Applying the “Uber Trick” to Carbon and Ecosystem Service Markets
Remember when Uber, Airbnb, and Amazon made billion-dollar companies out of thin air? It was like an Economic Magic Show where everyone was dumbfounded. Most of us still are.
But like all good magic tricks, it just takes the slightest distraction and the slight-of-hand and wallah; billions of dollars. So what was the trick?
To start the trick, Uber needed a volunteer, or just a well-established industry in the local transportation sector, such as the taxi industry. The taxi industry was ripe for disruption. People commonly used taxis, so the concept of paying someone to drive you somewhere at a moment’s notice was ‘normal’.
The taxi sector consists of businesses that owns taxis and employs drivers. They send them to the streets to connect with a person in need of a ride. The person hails a taxi, tells them where they want to go, and then pays the driver.
Graphically, those steps looked like this where the Taxi Company integrates [Cars and Dispatch], and the Rider manages the [Hailing & Payment].
The Taxi Company is in control of the entire business ecosystem and the Rider’s decides when to find a taxi (at Point A) and describes where they want to get to (Point B). The value of controlling this ecosystem was reflected in the cost of taxi medallions, a certificate that allows taxis to operate. In 2014, a medallion costed $700,000. After Uber and other rideshare models emerged the cost dropped 95% to $40,000.
What Uber saw in this ecosystem was the millions of cars and people that did not have access to this “Taxi Ecosystem”.
So with the slightest of hand, Uber disconnected the Cars from the Dispatch and connected the Dispatch to Hailing & Payment.
On paper that trick looks like this:
By disconnecting Cars from Dispatch, it opened up the Taxi [local transport] Ecosystem to anyone with a car. Riders did not have to depend on the Taxi Company’s inventory of cars, but on the world’s inventory of cars.
Airbnb did the same thing with Rooms:
This was accommodating to Guests, and hence disruptive to the hotel industry. It became a business model unimaginable to even the largest players in the business ecosystems.
Amazingly, this process of segregating and integrating components is enough to shift any existing business ecosystem to an e-commerce ecosystem — or enough to fork the economic system by adding new protocol that adds new value.
Carbon and Ecosystem Service Markets
Carbon and ecosystem service markets still reside in the archaic pre-Uber business ecosystem environment. In this environment, Sustainer Entities (corporation, governments, NGOs, etc.) develop their environmental metrics and associated accounting systems. These accounting systems reside in-house [Metric and Accounting System] similar to the taxis’ [Cars and Dispatch] and the hotels [Rooms and Bookings]. In those business models, as soon as you choose a car, room, [or metric], you are captured within their accounting system. This creates “sunk” costs or unrecoverable costs or costs that have no additional value.
In other words, when a landowner engages with a Sustainer Entity and places their data in an isolated accounting system, that process must be repeated each time for each ecosystem services. If one considers the nearly countless or at least unknown ecosystem service values that may emerge from a landscape’s natural capital inventory, a landowner could experience dozens of sunk costs episodes. The NCU graphic below illustrates four classifications of natural capital and the numerous classes of ecosystem services that each natural capital layer generates.
The existing ecosystem service model is Sustainer Entity-centric that generates hundreds of accounting systems a landowner would have to navigate to understand the full market potential. And since the Sustainer Entity does not experience those sunk costs, they may disregard them as an issue that needs addressing. The sunk costs are those of the landowner, not the Sustainer Entity.
Uber Magic
The magic or trick of Uber and Airbnb markets is that the accounting system is segregated from the metric and integrated with [Value and Payment].
Similarly, the trick of a NCU Platform is that it shifts the accounting system from dozens, hundreds, or even thousands of in-house and siloed accounting systems, to a landowner-centric accounting system. The NCU Platform Accounting System becomes integrated with the Ecosystem Services and the Payment.
This is vitally important for several reasons. Like the Uber and Airbnb examples, the NCU Platform gives the Landowner far more options, information, and control over who they do business with. But perhaps even more important, unlike Uber and Airbnb where there is ONE car or ONE room in the potential transaction, Landowners generate many potential ecosystem service values from each NCU. And so, parsing out and accounting for each ecosystem service for every sustainer entity with an interest on a separate accounting system creates an untenable situation. Besides that, the landowner gives up control of the information. It also exasperates the inherent major challenge ecosystem service markets had on the onset: low values and high costs.
Thee Economic Hurdle
This insurmountable challenge is that ecosystem services inherently have low and diffuse or dispersed values, and high and multiple transaction costs. This is an economic hurdle that is insurmountable for most every market, not just the less tangible ecosystem services in these emerging markets.
If there is a single reason why ecosystem services markets have not matured into a self-organizing and functioning market is that the extreme costs and dispersed values cannot support the countless of accounting systems and their innate sunk costs. A path forward from this scenario does not even exist except in the most heavily subsidized markets or programs.
Conclusion
Ecosystem service markets are posed to be disrupted before they really begin. In fact, ecosystem service markets cannot mature under the business models that are being proposed and fledged. Ecosystem services are a completely different animal than traditional landscape commodities and hence require a completely different ecosystem.
In 2011, when I published EcoCommerce 101, I had applied a similar NCU Platform model using the technologies of the time. The logic worked, but the process was not elegant enough. And so, a proliferation of subsidized markets and programs were the best option. But we are now beginning to see the futility in lifting up each and every market as the costs overwhelm the values that flow through the markets.
Much like the futility of the taxi industry competing against an e-commerce ecosystem, it will soon be futile for the thousands of independent accounting systems to compete against an eco-commerce ecosystem. Landowners deserve more than they are getting now and their ecosystem service markets need to be compatible with the values of their entire natural capital and ecosystem service stack, if that is what they need.
Join Us for a New Kind of Conversation!
Tim Gieseke and Jerry Hatfield will present NCU: The Commons’ Denominator in a live interactive session on November 3, 2022, at 11:00 a.m. US Central. The session will be hosted and moderated by Andrew Crosby of Third Horizon Earth. For more information and to join us, register here.
As economic-based solutions emerge for ecosystem service markets, the need for a new accounting system is also emerging. The NCU platform has the leading potential to become this accounting framework as it is rooted in economic and ecologic logic. This is a solution that will be trialed and applied in 2023!
Tim Gieseke had careers in government, non-profit, and the private sector with each encompassing the space between economic and ecological aspects of land management. He is also a farmer and the first-noted ecocommercist. He authored a trilogy of books; EcoCommerce 101 (2011), Shared Governance for Sustainable Working Landscapes (2016), and Collaborative Environmental Governance Frameworks (2019) that describe the environmental, social, and governance aspects of initiating an EcoCommerce Ecosystem.
