The Glow Impact Platform

The Glow Impact Platform

Before Glow, the climate industry used carbon credits as its preferred incentive mechanism. Carbon credit standards were diverse and conflicting, and every country and corporation used a different set of rules. Importantly, every standard had several credible controversies tarnishing its reputation, leading Glow to reject carbon credits outright and build a new platform from first principles.

The Glow Impact Platform focuses on four major objectives: solve long-term climate challenges, incentivize future change rather than reward past behavior,use money as efficiently as possible, and ensure that participants are motivated to take as much action as required to fix Earth's climate.

Solve Long-Term Climate Challenges

The pace of climate change is dictated by the absolute amount of carbon dioxide (CO2) that gets put into the atmosphere. This means that the climate crisis cannot be solved by increasing the total amount of clean energy in the world. Instead, the crisis must be solved by suppressing the production of dirty energy.

The distinction is subtle but crucial, and it means that huge segments of the legacy carbon industry were ineffective at solving the real problem. For example, both Renewable Energy Credits (RECs) and Energy Attribute Credits (EACs) rewarded people for producing clean energy, yet those programs were meaningless from a climate perspective because global dirty energy production continued to increase[1].

Imagine a company that was consuming a large amount of dirty energy. That company then builds a bunch of solar farms elsewhere in the world, and those solar farms are used by new energy consumers such as bitcoin miners. Because the solar farms are powering new use cases rather than replacing dirty energy, the total global CO2 emissions have not decreased. The company nonetheless claimed, through programs like RECs and EACs, that they were a climate-friendly company even though they had not done anything to reduce their emissions. This metaphor is a reasonable approximation of reality for most of the companies that participated in the legacy carbon credit ecosystem.

Progress in the fight against climate change needs to be measured by looking at the suppression and displacement of bad actors. When Glow incentivizes solar,it isn't focused on the amount of power that is produced. Instead, Glow rewards solar farms when they produce clean energy that directly competes with and crowds out dirty energy.

Every dollar spent on Glow is used strategically and intentionally. Specifically, Glow provides cash rewards to solar farms when they push clean energy onto a dirty grid and force dirty energy power plants to shut down. The amount of cash that each solar farm receives depends on how dirty its local grid is. For example, certain regions of Colorado receive rewards that are more than twice the US national average due to their uniquely dirty power.

Incentivizing Future Change

A major shortcoming of the legacy carbon credit ecosystem, especially the consumer ecosystem, was that it nearly always rewarded past behavior instead of funding future action.

We can use farming based carbon credits from the legacy industry as a particularly illustrative example: farmers would receive carbon credits for changing their farming techniques to improve carbon sequestration. Many farmers claimed carbon credits on changes they had made to their farming practices more than 10 years prior to the creation of the carbon program. This means that most of the money went to farmers who had already changed their farming practices for reasons that were entirely unrelated to climate incentives.

And while there's not necessarily anything wrong with rewarding people for doing good things, money that is rewarding someone for doing something they would have done anyway is not meaningfully contributing to climate efforts, because the same amount of CO2 would be in the atmosphere with or without those incentives. If the goal is to save the climate, money needs to be spent in a way that changes people's behavior.

This pattern was not isolated to farming. In fact, the entire carbon credit industry seemed to suffer from an innate desire to reward people for doing good things even when those good things would have happened anyway. This created a lot of opportunity for crafty businesses to present some aspect of their operations as ethical or climate friendly, resulting in large amounts of money going towards businesses that weren't actually making any meaningful efforts to protect the climate.

Glow ensures that all incentives are changing future behavior by only accepting new solar farms. If a solar farm has ever produced power prior to enrolling, that solar farm is automatically disqualified from receiving Glow incentives.

More importantly, solar farms on Glow are rewarded as they displace unclean energy, and nobody is allowed to claim rewards for past actions. Additionally, rewards are distributed over a period of 4 years with a 16-week delay. This means that businesses can appraise what the Glow rewards will be well in advance and make informed decisions about whether to build new solar farms.

In the event that the rewards spike suddenly, the 16-week delay gives businesses nearly 4 months to bring new solar farms online in pursuit of the increased rewards. Critically, it means that a sudden spike in rewards is not just giving handouts to solar farms that happened to be in the right place at the right time, but instead is actually encouraging the construction of new solar farms.

Using Money Efficiently

Glow requires solar farms to contribute 100% of their electricity revenue[2] to the Glow incentive pool that rewards other solar farms, essentially forcing businesses to choose between making money from climate benefits and making money from electricity production.

To the best of my knowledge, this requirement is entirely novel to Glow. Most climate efforts allow businesses to profit off of both the raw value of their infrastructure as well as any climate incentives. This creates a conflict of interest that encourages businesses to seek out as many climate handouts as possible irrespective of their actual commitment to the climate. By requiring a sacrifice, Glow limits participation to businesses that are actually meaningfully changing their business practices.

Collecting this revenue significantly improves Glow's economics, because it allows the solar farms to be self-subsidizing. If Glow spends $1,000,000 incentivizing a solar farm that then produces $900,000 of revenue[3], Glow has actually only spent $100,000 total to incentivize the construction of a $1,000,000 solar farm. By requiring solar farms to give up their revenue, Glow can multiply the impact of its incentive program by 10x or more.

Glow distributes incentives to solar farms using a competition. All of the incentive money is placed into a large pool, and solar farms collect money from the pool based on how many carbon credits[4] they produce. The same amount of money is distributed regardless of total production, which means that builders are incentivized to keep building more solar until the rewards have been diluted to the cost of adding new solar.

More cost efficient builders will be able to build a larger amount of solar and profitably dilute the rewards further. This means that the rewards ultimately get diluted to the level that can be sustained by the most efficient builder.

Therefore, Glow's final price for incentivizing carbon credits is equal to the lowest price that can be offered by the most competitive player. This is an extremely powerful competition format, and it is the reason that Bitcoin was able to become the largest supercomputer in the world. Glow has repurposed the tools that made Bitcoin massive and applied them to solving climate change.

Inefficiencies with Carbon Credit Retirement

The legacy carbon industry built an economy around the idea of "retiring"carbon credits. When someone retired a carbon credit, that carbon credit became permanently associated with that person and therefore could no longer be bought or sold.

People who wanted to be carbon neutral would be buy carbon credits and take them out of circulation, decreasing the supply and creating positive price pressure. This created a functional carbon economy and encouraged the production of future carbon credits.

Though functional, the design was also inefficient and volatile. Demand could disappear at any time, because a large amount of money spent on carbon credits in one year did not imply that a large amount of money would be spent on carbon credits in the following year.

This problem was exacerbated by the fact that there were hundreds of different types of carbon credits, and the industry sentiment for a particular type of carbon credit changed on a year-to-year and even a month-to-month basis. This made it very difficult for carbon credit projects to predict the future value of their own carbon credits, especially if a project would be producing carbon credits over a period of ten or more years. Low certainty means high risk for investors, which makes projects much more difficult to fund and finance.

A Better Design

Glow redesigned the economy of carbon credits to have better stability, and to give solar farms more confidence in the long-term value of the carbon credits that they produce. This in turn improves capital efficiency, because the lower risk allows projects to be financed at a lower interest rate and allows the same initial capital to attract larger loans.

Glow's carbon credit economy is stabilized by an Automated Market Maker (AMM) that functions similarly to Uniswap V2. Liquidity providers agree to automatically buy carbon credits as the price drops, and they agree to automatically sell carbon credits as the price increases.

What makes Glow unique is its source of liquidity. Instead of retiring carbon credits, contributors enrich the Glow economy by permanently committing liquidity to Glow's carbon credit AMM.

When someone commits liquidity to the Glow AMM, half of their money is used to purchase Glow Carbon Credits (GCC), creating a mini-portfolio of assets that is half cash and half GCC by value. The mini-portfolio of assets joins the AMM as a liquidity provider, where it will automatically rebalance itself as the price of carbon credits changes[5].

Similar to retiring carbon credits in the legacy system, the commitment is permanent. The contributor will never be able to withdraw their liquidity from the Glow AMM. Instead, it will perpetually act as a ballast on the price of carbon credits, giving more certainty to the future value of Glow's carbon credits. The cash portion of the portfolio essentially acts as a bounty on the production of future GCC.

This design has an interesting consequence. If the price of carbon credits drops, the portfolio accumulates more carbon credits, which effectively means that the money has stretched further in helping climate change. If the price of carbon credits increases, the portfolio accumulates cash, which effectively means that it's providing a stronger incentive for the future production of carbon credits.

Both situations are good for making climate progress. When money is committed to the Glow AMM, that money is always actively contributing to climate efforts. This is in sharp contrast to legacy strategy of retiring carbon credits, where money is only actively contributing to the carbon economy during the exact instant that carbon credits are removed from circulation.

There's one more benefit. Liquidity providers earn fees as people buy and sell carbon credits. That means that even if the price of carbon credits is relatively static, the amount liquidity in the AMM will increase over time, steadily improving the health of the Glow carbon credit economy.

Motivating People to Change The World

In the legacy carbon credit ecosystem, a person's "karma" was equivalent to the number of carbon credits that they retired. This doesn't work for Glow, because the total number of carbon credits in a person's permanent portfolio changes as the price of carbon credits change.

There's also a deeper issue. When you assign karma to people based on the number of tons of CO2 they have offset, they naturally fixate on their own carbon footprint, and they intuitively set a goal for themselves to offset all of their own carbon emissions.

If every climate-conscious individual in the world offset their own emissions, bad actors like Chevron and Exxon Mobile would still be emitting enough CO2 to destroy the planet.

You cannot solve the climate crisis by convincing good people to offset their own carbon footprints. To save the world, the good guys have to reach beyond themselves and generate enough impact to push out all of the emissions by the bad actors of the world. Glow therefore uses a different metric to measure the contributions of its participants, and to encourage people to do as much as possible rather than to stop when they've offset their own footprint.

Glow Impact Power

In Glow, contributors earn "Impact Power" when they commit funds to the Glow AMM. Impact Power is tracked on-chain, making it easy for anyone to showcase their total contributions to the Glow protocol.

Unlike carbon credits, Impact Power doesn't have any natural ceiling or reference point that allows people to feel like they have contributed enough. Instead, a social hierarchy can form around the individuals that have the greatest amount of Impact Power, and natural competition exists between people that want to demonstrate the thoroughness of their commitment to the climate.

Impact Power cannot be sold or traded. Once a contributor has acquired Impact Power, they will have that much Impact Power for the rest of their life. In fact, the amount of Impact Power that someone has actually goes up over time, because the Glow AMM will be earning fees, and those fees turn into more Impact Power for the liquidity providers.

The amount of Impact Power that someone has is equal to the size of their permanently-committed portfolio. Specifically, it's equal to the square root of the product of their cash position multiplied by their carbon credit position. Mathematically: sqrt($amount_of_cash * $amount_of_gcc)

This equation perfectly matches the rebalancing equation of the Glow AMM, which means that, except for earning fees, a person will have the exact same amount of Impact Power no matter how the price of carbon credits changes.

This also means that buying Impact Power has an easily calculated price. The cost of one unit of Impact Power is equal to twice the square root of the cost of one carbon credit. Mathematically: 2*sqrt($price_of_gcc)

Anyone who buys Impact Power at this price will have the exact same value committed to the AMM as everyone else with the same amount of Impact Power, no matter what price each person paid for their Impact Power.

This setup has another interesting consequence. The cost of Impact Power is significantly less volatile than the cost of carbon credits, because the price of Impact Power is determined by the square root of the price of carbon credits. This gives yet another element of stability and consistency to Glow that was not found in the legacy carbon credit ecosystem.

The Impact Ecosystem

The transparency and equality of Impact Power sets the stage for a rich ecosystem of people and companies who support each other and encourage the accumulation of more Impact Power.

At the simplest level, community members can prefer the products and services of companies that have competitive quantities of Impact Power. Companies can return the favor by offering special discounts or exclusive access to community members that have Impact Power.

Perks don't have to be strictly financial. Video games can offer exclusive items to players with enough Impact Power. Artists can create NFTs that can only be owned by wallets with enough Impact Power. Content creators can create exclusive content for subscribers with enough Impact Power, and so on.

In this world, buying more Impact Power gets people more access to perks and benefits. No matter how much Impact Power a person owns, they can enrich their life further by buying even more Impact Power. Everyone works together to give each other more reasons to contribute to the climate.

A Brighter Future

Though Glow is a significant departure from the structure and standards of the legacy carbon credit industry, every decision was made carefully and with the intention of improving the effectiveness of climate efforts, and paving the way to a greener future for Planet Earth.

Footnotes

[1] Though the later REC and EAC programs deserve harsh criticism, early RECs served an important role in the history of the solar industry. Before 2018, solar was too expensive to be commercially viable except for niche applications.

The REC program wasn't originally designed to reduce short term climate emissions, but rather to encourage research and development within the solar industry in the hopes that this would eventually lead to solar being commercially viable for more mainstream applications.

The program worked, and 2018 is roughly the year where solar became profitable in enough market segments that the commercial side of the solar industry started outspending REC programs. Once that happened, the incentives that made early RECs so powerful fell apart and RECs became more or less worthless.

The design of RECs is an excellent model for bootstrapping a new technology and encouraging innovators to grow in the direction of commercial viability. If Glow ever needs to bootstrap a new technology, for example hydrogen fuel cells, early RECs could be a useful source of inspiration.

[2] People say that Glow requires solar farms to contribute 100% of their"electricity revenue" as a shorthand because its simple and makes sense to Glow newcomers.

In reality, solar farms are required to give up 100% of the value of the electricity that they produce. This means that someone who is saving money on their power bill actually owes those savings to Glow, even though there technically isn't any revenue.

[3] Glow is a protocol, not a company. This means that Glow doesn't have the ability to do things like chase down delinquent payments. If Glow accepted monthly payments from solar farms, Glow would be almost powerless to punish a solar farm owner that decided to stop making payments.

For this reason, Glow collects one large up-front payment which represents the entire expected future value of the electricity that will be produced by a solar farm. This large up-front payment is usually called the "protocol fee".

The protocol fee is determined by an auditor that looks at the commodity value of electricity at the location where the solar farm is built. This value is then projected forward by the expected lifetime of the solar farm, and several financial techniques such as discounted cashflows are used to arrive at a final value for the protocol fee.

Once the solar farm owner has paid the protocol fee, they are free to keep the electricity produced by the solar farm, along with any associated savings or revenue.

[4] In Glow, one carbon credit equals one metric ton of CO2 that would have otherwise been emitted into the atmosphere. As of writing, Glow uses a data provider called WattTime to convert solar energy into metric tons of CO2 based on how many emissions are associated with the local power grid. This means that solar farms in different locations will produce a different number of carbon credits even if they get the same amount of sunlight.

[5] Let's walk through a quick example of how portfolio rebalancing works on the Glow AMM. Let's say that someone commits $200 to the Glow AMM when the price of a carbon credit is $100. Their portfolio will automatically buy 1 carbon credit, leaving the portfolio with $100 in cash and $100 worth of carbon credits; perfectly balanced.

If the price of carbon credits drops to $10, the portfolio will become unbalanced because it has $100 of cash and $10 of carbon credits. To rebalance itself, the portfolio needs to buy carbon credits with the cash that it has.The portfolio is adding price stability because it is buying carbon credits as the price drops.

The portfolio will end up purchasing 4.5 carbon credits total for $45, reducing the cash balance to $55 and increasing the value of the carbon credit balance to $55; the portfolio is perfectly balanced again.

If the price of carbon credits goes back up to $100, the portfolio will now have $55 of cash and $550 of carbon credits. To rebalance itself, the portfolio will sell 2.475 carbon credits for $247.5, leaving the portfolio with $302.5 in cash, and $302.5 worth of carbon credits; back to perfectly balanced.

After the price dropped and recovered, the portfolio ended up with more cash than it started with. This is because the example had the portfolio buying carbon credits for $10 each and then selling them later for $100 each, creating a profit. In finance this profit is called "taking a spread".

On the real Glow AMM, the spread is much smaller. It ranges anywhere from 0.1%to 10%. Liquidity providers make a profit as the price fluctuates, but they make considerably less profit than what the example depicted.