In an article I published last week, I looked at KlimaDAO’s Green Fee and its potential impact if it was implemented in popular social media apps.
A system like this would work by giving people the choice to pay a fee when using such apps — for example $0.001 per message you’d send on WhatsApp. This fee would then be used to support carbon reduction projects around the world. Individuals would hardly notice the financial impact, while the sheer number of users would generate about $3.6b worth of fees (in the case of WhatsApp) which would get funneled to carbon projects.
If implemented correctly, this would generate considerable financial opportunities for carbon reduction/removal projects.
This article will focus on the incentives necessary to make people actually want to participate in this.
Sounds amazing! But…
We all know human beings. They will avoid paying fees unless it’s absolutely necessary. If certain annihilation doesn’t spit them in the face, they will hold on to their money instead of parting with it (not all humans, of course).
This leads to an important question: “Why would a large enough number of people agree to paying this fee if it’s voluntary?” Some might do it, some might not. The more people pay the fee, the more effective it would be. So the challenge is to incentivize carbon offsetting to such a degree that just about everyone actually wants to participate.
Before we go there, let’s look at the current state of carbon footprint compensation.
Wanna get bored? Offset your carbon footprint in Web2!
Let’s be honest: Offsetting your personal carbon footprint in the standard, tried-and-tested way of Web2 is supremely boring. Here’s a quick rundown.
- You download an app of some sort or register on a website and link them to a bank account or credit card.
- You select a plan or specify an amount of currency you wish to spend to support carbon projects somewhere in the world.
- The app or website takes your money, sends it to the carbon project (hopefully), and wishes you a nice day.
This approach suffers from the problem that the user gains nothing. You can try and play the it’s-good-for-the-planet card but this is a very abstract, far-out gain. “Oh, don’t worry, you will see the fruits of your labor in 20 years, when our environment is in a better place!”
The larger the timeframe, the less likely it is for us to be interested. Slowly reducing carbon emissions (or compensating for them elsewhere) is great for climate enthusiasts, but you can’t get people excited over a spreadsheet showing a 0.38% reduction in emissions year over year. It’s too dry, too abstract, and if someone asks: “So what do I get in return?”, you have no answer.
Appealing to an individual’s rationality: unlikely to succeed on a massive scale. However, with the right incentives, I believe we can align the human proclivity to follow irrational behavior with actual rational behavior. But let’s dig into the problem a little more before we start solving it.
I spent everything and gained nothing
It’s very easy to sell a phone. Here’s why:
You lose: $400
You gain: The ability to take pictures, use the internet, connect to friends, acquire knowledge, play games, do remote work, stay in touch with the latest cat videos.
The trade-off is not even a question for most people, the impact is immediate. If one were to choose whether to hold $400 or a phone, the phone hugely outpaces the four $100 bills in the pocket in terms of utility (and fun!) and is therefore the clear winner.
If you offset your personal carbon footprint for this year, you lose maybe $100. You gain nothing in return immediately — except possibly a short dopamine burst which makes you feel really good about yourself, maybe a quick tap-on-the-back moment. Yes, you have done well and were not selfish about it. Great!
The problem is that there is no obvious return. You could argue:
“Well, it’s not about you! You’re doing something good for the planet and you shouldn’t focus on what you get in return!”
It’s an idealistic viewpoint, and one that, I think, probably doesn’t resonate with people at scale. We are motivated in a huge way if we can see the results of our actions right away or at least around the corner. Everyone can start writing a book, but barely anyone finishes said book because you have to endure a huge stretch of emptiness without reward between the start and the finish line.
Solving climate change via removing/reducing carbon emissions is the longest book of them all. You will not see the impact you have caused for another 10, 20, 30 years — maybe more, maybe never, depending on how your life unfolds. Psychologically, that’s a strong kick in the balls.
Let’s wrap this section up with this statement: barely any individuals offset their own carbon footprint for several reasons, one of which is lack of immediate incentives. No incentive, no action. Web3 can solve this problem by using technology that already exists and is (sort of) ready to be deployed.
Blockchains: the savior of carbon offsetting
The cryptocurrency space enjoys quite an extreme level of interconnectedness, and that is a massive advantage over the traditional carbon credit trading space.
BTC and KLIMA for example are so different in concept that they share basically nothing except parts of the underlying technological foundation. Yet, if I want to leave the KLIMA ecosystem and go to the BTC area, it only takes me two token swaps to get there. Suddenly I’m in the Bitcoin space and can do there whatever it is I’m looking for.
Compare this to the real world: If you own carbon credits, you can choose to offset your footprint or sell the credits (or simply give them away I suppose). You sell those credits, “swap” them for US-Dollars, and do something with that money. This process takes forever and has no additional benefits.
If I know what I’m doing, I swap my carbon credits for a cryptocurrency and then for Bitcoin within a few seconds in the Web3 world. Assuming I can trade my carbon credits for US-Dollars in the traditional space within 24 hours, using the blockchain way on Polygon at a block speed of two seconds would still speed up this process by a factor of about 10,000 to 100,000 (depending on block speed, trading speed of the real world carbon credits, and so on).
You could argue that trading and burning carbon credits very quickly isn’t necessary. You offset once and it doesn’t really matter whether you offset your footprint now or next week, whether you find a liquid buyer now or next week. I would argue that this assumption is wrong because it leaves advanced technological innovations and what they unlock out of the picture.
Consumers don’t use carbon credits
The number of individuals who voluntarily offset their own carbon footprint is very low. Here are some numbers from an article by Ipsos:
Whereas most Americans have never purchased a carbon offset before (88%), one in ten report that they have (12%). Among those who have purchased a carbon offset, one in twenty (5%) say that they purchase these at least once a month, another 4% buy them at least once a year, while fewer (3%) have bought them before, but not on an ongoing/regular basis.
This data is from 2018.
So why don’t more people offset? Partly because putting carbon offsets to use in the traditional way is boring, tedious, a true slog. It offers no incentives, it operates in its own little silo, separated from the rest of the world, connected to nothing. This action takes place in a small app, in some random database you do not have access to. Can you do anything else with your offset action, outside of that app? Nope.
Let’s imagine a world where using carbon credits and currencies connected to them is as easy as juggling any sort of currency or token in the Web3 space. You will suddenly open up an area of incentives that is simply unheard of in the real world and an actual technical impossibility because of the aforementioned lack of connectedness.
I will present three examples to make my case:
Gaming
Imagine a gaming company. They operate on some capable blockchain and, as many modern companies do, they value environmental integrity, because it actually boosts their profit.
Many AAA titles these days have ingame shops. Tie the items in those shops to the Green Fee and ship 1% of the cost of a purchased item to carbon projects. Add incentives in the form of special ingame items only available if you use the Green Fee, or additional cosmetic options for items available to everyone. Hand out certain titles for your characters in the game that are blocked behind the Green Fee “paywall”.
This could, over time, also cause a shift in the perception of gaming as a whole, as “green gaming” could become a reality if the fees were high enough. Our gaming company, meanwhile, would benefit from this as the Green Fee aligns strongly with their already existing brand and company values, making this a marketing home-run.
Social
The article I mentioned in the intro already talked about the impacts of a Green Fee implementation in social apps at length, so let’s use this opportunity to talk about the incentives.
Platforms like Twitter would cost the average user a little less than a dollar per year if they participate in the Green Fee. Chances are, many would pay this because it’s such a low sum, but let’s think of some incentives anyway:
- Give users a new, green checkmark. This can act as a social signal for others to see, which might boost your status in your social group (online as well as offline). Companies could benefit in a big way as younger audiences drive ESG growth.
- Enable access to specific features for Green Fee users. Maybe you can get new reactions/emojis or you can customize your profile in various ways. Twitter would participate in this for marketing reasons (“We support climate positivity”) and/or monetary reasons (funnel a small fraction of the fee to Twitter).
- This system would mean that tweeting actually removes more carbon than it emits. So: gamify carbon removals by creating leaderboards — worldwide, regional, or even local for just your own city, again potentially boosting your social status in your social circle on Twitter.
Such perks could be introduced to all sorts of platforms, of course.
Events
Your favorite artist is in town. The organizer of this event is, again, very conscious of ESG factors and wants to present this concert as a thoroughly clean deal (which many artists already aspire to do).
Concert tickets will most likely use some form of NFT technology in the future. Since the ticket purchasing process is tied to the Green Fee, we can add something like +1% to the total cost and use that money for carbon projects.
In return, your NFT ticket shows a green glow (ask the gambling industry if you’re in doubt about the effect of cheap audio-visual tricks) and you can drop it into a Web3 wallet, connect it to the artist’s website, and listen to a song or maybe an interview only made available to the people paying the Green Fee. You could also get early access to new videos this artists uploads on YouTube, giving the “green ticket” long lasting value over standard tickets.
Why would the artist participate? As the music industry is transitioning to giving “clean concerts”, implementing a low-friction feature like the Green Fee to help reduce emissions is a no-brainer. It does not impact their revenues, but highlights their efforts to clean up their business model.
Do you really think people will participate in this?
Don’t underestimate what people are willing to do if you get the incentives right.
Watching a new movie, eating some popcorn, buying a drink that makes you question whether this is water with sugar or sugar with water: 35$, sign me up! As long as it’s fun and rewarding, you can sell humans almost anything. Ice cream? Wrecks your health, wrecks your teeth, but the incentive in the form of sugary-sweet vanilla on your mouth is just too good to pass up.
Not everyone will participate in everything. Maybe you would rather chop off your hands than touch the Fortnite ingame shop (I wouldn’t blame you), but you’d be interested in special customization for your Twitter profile or goodies by your favorite artists.
It’s all about creating small incentives in our economy to empower individuals to make carbon conscious decisions more easily while rewarding them for doing so. We could implement incentives
- which you can participate in with a single tap on your phone,
- which don’t hurt you financially (one tonne of carbon is less than 0.01% of the average income of a US citizen right now),
- and which are fun to interact with!
Most of the examples I made up are also rewarding on a social scale — and social pressure can be an immensely helpful tool to get a society to act in a desired way.
As incentives grow stronger over time and not compensating for your personal carbon footprint starts showing negative social signals, the Green Fee might become voluntary only in name, as peer pressure does its thing and soft-forces you into participating — potentially unleashing a tsunami of liquidity onto carbon projects.
By incentivizing the Green Fee, we shift receiving rewards from 20 years in the future to now. I think it’s also important that in most cases, this is realized as an almost invisible feature in the background. I’ll explain why in the next article.
Images created with MidJourney.
Disclaimer: I contribute to the workload at KlimaDAO. This organization seeks — among other things — to improve existing carbon markets. However, this is my personal account and I do not speak for the DAO or any of its members. This article has not been proof-read by any member of the DAO. Flaws, mistakes, assumptions, extrapolations, wishful thinkings: those are all my own. Do not confuse anything mentioned in this article with the opinion of KlimaDAO as a whole or any of the organizations’ members.
