The need for a “Paradigm Shift” respectively “System Change” has emerged as a commonly accepted reality in both the institutions and street protests on climate change. This white paper lays out a path towards shifting the paradigms of the financial and administrative approaches used to reduce greenhouse gas emissions to an internet-native system. The approach presented was piloted in a mock-up experiment for the envisoned user experience of a recipient of a future “Liquid Climate Fund”.
“System Change, not Climate Change!”
- millions of kids in the streets
The urgency of reducing emissions and the widespread failure to do so does not require another repetition after more than thirty years of increasingly desperate reports from the IPCC. Speed is everything now.
In agreement with the kids in the streets, scientists and even public administrators have started calling for a “Paradigm Shift” — a term slightly more obscure than the “System Change”, but prefered due to heavy cold war connotations of the latter.
“Paradigm Shift” is a term borrowed from historic epistomology, describing a major step in scientific progress. The most commonly cited example is how the paradigmatic relations between space, time, matter, waveforms and velocity were turned upside down in the early 20th century when relativity theory and quantum mechanics came to supersede Newtonian metaphysics. The call for a paradigm shift burdens us early 3rd millenium social scientists with a heavy load: We need to achieve a similarly radical transformation of our understanding of the very nature of the phenomena we call “market”, “money”, “law” or “government”. Until a new paradigm emerges, I will treat those social constructs as particular configurations of information networks composed of nodes, peers and cryptography.
Aligned with the inherent limits of 2nd millenium economic paradigms, the Paris Agreement splits financial support to developing countries into two different articles — Roughly speaking, Article 6 is “Market Based”, focused on efficiency, while Article 9 is “Public Finance”, focused on legitimacy and justice. These goals are understood to be conflicting and mutually exclusive.
Given the fact that current climate finance institutions have far more money that they can spend, the focus is on efficient, scaleable, fast and incorruptible spending rather than raising funds. “Print new money”, “Tax the emitters” or “eat the rich” can all work fine for fundraising.
This paper presents a raw and hacky prototype mechanism that is able to address some of the shortcomings inherent in the existing boomer-designed institutions under the Paris Agreement at far higher speed.
In order to anchor the theoretical discussions on paradigm shift in material reality, a mock-up experiment was conducted. The goal of the experiment was to create the ideal user-experience recipients of climate finance. A climate activist peer in Uganda was empowered and paid to install renewable energy and energy efficiency technology in ten schools under conditions of minimal trust and maximal transparency, using simple smartphone and web 2.0 technology. The entire experiment was successfully concluded online over the course of a year. The only interaction with legacy legal technology was the use of a bank account, as we failed to find a cryptocurrency trader. Ugandan shillings are still the most efficient way to get access to steel, bricks, solar panels and manpower in Uganda. See Annex II for details on the course of the experiment.
Learning from Past Failures
The most relevant carbon market for the purposes of this paper was the Clean Development Mechanism (CDM) under the Kyoto Protocol. It was introduced into the negotiations by the Bill Clinton administration and brought to life by the European Unions’ emission trading system. By this design a handful of millionaire board members and CFO’s of fossil fuel corporations with operations in Europe had the final say on deciding which projects would receive funding. Their investment decisions were restricted by the rules developed by technocrats in the UNFCCC secretariat in Bonn, Germany. The CDM operated via the issuance of commodity certificates traded in financial exchanges. Accordingly, it allowed for a variety of gigantic financial scams and frauds.
The user-experience for a potential seller in this market was as nightmarish as it sounds. While it took a similar level of “proposalism” as regular grant funding, it also required a whole new layer of other hoops and symbolic acts to put an offer out on this marketplace. Transaction costs for upfront paperwork alone would usually exceed 100'000 USD for a minimum viable project. Making things worse, income streams to successful project developers were erratic and unpredictable, as prices were determined by a chaotic system of national regulations, climate goals and even seasonal weather in Europe.
Fortunately, the CDM has now been abandoned, to be replaced by the still dysfunctional “new market mechanisms”, which are expected to be a new UN bureaucracy (Article 6.4 of the Paris Agreement), a cluster of bi- and plurilateral national bureaucracies (Article 6.2) or — my secret favorite — something completely different, the non-market based mechanisms that the Government of Bolivia pushed for and I don’t understand (Article 6.8).
So far, the only “fundamental” change between the new market mechanisms and the CDM is a symbolic act to be performed by the developing country’s national governments known as “corresponding adjustments”. The first time this act will be performed is between 2030 and 2034. The corresponding adjustments will create a database entry at the UNFCCC and do thus not count towards the voluntary goals set by the host country with no further consequences foreseen.
While this understanding of what constitutes a “market” based approach or fundamental change may have appeared reasonable for the neoliberal boomers in the Clinton administration, it is utterly out of touch with both the realities of the early 3rd millenium and the understanding of what constitutes a market for internet natives.
In this paper, a “market” is understood to imply a multi-user online experience, enabling financial exchanges at low transaction cost while minimizing barriers to entry. Examples of successful implementations of internet based markets for private goods are eBay, AirBnb, Alibaba or Silk Road.
The challenge ahead is to utilize such markets for a public good.
Any support for emission reductions in developing countries that operates without issuing certificates is called “climate finance”. There are significant differences within the landscape of climate finance, most of it is plagued by the classic issues of governmental procurement. The Green Climate Fund (GCF), as the official climate finance delivery mechanism under the Paris Agreement will have to serve as a punching bag for the following critique.
Climate finance usually transfers cash prior to implementation, either as loans or grants, thus carrying the inherent risk of deliberate non-delivery after payment. To prevent such scams, the GCF requires a lengthy process of trust building by exchange of documents known as “accreditation” before any proposals can be submitted. This step alone excludes all potential applicants with less than a few million USD annual turnover. Except for a few fast-track accreditation for legacy actors such as the World Bank, accreditation takes several years.
On the other hand, the GCF is probably the most legitimate distribution mechanism for global public funding in history as of today. Being governed by the Parties to the Paris Agreement and requiring national governmental oversight for every project, it is as legitimate as it goes within the existing United Nations system. Without the infamous post national global direct democracy promised by internet advocates since the early days, a higher level of legitimacy seems impossible to achieve. This global legitimacy comes at the cost of speed and agility and opens the door to questionable influence for fossil-fuel exporting nation states. Smaller public climate finance institutions such as for example the German “NAMA Facility” have far lower legitimacy, which, as expected, lead to significant levels of nepotism in the distribution.
Not least due to the decisions made in the accreditation process, the vast majority of the funds go through the very same old international development organisations as classical development aid, with the same type of overhead structure. Accordingly, a lot of potential impact is lost to corruption, often in the form of hidden administrative fees and long chains of subcontracting. It also supports the continued pilling up of “debt” owed by nation states who only marginally contributed to historic greenhouse gas emissions owed to nations who were the main drivers. While developing countries demand an increase in “direct access” to the fund, the share of funds committed by the GCF directly to actors incorporated in a developing country remains below 10% of the portfolio, while the rest is intermediated via rich country institutions.
Elements for New Market Mechanisms
In line with the calls for system change and paradigm shift, the remainder of this paper aims to re-construct financial support to poorer world regions on climate change from first principles. It starts from the conviction that all the paperwork described above is a legacy system ripe for disruption.
Note that for most projects, the material reality on the ground is not where the problem lies — except for being too small and too slow by several orders of magnitude. The goal therefore remains to implement the very same technologies that are implemented under the legacy systems, but with internet-warpspeed and exponential growth. Accordingly, the experiment also used old technology for the “base” of actual emission reduction technology, while being cutting-edge experimental only on the “superstructure” of symbolic manipulations on computers.
Peer to Peer Trust
A key element of internet magic is trust between strangers. In game theoretical terms, a trust game has the following structure: Alice can either keep their units or send them to Bob. When Alice chooses to send units to Bob, the total amount of units increases. Bob can then decide whether they want to send any of it back to Alice or not. Under the assumption of cold war rationality, Alice should never send anything.
Reputation mechanisms are the most commonly used trick to circumvent this logic. If Alice can leave a permanent record on Bob’s public profile on the market platform after sending the units, they can transform the two-player, single shot trust game into a massive multiplayer, multi-round game and thus a viable “market”. In such a game, the gains from cooperating exceeds the cost of defecting most of the time. Thus even fully rational psychopaths have an incentive to act like regular humans.
With each successful transaction, Bob’s trust profile grows, allowing them to close higher volume deals. This is especially vital, as it can generate exponential growth in impact. It also points to the need for low friction, fast turnover and high bandwidth, especially at the beginning, as a large number of small transactions are required to build a trust base for future growth.
The track record of previous grants received, required by the GCF for accreditation, can be understood as a very slow and imprecise, boomer-version of a reputation mechanism. Given the highly diplomatic nature of GCF Programmes, it is crucial to avoid defecting recipients as the resulting disputes would be very costly to resolve.
By default, disputes on the internet are usually resolved by a negative comment and shutting down contact with the defecting node. Most household names among the existing private sector online marketplaces such as Amazon or Alibaba also have access to legacy conflict resolution mechanisms in the form of national lawsuits. Yet very similar reputation mechanisms successfully operate entirely outside legacy legal contract enforcement. Online drug marketplaces (e.g. Silk Road and the many other dark markets coming after it) and peer-to-peer cryptocurrency trading platforms (e.g. Hodlhodl or OpenBazaar) manage multiple million transactions daily, with no recurse option beyond the reputation mechanism.
In the experiment, the transaction volume was increased from an initial 300 EUR transaction to approximately 3'000 EUR for the second and third and then 6'000 EUR for the remaining rounds, with each new transaction contingent on delivery of evidence for installation of the emission reducing technology promised in the previous step. When scaling, a lower transaction cost solution, ideally with direct international mobile money transfers would be preferable (e.g. The Segovia).
The Paris Agreement explicitly calls for transparency. The term is generally understood as requiring governmental officials to gather and compile data on emissions and publish the summary every other year as a PDF.
Trivially, this can be improved by orders of magnitude via managing all files related to the mechanism in a publicly readable folder on a cloud. It worked just fine for the experiment and could be improved upon by a more systematic use of geolocation tags and lifestreams, as well as some extra effort to create summaries.
What do we want? Climate Justice! When do we want it? NOW!”
- the same millions of kids in the streets
The paradigmatic Arrow-Theorem of 2nd millenium economic theory claims that agreement on optimal investments in public goods is impossible and is often interpreted to claim that any attempt to make them is thus futile. While the math is flawless, the assumptions made in the seminal paper are obviously rubbish and optimality is not required to deliver results. Still, the design of a decision mechanism to determine who gets exactly how much support from a global public good fund during the transition to a zero emissions scenario is a problem far beyond the scope of this paper — The protocols for reaching such agreement on what would constitute “Climate Justice” in the distribution of climate finance in the time frame required remain an unsolved problem and probably require the global online deliberative democracy hinted at previously.
Nevertheless, a simple heuristic can shortcut the complicated details: Any mechanism that meets the demand for Climate Justice must at least deliver basic clean energy services to schools in least developed countries. This task should be solvable in a few years at most from an engineering perspective. The experiment therefore focuses on doing just that.
Disintermediating Climate Finance in Praxis
This section contains the technical elements of the proposal to scale up the experiment.
Onboarding / Recruiting
There are several more Ugandan climate activists already identified on social media. To reduce transport cost, a geographically dispersed network of potential implementing peers will be sought. One time in-person verification by the trusted Ugandan peer is viable at relatively low cost. For expansion in other countries, it may be necessary to start from “scratch” and directly approach activists on social media, which was also proven viable by the experiment.
Due to the rather uniform energy needs in schools, it is sufficient for a pitch to have a geolocation as well as pictures of a three-stone fireplace in the kitchen and an interview with the headmaster. Generating photographic evidence of the absence of electricity is more difficult and currently not required.
Reviewing this “baseline” documentation of an unimproved school can be done by international climate activist peers online. This has been tried in the experiment and was found satisfactory with minimal guidance. No specific qualifications are required to confirm that a picture shows three rocks around a fireplace on the ground with a big pot on it.
Traditional carbon market methodologies would call for far more specific details like the number of students in the school. The gains from increased precision in quantification of emission reductions from such details do not seem to justify the extra effort and complexity this would introduce, in particular if assuming all schools should be supported anyway.
As outlined above, the payments are always conditional on delivery of the last step. The funds are directly transferred from the public account to the person overseeing the on-site installations. In principle, a zero transaction cost global currency would be preferable, but regular bank accounts and mobile money can do the trick for now. Once one local high-trust peer is identified, they can act as an intermediary if transaction costs for many small international transfers are too high (see Annex II, implementation of school 3 and 4).
Long Term Monitoring
For renewable energy and energy efficiency, monitoring at the moment of installation is most crucial, as continued use and future repairs are privately beneficial due to the associated cost savings. Still, regular monitoring can be conducted at a tiny cost, assuming at least one of the school staff has access to a smart phone. In the experiment, the “one year later” pictures from the first school were volunteered by the headmaster.
The experiment has shown as a proof of concept that the entire superstructure currently used by Carbon Markets and Climate Finance can be replaced with a simple internet communications protocol to deliver the exact same material outcome at significantly lower transaction cost and massively shorter time to implementation, even with the hacky and minimal effort approach taken. In principle, the approach could be used to finance any small-scale, distributed form of climate action, including adaptation and political action and scale to a distribution mechanism for billions of dollars worth of technology.
Aside from the obvious co-benefits of the technologies and the educational impact of bringing it to schools, the approach taken also had a major impact on the Ugandan peer. While she had an international social media presence and found her voice before the project, the income from the project empowered her to dedicate herself fully to the cause of climate activism. Given just how successful she continues to be in this realm, releasing her hours from other work may have been the biggest impact of the experiment.
On the “base” in Uganda, a more stable relationship to the technology suppliers needs to be established to improve the planning horizon and reduce cost. As already proven in the experiment, the approach can easily be scaled by including more local peers, with one peer already identified and trained, so stability beyond ad-hoc crowd funding would be crucial. Therefore, the 2021 goal is to secure funding for at least 100 schools, i.e. 300'000 EUR.
On the “superstructure” online, there are several options for improvements. 100 schools could still be run on the hacky mash-up of Google Drive, Twitter, WhatsApp, GoFundMe and SWIFT currently employed, but a more integrated solution that automatically puts files where they belong, ideally in a single app, would be preferable. Further, it would be helpful to establish a group of online verifiers among international climate activists, including a payment channel. Most of all, a lower transaction cost payment channel is sought.
2022 — onwards
Uganda alone has 24'000 schools, of which the majority has no electricity and a three stone fire as kitchen. Roughly estimated it would take 250 local activists and 50'000'000 USD over five years to supply all of them with sufficient solar power for lighting and a reasonably efficient wood stove.
Uganda is only one of many countries with such schools. As the superstructure is internet based, scaling into other countries should be seamless. Thanks to the recent surge in online climate activism globally, it was easy to identify several 100’s of potential peers across Africa in a half day profile surf on Twitter.
The obvious no-brainer projects in least developed countries only contribute a few percent to total global emissions. So even when hyperscaling the technologies at warp speed, getting zero emission basic energy services to the poorest in a few years is insufficient to address climate change. As we will run out of obvious no-brainer projects over time, the global consensus machine on climate justice needs to be improved. This paper gives an excellent overview on the current state of the hard problems in building an internet based democracy.
Whether the highest per capita emitters - namely the military-industrial-complex - can be persuaded by purely financial means to abandon all fossil fuels and thus render the vast majority of their stock of war machinery useless remains questionable. A far deeper paradigm shift beyond the realm of economics may be required to get there.
Annex I: Experimental Protocol
Pre-Considerations to start with schools in Uganda
- Energy efficiency and renewable energy are classic and well-established emission reduction technologies with no other barriers than financial ones.
- Uganda is a land-locked, least-developed country highly vulnerable to climate change with near zero historical emissions.
- The Ugandan government has been applying for funding for these technologies via official intergovernmental channels for many years and even included them explicitly in their “nationally determined contribution” as a technology dependent on international support.
- Starting an energy transition in schools has the added benefit of adding renewables and energy efficiency to the education schedule.
- A coincidence in timing of the rejection of a proposal for green schools by the Ugandan government to the German government and a private windfall profit from legal tax savings towards the same German government made it the obvious choice for the funder. This was in Summer 2019.
- Procurement (June 2019): The first step was the identification of local climate activist accounts with a reasonable level of Twitter street cred, i.e. a timeline with multiple pictures of the same face in multiple locations holding climate-change related protest signs, a high follower count and a couple of pictures together with other climate activists of similar street cred. @vanessa_vash was identified as suitable and approached to discuss the idea. Vanessa had been active in schools and promoting renewable energies before, so the very first time the idea of a mock-up was mentioned to anyone turned out to be a perfect match.
- Baseline Study (October 2019): Vanessa was paid for a day of work to identify a school and establish a budget for the installation of an energy efficient stove and a solar system for lighting. She delivered the pictures of the school and the kitchen and scans of the offers for the technology within a week. They were transferred using WhatsApp.
The baseline study was published on a Google Drive, the link shared via Twitter. The first payment was made using a remittances service provider, a choice suggested by Vanessa.
- The first school’s budget was transferred using a traditional private bank account (November 2019). The entire amount of approximately 3'000 USD was transfered in one tranche due to high transaction fees. It may be recommendable to split the transfer into expenses — paid in advance — and day rates — paid upon first once frequency-dependent transaction cost are eliminated. Vanessa delivered photo- as well as video proof of the first installation in November 2019.
The process was repeated for another school (February 2020). Additional to the previous steps, a peer-review of the budget and baseline study was conducted by an international climate activist peer and both were approved as legit. No payment was provided to the verifier, as the micro-service was offered for free. Payments for repeated verifiers should be considered when scaling up. During the second installation, Vanessa created a live-event on Twitter during which she reacted to the audience while on site of the installation, including the life repetition of a random pass-phrase.
- School 3 and 4 (July 2020) were installed in parallel, with Vanessa recruiting her local climate activist peer Davis to supervise and document the installation in school 4. Davis’ expenses were paid upfront, while his day rate was paid upon delivery of the first monitoring report.
- While using the initial donor funding of 15k EUR for five schools, Vanessa succeeded in crowdfunding a series of further installations (July — December 2020). She was unusually successful at crowd funding as her follower count on social media grew explosively and she was repeatedly invited to speak at international events throughout 2020. The crowd-funding part of the mock-up is not expected to scale up and future growth of her activity and replications of the approach with more activists should be funded through public climate finance.
- Schools 5–10 (and counting) followed the same approach, with peer-review of the baseline studies omitted as Vanessa’s crowd-funders did not ask for the review and it seemed unnecessary due to the established trust framework.
- The first verification of the first installation was conducted in late 2020, with a number of pictures taken by the headmaster of the first school and uploaded to the google drive.
The experiment was conducted entirely online, had a budget of 15k EUR and raised another 25k EUR by crowd funding, while reducing an average of 0.027 tCO2/h during 2020 and is expected to reduce a total of approximately 1'000 tCO2 over the lifetime of the technologies employed. For reference, the German government offers 3'000 EUR in subsidies for purchases of electric vehicles, which reduce about 1 tCO2 per year per vehicle.
Annex II Attack Vectors and Defense
International public money paid for the non-existence of an invisible gas is an open invitation to fraudsters of all kinds. An internet-based carbon market thus must defend against all types of scams that exist in both paper-based carbon markets and internet private-good market places as it scales up.
Traditional carbon market scams fall into two categories: Inappropriate projects and fraudulent reporting.
Inappropriate projects need a prior decision on what is legit and what not, so the problem is temporarily avoided by focusing on the obviously legit case of renewable energy and energy efficiency in schools in least developed countries.
Fraudulent reporting on the other hand is expected to be a major risk when scaling up and is thus addressed in the experiment — The installation of each technology in each school was documented by video and photography, including pictures of the peer managing the installation on site as well as interviews with teachers / cooks / headmasters of the schools. Depending on bandwidth available, the images were published live as they are taken or on the next day, including geolocation metadata. Once during the experiment, a random pass-phrase was transmitted to the implementing peer and she lifestreamed herself in front of the emission reducing technology repeating the phrase. While creating fakes of such data streams is theoretically possible, it is far more costly for the attacker than the transaction volume would justify. Technical improvements in cybersecurity such as requiring the use of a custom app or verified hardware by the local peer are possible, but for the time being a web of trust and repeated game approach seems sufficiently secure.
There are two well known types of fraud in online markets that are expected to occur if the experimental approach were to be scaled: Catfishing and Exit Scams.
To “catfish” a person in a social network, an attacker creates a fake persona with a fake network of other online persona, typically on a site like facebook. This can create what appears to be a network of mutually trusting peers who have positive experiences with each other. A (financial) catfish-trap often snaps with an Exit Scam, when an external, real peer is engaging in a trust-relationship with the catfisher.
Defenses against catfishing include active recruitment instead of calls for applications, cross-examination of contacts, voice and video calls as well as in-person meetings. Setting up a catfish network takes significant amounts of time and effort, and it is not expected that any pre-made fake climate activist accounts in least developed countries exist as of today. The problem is anticipated to become relevant once significant amounts of cash start flowing to activists recruited off social media.
Exit scams are the most immediate form of defecting in a trust game. In the experiment, an exit scam would have been non-delivery of the installation after the financial transfer, or a non-payment of the crowd-sourced funds to the Ugandan peer by the Swiss peer. The incentives for cheating were minimal compared to the potential gain and reputational damage, but as the mechanism scales, further security steps will be required, for example by holding the money in multi-sig escrow wallets instead of regular bank accounts.