Original article (A Theory of Impact Bonds) by Nathan Witkin
Given climate change costs us tens of billions of dollars each year from floods, wildfires, and hurricanes, why doesn’t our society offer a one-time $10 billion prize for whichever private actor produces efficient carbon capture? While investors currently face few incentives to make risky bets on goods with wide benefits but no paying market, a $10 billion prize could mobilize the private sector seek out and fund a solution to climate change.
To put it another way, just about any process is going to create byproducts. This occurs for the carpenter, who will always be generating sawdust, and for the major corporation, who releases carbon emissions while creating their product. But whereas the carpenter’s sawdust can be captured and reused in many ways (such as filler for a compost pile), the corporation’s emissions are all too often let go, where they eventually result in negative impacts upon the whole world.
Currently, the standard response for controlling the rate of carbon emissions has been either to tax companies for the amount of carbon emissions released, or (in the opposite direction) to subsidize those who reduced or captured some of their emissions. Historically, these interventions have made some impact upon the rates of carbon emission, but they also have a downside: these methods only shift the status quo to a slightly less harmful position and they create inefficient industries that burden both companies and tax-payers alike. Perhaps the time for bandages is over. The world needs a stronger solution to this global pattern.
Nathan Witkin, of the Outside Innovation Institute, has proposed such a solution. He notes that current strategies fail to address two important issues: 1) The cost of the taxes/subsidies is not proportional to the compounding, cumulative impact of carbon emission over many years. 2) Taxes and subsidies do not create sufficient incentive or funding for any group to actually rethink the carbon problem. Instead, the ‘easy way’ is to keep paying fines or to rely on government subsidies.
In other words, if society continues with the current method of regulation, the compounding effects of each year’s accumulating emissions may soon outpace the benefits caused by taxes and subsidies alone.
To paraphrase Witkin's article, the U.S. government could establish a prize of 1-10 billion dollars, that will only be awarded if a competitor’s solution meets the specified requirements. With this strategy, the overall cost would still be far less than that of the aggregated damages, which are now avoided. In sum, though the initial cost of this method is higher, it provides substantial benefits over the long term.
One advantage to this method that immediately stands out is that it pursues a solution to the issue of carbon capturing and repurposing, rather than perpetuating the release of emissions at a lower, but still very harmful, rate. Another advantage is that multiple organizations already exist which have demonstrated early-stage technologies for capturing carbon and are looking to expand their research (e.g. Carbon Engineering, Climeworks, and Global Thermostat). Providing a more substantial prize for this type of technology development can go beyond where similar challenges have struggled by stimulating more activity in the area and making it easier for smaller organizations to attract investments from those who hope to share in the prize.
History has already shown that when a problem is well defined, society sufficiently motivated, and the right people are given the right resources, innovations can be unlocked. Witkin’s “pay-for-success” model seeks to do exactly this, to turn the question of carbon-capturing over to the crowd, to give the market sufficient incentive to pursue a solution, and thereby generate a system in which aspiring researchers are provided the necessary tools to innovate.