Like climate change, the explosion and interest and activity in what is collectively often referred to as “Web3” is hard to ignore, and has the potential to touch enough aspects of life that I believe we owe it to ourselves to understand and develop an opinion in the area.
For the last few months, I’ve been thinking about how Web3 intersects with climate change, the issue I spend the most time thinking about. In this piece, I’ll attempt to structure my thoughts, with the overarching question being: Could Web3 be a net positive for the advancement of climate action?
But first, it’s worth defining what I mean by Web3. I’m going to use a definition from Packy McCormick, referenced in Chris Dixon’s piece on Web3 (both notable thinkers and players in the Web3 world): “Web3 is the internet owned by the builders and users, orchestrated with tokens.”
When I speak about Web3, I’ll also refer to principles often associated with, though not necessarily intrinsically linked to Web3, such as decentralisation, and I’ll also refer to technologies often linked to Web3, such as cryptocurrencies.
While this piece will be far from comprehensive, I’m going to look at the question of the potential net impact of Web3 on climate action through several lenses.
Energy Use and Protocols
There have been a number of studies outlining the enormous energy use of the protocols underlying technologies such as Bitcoin and Ethereum, popular cryptocurrencies, and perhaps the most well-known part of “Web3”. Within the current discourse, there have also been a number of thoughtful rebuttals, arguing that by tying energy use, somewhat agnostic of time and place, to a value, we can unlock new value in our energy system and drive renewable energy rollout.
As with many issues, I believe that there can be more nuance in these discussions. As I see it, there is true promise in the idea that previously “worthless” energy (ex. excess energy generated when the grid has no need for it) now has a value, if captured via the mining of cryptocurrencies. This can be a game-changer for the economics of renewable energy projects, but this only matters if projects and initiatives currently aren’t getting off the ground because of this “viability gap”. For decades, momentum has been building in renewable energy development, and I’m not sure the marginal benefit of crypto is needed to “unlock” an already rapidly growing market.
On the other hand, there may be other opportunities where “worthless” energy can be captured for the better via Web3 technologies such as crypto. One prominent example is Crusoe Energy, who captures natural gas that otherwise would have been “flared” to the atmosphere from pipelines, and derives value from that natural gas by generating energy and mining cryptocurrency with it. While the net carbon footprint of such a process is quite nuanced, crypto has undoubtedly created an avenue to do something useful and reduce carbon in a process that was otherwise simply spewing carbon into the atmosphere.
One last point in this admittedly incomplete overview of the energy use of Web3 (we haven’t touched NFTs, for example). Another common rebuttal to the concerns around the energy use of Web3 references the energy use of the existing monetary system, which cryptocurrencies could eventually replace. Deposits in the global banking system amount to roughly 180 trillion USD, while the market cap of all cryptocurrency is almost 2 trillion USD, or 1.1% of the size of the system it’s being compared to, at the time of writing this, with Bitcoin’s market cap being roughly 0.4% of the global banking system’s aggregate deposits. According to a paper by Galaxy Research, the Bitcoin network’s energy consumption is 43% of that of the global banking system, meaning that on a per-dollar basis, it is actually almost 10,000% less efficient than the current global banking system. My rough calculation equates systems that may have different characteristics and benefits, and also ignores the potential differences in scalability (as crypto scales, it could be more efficient over time, particularly if it adopts less energy-intensive consensus mechanisms). That being said, I’m doing my best to frame the comparison as proponents of Web3 do in their arguments.
Centralisation vs. Decentralisation
Decentralisation, or distributing ownership, decision-making power, etc. from a single authority, is a concept often associated with Web3, and often touted as one of the benefits these technologies and protocols can bring. Furthermore, an oft-touted benefit of Web3 is portability - when users aren’t happy with a certain platform, they can easily move to another (see NFT platforms OpenSea and LooksRare). How might this apply to accelerating climate action?
If we look at the energy system, for example, centralisation is key to reliability. We need the precise coordination to manage electricity grids that can only come from centralised actors. It’s far too inefficient to have each person running their own micro-grids.
Zooming out to global climate policy and actors such as the UN, centralised actors have certainly let us down in many ways when it comes to climate action. That being said, for the work that needs to be done right now, I don’t see a more viable path than working within these centralised systems - it’s the only way we can move fast enough.
Furthermore, one of the key overarching challenges we face these days with climate action is setting standards, whether they are around carbon markets, disclosure requirements for organisations, or what is considered “green energy”. Currently, I don’t see decentralised networks being in a position to viably solve these challenges in the time horizon we’re required to work in.
So in so far as Web3 involves decentralised networks (which again, does not cover the entire ecosystem), I don’t see a strong case that this decentralisation can accelerate climate action, at least in the next decade or so.
The Financialisation of Everything
Another common characteristic of the Web3 discourse is how it enables “the financialisation of everything”. In other words, these technologies and protocols allow one to put a price on more things, more easily, and buy and sell these things, ranging from the rights to owning digital files, the right to one’s future income, or the right to spend an hour with someone and ask them anything they want. Personally, I find this trend incredibly interesting and exciting (it theoretically opens up access to capital and resources to many folks who wouldn’t have such access otherwise), and simultaneously terrifying (I’d hate to live in a world where everything has an explicit price).
In the context of climate action, however, this could be quite impactful. One of the biggest failings of our economic system with regard to the climate is not accurately pricing the negative externalities related to climate change (ex. the pollution and warming that come with burning fossil fuels). In an ideal world, the climate impact of every product or service would be priced into that product or service, but that is rarely the case.
As I’ve previously mentioned, centralised authorities are probably best positioned to enact and enforce standards and policy that act as the “stick” for pricing climate impact into everything we do, but the world of Web3 is uniquely positioned enable the “carrot”, or markets that ascribe value to this climate impact, or the lack thereof, simply due to its scalability and flexibility that couldn’t be matched by a carbon offsetting verifier, for a example. Regenerative finance, as it’s referred to in the Web3 world, represents a movement to proactively price nature and carbon, and there’s a lot of exciting work happening here (ex. Toucan, KlimaDAO, Open Forest Protocol, and others), which has the promise to make a huge impact if paired with sensible standards, regulation, and policy from centralised actors.
As a source of capital
While not often explicitly recognised as a characteristic of Web3, I think it’s worth noting that the individuals working within this ecosystem represent a significant source of capital, often accumulated seemingly overnight, which should be taken seriously.
Insofar as institutional investors have let us down when it comes to climate action (and they often have), Web3 represents a rebuttal of sorts to traditional finance and capital allocation, and therefore an opportunity to rethink how money can work to do good - see the aforementioned regenerative finance projects. Ultimately, Web3 represents a number of experiments in how humans organise and allocate capital (credit to Nat Bullard for this formulation)), and projects such as Toucan are already leveraging interest in alternative investments and the high net worth of many Web3 participants to drive significant capital towards carbon offsetting. So from this perspective, we can think of a potential positive impact of Web3 on climate action coming from the actions of a large, new pool of capital that might think a bit different than their predecessors, and maybe not make all of the same mistakes.
With respect to climate action, I see a lot of similarities between the hydrogen industry and Web3.
Hydrogen is not perhaps the most logical solution to many climate problems, but through billions of euros in funding, the EU seems determined to will this industry and solution into existence, and by doing so, will actually end up (however artificially) making it a more logical solution to more problems than it otherwise would have been.
Web3 may not be tailor-made to solve many climate problems, but as a technology trend and a movement, it seems here to stay. While its current iteration has some characteristics that seem in opposition to climate action (such as Bitcoin’s energy use, in many cases), there are other characteristics (such as the scalable financialisation of anything) that can be put to good use. At least with respect to climate action, my current conclusion is that there is potential for Web3 to be a net positive, at least in the long term, but it has yet to be realised, and the pioneers of this field should be careful to not build systems that unintentionally perpetuate climate change in the way our current financial system does.
What I am sure of is that maximalist viewpoints of Web3’s climate impact won’t get us very far - from a climate action perspective, Web3 falls into the category of a solution searching for a way to be useful, but that doesn’t mean it can’t be useful! After all, we should be trying anything and everything to accelerate climate action, and no tool in our toolbox is worth overlooking.