The proposed Ecological Impact Fund (EIF) would incentivize and reward the development of green technologies (‘greenovations’) for, and their deployment in, a defined set of lower-income countries (‘the EIF-Zone’). The EIF would make annual disbursements of pre-announced size (initially $3-4 billion), to be divided among registered greenovations. This division would be based on how much ecological harm is averted through deployments of each of these greenovations in the EIF-Zone during the preceding year. Harm is measured as a weighted sum of greenhouse gas emissions (CO2eq) and lost health and life years (QALYs).
With participation optional and the size of the annual disbursement set in advance, the EIF’s reward rate would be internally self-regulating and gravitate to a stable level that is seen as fair between participating firms and the EIF’s funders: when firms find it unattractive, participant registrations dry up, causing the reward rate to rise; when the reward rate is seen as generous, registrations multiply, driving the reward rate down. Fairness among participating firms is also assured as all are paid at the same reward-to-benefit rate.
In exchange for partaking in EIF disbursements for five years, any registered innovation would permanently lose patent-based monopoly privileges in the EIF-Zone (while patent privileges outside the EIF-Zone and of unregistered greenovations remain unaffected). The EIF gives greenovator firms new opportunities to profit from delivering greenovations in EIF-Zone countries while letting them choose, for each greenovation, whether to register it or to stick with patent privileges.
The EIF would greatly increase uptake and impact of greenovations in EIF-Zone countries, while avoiding monopoly markups that would raise their price. The added incentive of impact rewards would motivate firms to promote their registered greenovation’s wide deployment and effective use. Through the prospect of enhanced profits, the EIF would also stimulate the development of additional greenovations designed to fit the EIF-Zone populations’ needs, cultures, circumstances, and preferences.
By thus stimulating diffusion and innovation in and for the EIF-Zone, the EIF would also expand local capacities to develop, manufacture, distribute, deploy, operate, maintain, and repair greenovations.
Creating the EIF requires no unanimity. Its main funders (possibly via the Green Climate Fund or the Global Environment Facility) could include willing European states plus China, which have greatly contributed to the global ecological crisis and have, over many decades, accumulated substantial wealth through highly polluting activities. No new funds would be needed, as contributions could come out of the climate financing that the higher-income countries have pledged in Copenhagen (COP 15) and recently promised to increase to $300 billion annually by 2035.
Additional funds could come from international offset markets and eventually from a capital endowment built steadily over time from treaty-based state contributions, bequests, and donations by firms, foundations, and philanthropists.
The chief argument for the EIF is that, thanks to eight design features, it would make already committed climate finance vastly more effective:
1) Focus on Lower-Income Countries, where the most cost-effective gains can be made. In the remainder of this 21st century, these countries are expected to experience large population increases and significant economic growth. The technologies they will use, the practices and habits they will form, and the roles they will be prepared to play in the fight for a livable planet will be far more important than any decisions that today’s affluent nations will make within their borders. While those countries, due to their poverty, have contributed little to existing environmental problems, their contributions are rising steeply and could soon cause devastating ecological harm. If the 4 billion Africans projected for the end of the 21st century were to live like the inhabitants of the US today, they would cause 12 times as much ecological harm as the US does today! Averting such a scenario requires that highly effective and locally appropriate greenovations — many of them yet to be developed — be quickly and widely deployed in the global South.
2) Pay for Success. Traditional funding often goes to actors who can sell themselves well. The EIF does not reward anticipated performance ex ante (push funding), but actual performance ex post (pull funding). The innovator bears the risk. This motivates greenovators — who are best able to assess their own capabilities — to formulate their goals wisely and to pursue them vigorously.
3) Complete Implementation. The EIF rewards final results: only if and insofar as a greenovation effectively prevents environmental harm. Greenovators seeking to earn EIF rewards must therefore holistically consider the entire path from laboratory to end-use, focusing on those greenovations that achieve the most cost-effective harm reduction. Even the most brilliant greenovation remains unrewarded if it is not adopted and deployed to reduce harm.
4) Open Innovation Space. The EIF does not pick research targets but instead provides a general benchmark against which greenovations are assessed. This is because innovators are better able than funders to determine with which projects they can reduce harm most cost-effectively. This sets the EIF apart from innovation prizes, which prescribe a specific, possibly unpromising research direction. Prizes often lead to duplication of work and divert attention from potentially more promising research paths. In contrast, the EIF creates an artificial market on which diverse greenovations can thrive.
5) Dynamic Competition. This artificial market is designed to keep the reward rate efficiently low through broad competition. If the reward rate rises above the level necessary to incentivize greenovative efforts, this increases the incentive to develop and register additional greenovations, which in turn lowers the reward rate to the necessary minimum. Such readjustment is facilitated by the broad formulation of the EIF incentives, which opens the EIF to all greenovators and to greenovations of all kinds.
6) Strengthening Neglected Markets. The EIF attracts investments toward high-impact greenovations that have been neglected because their potential users are poor or because their buyers can expect only a tiny fraction of the benefits generated by their use (a common case for greenovations!). It is precisely such greenovations that the EIF incentivizes by supplementing sales revenues with impact rewards that reflect the total global and future benefit of a greenovation’s use. This added reward can make sales to poor people profitable even at very low prices — thereby also making it lucrative to develop high-impact greenovations tailored to their needs and living conditions.
7) Incentives for Wide Adoption. The EIF would significantly enhance the reach of registered greenovations by ensuring attractive profits despite low prices, thereby motivating participating greenovators to invest in rapid, widespread, and effective dissemination of their greenovations. By replacing patent royalties with impact rewards, the EIF transforms the motivation of participating innovators: instead of seeking to detect, prevent, and deter patent infringements, they would actively promote the rapid, broad, and effective adoption of their greenovation to earn higher rewards. Even if they do not profit from the sales price, they would support the efficient use of their greenovation through technical assistance, maintenance, and discounts — insofar as they foresee that the resulting revenue increase from such promotional investments outweighs their costs. Every EIF-registered greenovation would thus achieve far more than a comparable greenovation under the current incentive regime.
8) Exponential Progress. By accelerating the pace of innovation, the EIF continually raises the baseline against which newly registered greenovations are assessed. This effect will become quite large over time. A greenovation registered in 2040 will be rewarded based on the environmental harm reduction it achieves compared to alternatives available in that year. However, the state of technology in 2040 will be far more advanced than it would have been without the EIF’s existence in previous years. This acceleration of greenovation progress is a great built-in benefit of the EIF at no additional cost. It is likely that this benefit will be especially significant for classes of greenovation that are currently neglected because they are primarily suited for poor populations, are more expensive to produce and deploy than their dirtier alternatives, or provide widespread benefits that potential buyers care little about. Due to learning curve effects following Wright’s Law, this acceleration in progress will additionally lead to increasing cost and price reductions.
Thanks to the EIF’s high efficiency — in contrast to the well-known grave inefficiencies of the patent regime — its creation could massively increase the ecological impact of already pledged climate finance, especially in the long term. Creation of the EIF would also exemplify morally grounded multilateral partnership which, over time, could grow beyond the EIF and its founding members, reduce nationalism, and foster a willingness to cooperate for justice and the common good.
An experimental pilot could test and refine the EIF idea and thereby make adoption of the EIF more likely. This pilot might involve a single reward pool of, say, $100 million, to be split among a few preselected greenovations in proportion to the pollution reductions achieved through their deployments, competitively priced, in a self-selected region of the EIF-Zone over a two-year period. The pilot would show concretely how greenovators respond to competitive impact rewards and how ecological impact can be estimated in a prompt and reliable manner. It would help refine impact assessment and provide an indication of the cost-effectiveness of the new impact rewards. The EIF pilot would also yield its own ecological benefits and policy insights through the pilot projects it monitors and rewards.