Pitch

To change attitudes, change incentives. Let's make a digital currency that awards new coins to people who voluntarily offset carbon.

Description

Summary

Why can't global warming be solved by voluntary action?

Imagine a space colony of 1000 people, suffering a buildup of smelly frobgas. All the frobgas can be eliminated for $10,000. Each person would be happy to pay as much as $15 to get rid of the smell. A $10 tax would make most people happy, but the king has no sense of smell and thinks it's a hoax.

Someone offers to take donations and remove as much frobgas as people pay to remove. If everyone donates $10 then the problem is solved. 

But many people think: my little $10 donation would only remove 0.1% of the frobgas. If removing all the frobgas is worth $15 to me, then that 0.1% is only worth $0.015. I hope lots of people donate, but my own contribution won't change much either way. I'm much better off if I keep my $10 to myself. 

Economists call this the "public goods problem," and say that rational people won't contribute anything at all. Real humans are a little more altruistic than that, but not by much. 

Or can it? How Bitcoin solved the public goods problem

Bitcoin is a digital currency without central control. It's a public good, available to anyone. Bitcoin requires extreme amounts of computation, which must be contributed voluntarily by people on the network. Standard economics would say that bitcoin must fail.

In fact, people contribute very large amounts of computation to Bitcoin, at great expense. They do this because when they contribute to Bitcoin, the network mints them some brand-new coins. The coins aren't backed by anything, but they have enough value anyway for the contributors to make a profit.

Bitcoin solved a large public goods problem, in a completely voluntary way.

We can solve our CO2 problem the same way.

Usually people rely on government for public goods problems. But governments aren't doing a very good job with the climate. Let's quit depending on them to save the planet.

Let's make a digital currency that awards new coins to people who voluntarily offset carbon.

What actions do you propose?

Civilization emits about 30 billion tons of CO2 every year. We have ways to reduce that: reforestation, building renewables instead of coal plants, etc. We have organizations that take voluntary donations, and use them to pay for carbon reductions, called "offsets." For about $12 you can pay to offset one ton of CO2 emissions, effectively reducing global emissions by one ton. We have certifications that ensure that your donation is effective.

But in the absence of a price on carbon, imposed by governments, all this is voluntary. It's a public goods problem, which many people propose fixing with the stick of taxes or regulations. Climatecoin offers a carrot: offset carbon, get coins.

What is cryptocurrency?

Currencies like Bitcoin are just shared public ledgers. They tell how much currency every user has, and record all the transactions between users. They use cryptography and expensive computations to make sure everybody agrees on everything in the ledger. Nobody can break the rules of the currency. The rules control how fast new "coins" are minted, and who gets the new coins.

Implementation

If we had to start from scratch, Climatecoin would be a major software project. Fortunately, there's a much easier way.

There's a new cryptocurrency platform, called Ethereum, which lets people write their own apps that run on the platform. The client software will have an "app store." These apps can do crowdfunding, voting, gambling, practically anything involving money. They can also be entirely new currencies. The Ethereum code handles all the hard stuff, and our app only has to do the parts specific to Climatecoin.


Ethereum app catalog

By running on Ethereum, we don't have to pay new coins to the people securing the network, since Ethereum handles that part. We can focus on paying for carbon offsets.

The Ethereum project launched in 2015, and was recently featured on the front page of the NY Times. Its native currency is currently worth about $1 billion. There's no need to specifically partner with the Ethereum team itself; Ethereum is designed so users can build applications like this on their own. The online community of Ethereum application developers is likely to provide helpful advice.

This proposal's author has already built a rough-draft implementation of Climatecoin using Ethereum script.

How We Issue Currency

Many nonprofits accept donations in Bitcoin. To accomplish this, all they have to do is publish their Bitcoin address. Anyone who knows the address can their Bitcoin client software to pay funds to that address.

Ethereum has its own built-in currency, called Ether. All we need to do is ask approved carbon offsetters to publish an Ether address.

People using Ethereum will have some funds in Ether, and the Ethereum client software and app store. One of the apps will be Climatecoin. To offset carbon and receive Climatecoins, simply open the app and buy some Climatecoins.

When you make that purchase, you'll pay with Ether. The Climatecoin app forwards the Ether to offsetters, and issues the appropriate number of coins to the donor.

The app also allows users to check their balance, and pay Climatecoins to other Ethereum users.

Climatecoin interface

Climatecoin economics

Cryptocurrencies bootstrap their value with massive deflation. Early adopters get outsize rewards, compensating them for the risk of using an unproven currency. We need the same dynamic for Climatecoin.

Therefore, instead of awarding a fixed number of coins per ton of carbon, we apply a multiplier, which gradually decreases. If at first we offer 1000 coins per ton of carbon, perhaps after the first million tons of offsets we'll offer only 900. The more time passes, the fewer coins you'll get per ton.

This has two effects: it helps the currency gain value by attracting early speculators, and it helps motivate earlier offsets.

To prevent unlimited inflation, and hence maintain a strong incentive to invest, we'll set a maximum number of coins (as Bitcoin does). That limit will be high, to allow for a large amount of offset carbon. Since the multiplier will be based on the total tonnage offset so far, we can set both a maximum number of coins and a maximum amount of offset carbon.

Once the limit is reached, Climatecoin will be unable to fund additional carbon offsets unless users destroy coins. At that point, Climatecoin will be able to function in combination with government-enforced carbon price mechanisms; instead of paying a carbon fee, people could submit proof that they destroyed Climatecoins representing an equal amount of carbon (according to the current multiplier, since that determines how many new offsets can be funded).

This means that aside from pure speculation and use in commerce, Climatecoin will have another foundation for its value: the prospect of getting a discount on future carbon fees.

Ultimately though, the value of a currency is the value of the goods and services traded for it, divided by the velocity of money. For Climatecoin to work, people have to use it as money.

Adoption by Users

The first users will be Ethereum enthusiasts. Climatecoin will be developed in public, with help from the Ethereum forums, so the project should have visibility within the community without any particular effort. As Ethereum rolls out to a broader base of users, we'll expand the marketing to other people interested in climate change.

Cryptocurrencies attract users through a combination of speculative profit and an inspiring altruistic vision. We can add a third incentive, which is often used to incentivize public good provision: signalling. We can give users an easy way to brag about how much carbon they offset, with cryptographic verification.

Adoption by Merchants

Bitcoin face the same problem we'll have: how to get actual merchants to accept this weird new digital currency? Their problem was actually even worse; it was a new technology, a currency without backing by either real-world assets or government, and a lot of people questioned whether there was any reason for it to hold value at all.

Merchants nevertheless started accepting bitcoins, mainly because many of their customers asked for it. Merchants who started accepting bitcoins got a lot support from the Bitcoin community, and were able to easily trade bitcoins for dollars. We can do all this with Climatecoin too.

Any merchants selling "green," sustainable, organic, or renewable products will find especially receptive customers among Climatecoin users. Merchants need only publish a Climatecoin address, and customers can use our app to pay them. Small merchants especially can benefit, using Climatecoin to market to a small but enthusiastic customer base.

The path to gaining real-world value is a little easier for Climatecoin that for most cryptocurrencies. Climatecoin's value will be tied to Ether, which pays to run the apps on the network, and to the cost of carbon offsets.

Adoption by Offsetters

Various charities accept Bitcoin. I was able to find one case of a small carbon offsetter that accepted Bitcoin, though now their domain is gone.

To launch Climatecoin, we need offsetters to accept ether, which is easy to exchange ether for dollars. We don't need offsetters to accept Climatecoin itself, so we're able to bootstrap ourselves on Ethereum's success.

If offsetters aren't willing, we have a backup plan: form a company which accepts ether donations as if it were an offsetter, then trades the ether for dollars to buy offsets. This company could take a small fee for the service. Once offsetters are getting significant donations from this company, they may wish to eliminate the fee by taking ether donations directly.

Energy Usage

One reason for offsetters and "green" merchants to resist accepting Bitcoin is that Bitcoin itself uses a substantial amount of energy to secure the currency, making it seem counterproductive for anyone concerned about the climate. Ethereum in its current form has a similar problem, but in early 2017 hopes to transition to a consensus mechanism called "proof-of-stake," which would have insignificant energy consumption.

Attitudes

Upton Sinclair once wrote, "It is difficult to get a man to understand something, when his salary depends on his not understanding it." Perhaps the converse is true as well; if it is possible to profit by offsetting carbon, maybe more people will feel that climate change is an important problem to solve.

Many "skeptics" feel that climate action will wreck the economy, or that cap-and-trade will be abused by the privileged to reap profits, or that government will use climate as an excuse to increase revenue collection.

Instead, we offer a purely voluntary solution that brings an opportunity for profit to average citizens. There's nothing to fight against; anyone who's not interested can simply ignore it. But perhaps some skeptics will participate, purely as speculators, and find they like the feeling of contributing to a solution. 

Meanwhile, money will flow to reforestation projects, renewables plants, and if we're lucky, innovative new solutions for drawing down CO2. We'll start making a better world, without hurting the economy at all. The more we do, the more people will see the benefits, feel good about positive accomplishment, and want to be part of it.

Unless Climatecoin is absurdly successful, it won't suffice to solve climate change by itself. But Climatecoin can encourage people to cooperate on constructive solutions, and people who get used to that sort of thing can accomplish amazing things.

Technical Details and Administration

We'll launch Climatecoin with a preset list of offsetters.

When a user sends ether to the script, the script forwards the ether to the offsetters, multiplies the user's contribution by the current multiplier, and adds that number of climatecoins to the user's balance. Users can also send coins to each other.

After one year, the offsetter list opens up for voting. New offsetters will be able to submit their Ether addresses to the Climatecoin script, and users vote on whether each offsetter will be approved. Votes will be weighted by the number of actual tons carbon each voter has offset. Recent offsets will count more than old ones.

Price Updates: Offsetter prices may change over time. Offsetters can update their prices by submitting a change to the script. The script verifies that the update comes from the offsetter's Ethereum account.

Offsetter interface

Dollar Pricing: Since cryptocurrencies tend to be volatile, we can allow offsetters to submit their prices in dollars, once a reliable feed for the ether/dollar exchange rate is available to Ethereum scripts.

Distribution: With multiple offsetters, how do we decide who gets the money? Each offsetter has posted a price, and also posts a maximum tonnage it can handle. By default, the Climatecoin script distributes funds to the cheapest offsetter first, until it reaches the maximum, then goes to the next-cheapest. Users also have the option of choosing which offsetter will get their funds (as long as the tonnage limit hasn't been met).

Governance

Since the only way to get votes is to offset carbon, hopefully the voters will be people motivated to make sure we have good offsetters. To incentivize accurate voting, we could even take things a bit further: allow people to bet on which offsetters will be accepted, and choose the offsetters that get the most bets.

But it's conceivable that an attacker could offset enough carbon to gain a majority vote, make itself an "offsetter," and profit by sending ether to itself, thus minting Climatecoins for free.

If this were to happen, Climatecoin would lose legitimacy in the eyes of its users. This actually gives us a way to defend against the attack.

The defense is to make a copy of Climatecoin, with the same coin balances for all users, but with the offending "offsetters" removed, as well as the voting power of all users who voted for them. The new ledger would become the commonly accepted Climatecoin, and most of the attacker's investment would be lost.

Who will take these actions?

A few volunteer programmers to begin with, then the community of Ethereum enthusiasts and carbon offsetters, gradually expanding to anyone interested in mitigating climate change.

Where will these actions be taken?

Ethereum is a global currency, so Climatecoin will be global as well. Offsetters could be anywhere in the world.

How will these actions have a high impact in addressing climate change?

Carbon offsets are currently being sold at about $12/ton CO2.

Assume somewhat optimistically that Climatecoin attains success comparable to Bitcoin, having an $8 billion market value in its fifth year. Assume in that year it inflates 25%, awarding new coins with a value of $2 billion. Given economic equilibrium, this would motivate $2 billion in carbon offsets, or 167 million tons of CO2 at $12/ton.

If after 20 years Climatecoin has a market cap of $1 trillion and inflates 5%, we'd fund $50 billion in offsets or 4 gigatons.

This is approximately 1/9 of present-day global emissions, at a money supply 1/10 that of the U.S. dollar. It's not a complete solution, but for a purely voluntary system it makes a pretty good dent. Exact numbers depend on the level of adoption, and the amount of inflation the market can bear.

If governments enact carbon pricing and integrate Climatecoin as a readymade offset tracking system, the overall impact could be higher.

What are other key benefits?

In the near term, offsets will be done using the same methods we use now, such as reforestation. But with all this money available, there's a large economic incentive for people to better clean energy sources and  new ways of removing CO2 from the atmosphere (such asthis). In the long term, this R&D could reduce the cost of offsets, increasing the total impact.

What are the proposal’s costs?

A bare-bones implementation of Climatecoin is practically free; the author's draft of the core code is only a couple pages long. This is a volunteer effort but if billed at consulting rates, testing and UI development would likely total under $20,000.  This implementation has room for improvement but is upgradeable after launch. If Climatecoin succeeds in gaining coin value, further development can be self-funding.

If the community advises a more complex initial implementation, cost may increase, and a very sophisticated implementation could require more advanced expertise. So far, this doesn't appear to be necessary.

If we need help getting press coverage, we could try $10,000 for professional public relations.

This is all we need, if we're willing to wait until offsetters accept Ether. To start sooner, we'll need a company accepting Ether, exchanging for dollars, and buying offsets. This would require minimal labor to operate. Legal/accounting setup for that should total under $50,000.

Time line

Ethereum launched in 2015. Its native currency has a total value over $1 billion, so it can already support reasonably large carbon offsets.

Climatecoin itself could be ready within a year or so, after further work on the design. The implementation is simple, and builds on other Ethereum-based currencies.

If we skip the bootstrap organization, we won't be able to offset carbon until at least one offsetter agrees to publish an ether address for donations. If offsetters aren't willing to deal with ether, we'll need to set up a bootstrap company, with public auditing. Once funded, this could happen in a matter of months.

The timeline for general adoption is difficult to predict. We can probably attain modest adoption fairly quickly, from some portion of current Ethereum users. Several Ethereum subcurrency projects  have already attained significant investment from users, including $5.5 million for Digix and a whopping $150 million for TheDAO.

After the initial adoption, an optimistic assumption would be a growth rate similar to Bitcoin's.  The most relevant factor for us is, how much actual carbon are we offsetting per year? The Bitcoin equivalent is the investment by miners, which is driven by Bitcoin's price: from $1 in 2011 to over $600 now. In Bitcoin case that's complicated by a halving in the mining reward, so actually we can assume a roughly 300x increase in daily mining investment over five years.

Therefore it seems feasible that we could get, say, $10 million in carbon offsets in the first year, and grow to over $1 billion in offsets in year six.

Of course this is still a drop in the bucket, but it'll become more significant if growth continues from there. If Ethereum itself manages mass adoption, then we may have a shot at a serious impact. The Ethereum project's plans for massive scalability and a user-friendly app catalog may make this possible.

Or maybe Climatecoin just won't catch on, regardless of what Ethereum does. But it doesn't cost much to try.

Related proposals

The 2015 version of Climatecoin was similar, but had a dependence on central administration. This year's version eliminates administrators entirely, and adds the ability to integrate with government carbon pricing mechanisms.

ClimateCoin 2015

References

Bitcoin paper (pdf) - it all started here.

Ethereum main website

Tutorial: How to make your own currency in Ethereum

Climatecoin initial implementation

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Proposal summary
Climatecoin 2016
Team proposal: Only members listed on the proposal's Contributors tab will be able to edit this proposal. Members can request to join the proposal team on the Contributors tab. The proposal owner can open this proposal for anyone to edit using the Admin tab.
By:  Dennis Peterson
Contest: Shifting Behavior for a Changing Climate 2016
How can we mobilize individuals and society to shift behaviors in order to address climate change?