, balance inquiries and analytics.
Who will take these actions?
In order to strengthen our market, our idea focuses on inclusion and openness. As such, we are encouraging everyone in the world to sign on and trade shares. This addresses an important problem of all global cap-and-trades – the question of fairness, which dramatically affected the outcome of Kyoto. Further, a global solution also provides a more satisfactory pressure on global polluters.
The development of our system software can be accomplished by a small team in under a year. And once released, it will be open-source and decentralized in such a way that no single entity or group can change the protocol. This is great for setting caps and adhering to simple fixed rules. It also diminishes the effects of politics, corporate money and hacking. Of note, while Bitcoin-based fraudsters have hacked into exchanges and individual user's accounts, the Bitcoin protocol, because of its distributed nature, has proven entirely resistant to hacking since its launch (January 2009). As third parties, the exchanges and user accounts were not developed with the same decentralized care as the central Bitcoin protocol.
Where will these actions be taken?
While we have focused primarily on the United States Congress and their problems with limiting emissions, our platform is designed to be a global solution. If we succeed, everyone in the world will be invited to participate equally in everything (trading, leasing, rating and maintaining the network). While this solves one of the greatest challenges to both Kyoto and Copenhagen (the idea of fairness), it also offers increased trust and cooperation. This inclusiveness can stimulate greater global participation in the battle with climate change.
Further, a global solution offers direct advantages to any country implementing a capping scheme. With respect to carbon, no country is an island. CO2 redistributes immediately, and the pollution of one bad actor can affect the entire globe. That said, a global solution obviates the need for border adjustments and taxes on imports.
Still, as we have mentioned, a global solution also has its challenges. We understand that there are limitations with global internet access and the troubling digital divide, but we have devised the system in such a way (lifelong ownership) that late adopters aren't left behind. As soon as a new user gets connected, they can sign up and begin leasing their shares at the highest competitive rates. Indeed, it is our hope that Sno-Caps, via payouts from polluters, will allow for greater global access to the Internet.
How much will emissions be reduced or sequestered vs. business as usual levels?
While we believe in free markets (and our solution is a vast free market), we also understand that they are fiercely unpredictable. Further, networks don't have predictable growth rates – some develop global followings in just a few years, others take longer. That said, because we are a market solution and not a top-down congressional decree, we can't make predictions about timelines or levels of emission reductions. Still, we do feel that our methods are more likely to effect deep and lasting change, not only with carbon levels but with the voters' conscience as well.
What are other key benefits?
While Sno-Caps may appear like an insurance policy (providing an alternative to other proposals that require congressional action), it is important to realize that if Sno-Caps does succeed, it will provide a more integral solution than any Congress could provide. By incentivizing the masses, Sno-Caps builds from the ground up. This means that voters and public opinion will be stronger than any cartel-type cap-and-trade or cap-and-dividend involving only select groups of politicians and corporations. Even if our country is able do pass a cap-and-fee or cap-and-trade styled bill through Washington, we have to consider the realistic possibility that it would later be overturned in a different political climate.
Further, with even tiny monthly payouts from polluters to the world's citizens, we can see a financial framework for bringing web access to the last billion. Indeed, early leasing models could offer internet access as payment.
What are the proposal’s costs?
Total cost: Under 5 million dollars
Software Development: 2 million dollars
Our primary cost is the fixed cost of software development. So lets calculate that: virtually all of the giant (and global) internet companies (Amazon, eBay, Facebook, Twitter, Google, etc.) were launched by just one or a handful of programmers. So we feel that 6-10 programmers working for six months could put Sno-Caps together. Perhaps less. We are given confidence in our estimate, because everything we need is already coded in some fashion, and in most cases there are open-source libraries that provide the proper functionality we would need. That said, good programmers receive 100k-300k per year. Assuming ten programmers for six months, we expect to expend somewhere around two million dollars on our apps (released in android, iPhone, Linux, OSX and Windows), forum and server software.
Press and Publicity: 2 million dollars
To speed up adoption, we would allot a sum for publicity to coincide with the product launch and a sum to create instructional materials – so, perhaps, two million for publicity and education.
Marginal Costs: Regulation, Servers and Maintenance: 0 dollars
For most other proposals it is the maintenance cost that explodes. After all, government regulation is not cheap. For us, with RBR, it is the opposite. Further, as ours will likely be a distributed system, there is no need for even the tiny expenditures like a central website or paid hosting (the users accomplish this via public ledgers). Likewise, like Linux or Bitcoin, the software updates are open-source and achieved by consensus. Even the contractual stuff (smart contracts) that we require is already built and available for use by a company called Counterparty (there are others). While they charge, their fees are well under one percent of each transaction and are deducted at the time of transfer. So (and this was impossible just years ago) it is conceivable that once launched, Sno-Caps will require no operating costs.
Unlike other proposals, we don't have to wait for approval from Congress, which means we can launch our proposal right away. If all goes well, our pre-launch will begin in early 2015. During this time, we will generate press with the goal of enticing both individuals and corporations to pledge their commitment early.
Soon thereafter, we will launch our forum where individuals and corporations will begin to discuss their carbon footprint. Eventually, this will tie in with our RBR (regulation by reputation) based ratings and reviews. The numbers generated will provide baselines for corporate users, helping them to make choices on how many shares they should purchase.
Finally a couple months after the pre-launch, (second quarter of 2015) we will launch the full trading site/app, allowing the world to purchase, trade and lease shares.
Clearly, there is a substantial amount of similarity between all cap and trade proposals. Like the other proposals, we are hoping to set a cap on carbon and in order to create some form of market incentive. That said, we have yet to see another proposal that intends to incorporate everyone on the planet within a single market. Further, we have not seen another that relies on non-governmental regulation (in our case algorithmic, crowd-sourced regulation). These are our main contributions. And as many have suggested in the CoLab comments, our proposal in these aspects is unique.
Also, as the judges have noticed, there are a number of other proposals that incorporate cryptocurrencies. Unlike theirs, however, our proposal does not hinge on this new tech. We use only one aspect of Bitcoin (the public ledger), and we do so only as an implementation detail in order to obtain greater levels of trust and transparency. And while this is important, it is possible for us to launch Sno-Caps without.
While developing the Sno-Caps idea, proposal author James D'Angelo wrote three preliminary papers for the Harvard Kennedy, Spring 2014 class "Learning from the Failures of Climate Policy" taught by professor David Keith. The first paper "Trading is Easy, Capping is Hard" explores the novelty of setting a hard cap with decentralized software. The second paper, "Ignore the Hard Part" explores Martin Luther King Jr.'s approach to capping civil rights abuses, finding lessons for environmentalists in MLK's brave congressional workaround. Finally, James' third paper, "The People's Cap-and-Trade" is the genesis of the Sno-Caps idea.
Smart Contracts and Leases
Counterparty is a Bitcoin based, smart contract platform; launched in January of 2014, they are the first. And, they would be ideal for handling the 7 billion short-term leases of carbon that we envision. But they are no longer alone. Their competitors, Ethereum and Mastercoin offer similar products. All of them can handle millions of contracts per day at near-zero cost.
Internet Access for the World
This Wall Street Journal article highlights Mark Zuckerberg's goal of providing global internet access. In the crypto space, Circle is a well-funded, global financial access company, which is attempting (for the first time every) to offer instant payouts at no charge to anyone, anywhere. These are just a few of the efforts focused on allowing global online networks based on full inclusion of the world's people. There are others. The success of any of these would clearly be helpful for our launch of Sno-Caps.
This is a recent article that suggests that cap and trade is still a great method for curbing carbon emissions.
Finally, a few months ago, as we were first developing our Sno-Caps idea, we created a blackboard video to introduce the idea to beginners (in both climate change and blockchain technology). While our current proposal above is now clearer and focuses more on our approach to regulation, many people have claimed to enjoy the video. It is here.
How could a national price on carbon be implemented in the United States?