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Do Carbon Prizes Work?
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Do Carbon Prizes Work?

The power and the peril of multi-million dollar grand challenges.
April 4, 2024

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On Earth Day next year, expert judges will decide who should get the biggest incentive prize in history—$80 million for removing at least 1,000 tons of carbon dioxide from the atmosphere. They can use air, land, oceans or rocks, with a plan to scale up to gigatons annually. The XPRIZE for Carbon Removal is a $100 million effort funded by Elon Musk to help fight climate change and restore the Earth’s carbon balance. Since its launch in 2022, more than 1,300 teams have registered, over 300 of which have indicated they are ready to demonstrate a working system. If all goes to plan, the competitors should remove a total of nearly four megatons of CO2 this year. 

Climate competitions and contests have never been more popular, with their number and value growing exponentially since 1970—even Prince William has one. Part of their popularity with funders might be that prizes seem to generate more positive publicity—and attract less critical scrutiny—than traditional research grants. 

All of which raises some novel questions. Are prizes really an efficient way to move the carbon needle? Or just a sideshow from the tough business of reinventing economies to be more sustainable?

• • •

Yes—And We’re All Winners

1.  That lightbulb moment. History is studded with examples of prizes kickstarting progress. A Parisian confectioner invented canned food in the early 19th century after Napoleon offered 12,000 francs to anyone who could preserve food for his invading troops. And Charles Lindbergh’s epic trans-Atlantic flight in 1927 was inspired as much by a $25,000 prize (worth about half a million dollars today) as by the thrill of exploration. Prizes can help the climate, too. In 2008, the US Department of Energy launched the $10 million L Prize to replace the 60-watt incandescent bulb. Within three years, Philips developed an LED bulb that consumed 83% less power. Within four, the bulb was on shelves and within five, it was already being outclassed by more efficient rivals.

Do Carbon Prizes Work?
Source: L Prize 60W Replacement Competition
Solid-State Lighting.

2.  Double your money. Open Philanthropy commissioned a readable and insightful meta-study into prizes in 2021 that focuses on the rise of inducement prizes (like the XPRIZE) at the expense of recognition prizes (such as the Nobels). Rare before 1990, inducement prizes now outnumber recognition prizes nearly four to one. The researchers estimated that inducement prizes of over $100,000 leverage at least twice their cash purse in private capital—and in the case of one low-carbon prize as much as nine times. Recognition prizes are better at shifting the conversation, however, with prizewinning topics producing 40% more scientific papers and retaining 55% more scientists, in the years after the prize.

3.  Bridging the valley of death. The US Department of Energy thinks it has hit on a winning formula for competitions—hyper-focused requirements, short deadlines, and progressively increasing cash prizes. For example, all successful entrants might get a small award, then a little more when they hit a performance milestone. These awards bridge the so-called “valley of death,” where poorly funded startups run out of money just when they need it most. This four-part blog is packed with cleantech success stories, such as three wave power companies that used competition cash to raise outside money and speed towards commercialization.


• • •

No—The Money Could Be Better Spent

1.  Who’s setting the research agenda? Zorina Khan, professor of economics at Bowdoin College, points out in this entertaining podcast that prizes of all sorts were very popular in elitist societies. One problem is that prizes enable rich individuals and organizations to bump their interests, however self-serving, to the front of the line. Another is that they are inefficient and result in the unnecessary and wasteful duplication of work. She describes a coding prize from Netflix that attracted about 50,000 competitors—all of whose work was made redundant by technological advances before the contest even closed. “What I find is that in almost all prize competitions, the investments of time and resources on the part of the competitors generally exceed even the absolute value of the award,” says Khan. 

2.  Less glamor, more grind. Glitzy prizes with gargantuan payouts aren’t well suited to tackling systemic challenges like climate change, says Khan: “The real problem is that we have an absence of markets, and we have incorrect prices. We don’t need grand innovation prizes. Instead, what we need to do is the tedious job of setting up mechanisms to ensure that there are correct market prices for emissions.” And even for simpler problems, the effect of inducement prizes is unclear. The Open Philanthropy researchers found little quantitative empirical evidence that prizes actually boost innovation in the long run.

3.  Incentivize production, not invention. In 2007, Gavi, the Vaccine Alliance, wanted to immunize hundreds of millions of children in the developing world against pneumococcal disease. But instead of creating a one-off prize to develop a low-cost vaccine, the Gates Foundation and others funded an advance market commitment (AMC) to buy 200 million doses at no more than $3.50 each. Each entrant would earn a fraction of that payout, depending on how many doses they could produce at scale. Later analysis strongly suggests the AMC accelerated vaccine uptake by about five years. Micheal Kremer, the Nobel laureate who jointly came up with the idea for AMCs, thinks they could also work for climate change. In 2022, Stripe, Alphabet, Meta and others funded Frontier, an AMC to buy over $1 billion of permanent carbon removal by 2030.


• • •

What To Keep An Eye On

1.  Micro-prizes. Not all inducement prizes are expensive Grand Challenges. There are now plenty of contests for specialized, niche, or local climate needs. For example, the EPA has a modest $30,000 award for stormwater management on college campuses, while the U.S. Department of Energy is seeking photos of the solar power transition for just $2,500. These align with the Open Philanthropy meta-study, which found only a weak relationship between cash amounts and innovative activity and concluded that very large cash rewards are likely unnecessary. 

2.  Competitions without prizes. The Department of Energy is even planning a Voluntary Carbon Dioxide Removal Purchasing Challenge to encourage private purchases of removal credits by creating a leaderboard of spenders, without providing any funding at all. It hopes that will “enhance market transparency, giving organizations interested in carbon removal credit purchases greater confidence to move forward.” But will the absence of either carrots or sticks lead to any real action?

3.  The power of the prize pulpit. While prizes tend to be pretty uncontroversial (except to the losers perhaps), putting winners on pedestals is a risk. Last year, John Clauser, a Nobel laureate in 2022 for work on quantum physics, came out as a climate change denier.

Top image ©Anthropocene Magazine

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