a) Popper’s Piecemeal Legal Engineering
When Karl Popper wrote his seminal 1945 work of political philosophy, The Open Society and its Enemies, his audience was intimately familiar with the horror of massive social experiments gone wrong. It was the end of World War II; the Cold War was beginning to take shape. The failure of large-scale utopian projects like national socialism and communism was clear to many. The way forward was not so clear.
Popper’s social philosophy began with his approach to science. He pointed out that, in any experiment, whether scientific or social, there is little we can know about the effects of our own actions. So, to avoid massive upheavals that wreaked havoc on human life, it was necessary to use a somewhat scientific method to test the effects of our social actions. Small, piecemeal changes to address specific problems would allow us to observe the effects of our actions. Such ‘piecemeal social engineering’ would allow us to make ongoing corrections in a way that massive overhauls of social order could not.
For Popper, law was a key feature of such piecemeal social reform. He wrote that institutional reforms to a legal system would allow us to make adjustments in the light of discussion and experience. It alone makes it possible to apply the method of trial and error to our political actions. It is long-term; yet the permanent legal framework can be slowly changed, in order to make allowances for unforeseen and undesired consequences, for changes in other parts of the framework, etc. It alone allows us to find out, by experience and analysis, what we actually were doing when we intervened with a certain aim in mind.
b) The Geopolitics of the Climate Crisis
Humanity faces a climate crisis of existential proportions today. In addition to the planet’s warming, and consequent extreme weather; the loss of biodiversity, and mass extinction of species; the fact that climate change is sinking small island nations; and the possibility that human activity may make Earth’s ecosystem hostile to human life and the use of fossil fuels has created a massive political crisis too. The paradox of productivity for our age is that the more prosperous a society becomes, the more it destabilizes the planetary ecosystem on which life itself depends.
In August, 2022, French President Emmanuel Macron told the French people: “I believe that we are in the process of living through a tipping point or great upheaval. Firstly because we are living through… what could seem like the end of abundance.”
Addressing the same political situation, European Union foreign policy chiefJosep Borrell remarked that Europe had reached a limit to its progress:
“You—the United States—take care of our security. You—China and Russia—provided the basis of our prosperity. This is a world that is no longer there,” he said.
The war, and the pandemic before that, exposed how reliant Europe really was on China and Russia for its economic security. Prior to the war, Russia had been Europe’s leading supplier of coal, gas, and oil products, a dependence Borrell admits in retrospect was short-sighted.
“Our prosperity has been based on cheap energy coming from Russia. Russian gas—cheap and supposedly affordable, secure, and stable. It has been proved not [to be] the case,” he said on Monday.
For those living in the rest of the world, Europe’s problems may seem remote. But if there is one lesson from the ongoing environmental crisis, it is that the world is bound together. The problems afflicting Europe will engulf the rest of the world unless the world finds solutions.
c) Distributed Ledger Technology and the Paradox of Productivity
Against this environmental and geopolitical backdrop, distributed ledger technology (DLT) seems to be an idea that came at exactly the wrong time. It does not appear as the triumph of innovation that many see in it. Instead, because it needs electricity to function, DLT relies on the energy grid. Its success thus depends on the consumption of fossil fuels and other geopolitically risky forms of energy.
Bitcoin mining, which was one of the break-through DLTs, apparently ‘consumes electricity at an annualized rate of 127 terawatt-hours (TWh). That usage exceeds the entire annual electricity consumption of Norway. In fact,Bitcoin uses 707 kilowatt-hours (kWh) of electricity per transaction, which is 11 times that of Ethereum.’
It was once believed that, although most modern technologies caused pollution, the prosperity they engendered would allow countries to re-invest in green technology. This would create an ‘environmental Kuznets curve’ (EKC) where pollution would peak, and then fall, as a society became more prosperous. Stern found, however, that:
“When we…take diagnostic statistics and specification tests into account and use appropriate techniques, we find that the EKC does not exist…Instead, we get a more realistic view of the effect of economic growth and technological changes on environmental quality. It seems that emissions of most pollutants and flows of waste are monotonically rising with income…Income-independent, time-related effects reduce environmental impacts in countries at all levels of income”.
Stern illustrates the paradox of productivity precisely. There is no automatic relationship between prosperity and reductions in pollution. The geopolitical fallout of reliance on fossil fuels shows, too, that the EKC hypothesis failed to account for far too many factors to be valid. As Popper predicted, humanity’s limited ability to foresee the full consequences of its actions created a crisis that it could have avoided. One of Stern’s ‘income-independent effects’ that applies to all countries, regardless of income, can be seen in regulation at the state level, coordinated at the treaty level.
Popper’s approach of ‘piecemeal legal engineering’ has value in an attempt to approach the energy-consumption problem that DLT poses.
II. Legal Approaches to Global Climate Crisis
a) Problems of Applying the Crime of Ecocide to DLT
The Stop Ecocide Foundation has proposed adding a new crime to the Rome Statute: the crime of ecocide. The roots of this proposal extend back to the 1970s, but the Foundation’s work took shape in 2021. The Independent Expert Panel proposes to define the crime of ecocide as ‘unlawful or wanton acts committed with knowledge that there is asubstantial likelihood of severe and either widespread or long-term damage to the environment being caused by those acts.’ The term ‘wanton’ is defined as: ‘with reckless disregard for damage which would be clearly excessive in relation to the social and economic benefits anticipated.’
Applying the proposed crime of ecocide to the actions of Bitcoin miners and other participants in DLT could be difficult, however. Criminal law penalizes natural persons. Any given individual user of DLT is unlikely to reach the threshold of ecocide. The inherently decentralized nature of technology means that any given individual only makes a small contribution to the environmentally disruptive character of the technology. Even large ‘Bitcoin farms’ or other mass server use of DLT, so far, appears to have the character of a small-to-medium-sized business.
Thus, unless states outlaw DLT itself, participation in DLT activities is unlikely to fall under the definition of ‘unlawful or wanton acts.’ (This would be an artificial restriction of technological progress. Attempts to legally restrict streaming technology in the last 15 years have shown this approach to be futile: streaming is now the norm because legal solutions have been found for the problem of copyright.)
b) Proposal: A ‘Cap-and-Trade’ System for DLT-Related Energy Production
This legal gap in how the crime of ecocide can apply to DLT illustrates states’ responsibility to develop legislation that controls the production, use, and export of energy. Such mechanisms of control include regulating any DLT activity taking place within their jurisdiction.
Addressing DLT’s consumption of energy would need to be done at the source: regulating how the energy that powers DLT is physically produced. For such an energy-intensive industry, a form of ‘piecemeal legal engineering’ could enact legislation mandating that Bitcoin farms, and similar large-scale DLT enterprises, make investments in renewable energy technology that offset their environmental footprint within the energy grid itself.
There is a market logic to this approach. It would be similar to the cap-and-trade system, where regulators impose a legal upper limit on a company’s pollution, and then polluters use market mechanisms to trade any excesses. By paying other companies to plant trees, for example, a polluter can accumulate environmental ‘credits’ that can be bought or sold to other companies if unused. The cap is ratcheted down periodically.
However, DLT’s contribution to pollution is specific: it burdens the energy grid, which still frequently uses polluting technology to create electricity. Therefore, an analogous legal strategy would have to require DLT operations to contribute to green energy production. Enterprises using distributed ledger technology would have to devote a certain percentage of their income to add green energy to the power grid. If a business cannot do so (for example, due to cost), it will exit from the market.
Finally, for such an approach to be viable, it would have to be worked out within the international treaty regime. This would prevent an energy-intensive DLT-based business from simply relocating to a jurisdiction where standards are lax.
c) The Paris Climate Agreement
The 2016 Paris Climate Agreement bound participating states to ensure that the Earth’s average annual temperatures do not exceed 2 degrees Celsius over the average temperatures before the Industrial Revolution. This would be done by taking steps to remove emissions of carbon dioxide and other greenhouse gases from the atmosphere and restricting the output of these pollutants.With 194 state parties, this binding agreement appears to have widespread support.
TheYale Environment Review notes some likely hurdles for the Paris strategy. In effect, there is a point at which environmental damage cannot be reversed. After this point, climate change must, instead, be borne—with all the unpredictable side effects.
How late is too late for policies to have a reasonable likelihood of achieving the Paris Agreement’s 2-degree goal in 2100?
Assuming a moderate mitigation strategy, a 2-degree warming threshold, and accepting a 67% likelihood of remaining below the threshold, the Point of No Return will arrive in the year 2035. If the removal of greenhouse gases from the atmosphere is strong, the Point of No Return gets delayed until 2042. With the same assumptions but a 1.5-degree warming threshold, the Point of No Return has already passed. Greenhouse gas removal, if implemented immediately, might push the Point of No Return to 2026. For a more aggressive (fast) mitigation strategy, the Points of No Return, assuming no greenhouse gases are removed from the atmosphere, will arrive in 2027 and 2045 respectively for the 1.5 degree and 2-degree targets.
So inherently, the Paris Agreement has a time-bound scope of effectiveness. Indeed, it may already be ineffective. Furthermore, its functioning depends on all states actually following through on their obligations.
However, this treaty’s focus on reducing carbon emissions again points toward addressing DLT’s massive energy consumption at the source. As mentioned above, an analogy to the cap-and-trade system for DLT would require businesses that rely on the technology to contribute to green energy production or alternatively exit the market.
Implementing the Paris Climate Agreement in a way that targets DLT’s high energy consumption could entail an Annex to the Agreement, or a similar soft-law modification of its terms, to encourage all state parties to require DLT energy consumption offsets according to a relatively uniform standard. If every country ensures that DLT-based companies adhere to the same offsetting standards, it will modify the industry’s behaviour. The effects of this regulatory approach would have to be periodically reviewed and adjusted.
d) Trade Terms
The 1996US–Gasoline decision of the World Trade Organization (WTO’s) Appellate Body noted that international trade law could not be ‘read in clinical isolation from public international law.’ This meant that, when interpreting the terms of international trade, climate-related treaties and legislation provided relevant context, helping to determine the ‘object and purpose’ of the General Agreement on Tariffs and Trade (GATT) within the meaning of that phrase inArticle 31 of the Vienna Convention on the Law of Treaties. Particularly, stated the Appellate Body, ‘Article XX(g) and its phrase, “relating to the conservation of exhaustible natural resources,” need to be read in context and in such a manner as to give effect to the purposes and objects of the General Agreement.’
While geopolitical considerationshave considerably weakened the WTO, its treaties still govern international trade on a day-to-day basis. These treaties provide security and predictability to the international trading system. Distributed ledger technology has beenportrayed as a potential boon to cross-border trade, making supply chain management simpler and more efficient. Therefore, in such uses, a state may enact legislation to conserve natural resources (such as coal and natural gas, still used to generate electricity in many power plants) in accordance withGATT Article XX(g). The contents of this trade provision are clarified through the Paris Climate Agreement, which thereby gives effect to the GATT’s object and purpose.
Therefore, DLT’s use in cross-border transactions already benefits from the infrastructure needed for this article’s proposal to work. If DLT-related enterprises do not adhere to the regulation requiring them to offset their energy consumption—by contributing to green energy production in exchange for their use of the power grid—states could prohibit their entry into the market. While states are sovereign to enact such prohibitions within their own jurisdictions, they would also be legally permitted to do so, in the case of foreign market entrants, by applying the Paris Climate Agreement to Article XX(g) of the GATT.
While the approach of a ‘crime of ecocide’ no doubt has much merit, DLT does not present a good case for application. Similarly, DLT cannot simply be done away with in the way that regulators unsuccessfully attempted to address streaming technology. Such approaches have characteristics, in this instance, of large-scale overhauls that have unpredictable consequences. In the sense of Popper’s notion of ‘piecemeal legal engineering,’ they may not provide a practical solution.
The infrastructure is in place, through the Paris Climate Agreement and GATT Article XX(g), for states to enact their own legislation to curb DLT-related emissions. In exchange for permission to use the power grid, governments can require DLT market participants to contribute to green energy production, offsetting their energy use. They can prevent foreign DLT entrants into their domestic markets from contributing to pollution through energy consumption.
Such a legal approach would create an ‘environmental Kuznets curve’—not simply through blind faith in the market, but through internationally acceptable standards of state regulation to modify market conditions for planetary benefit. It would require (rather than simply hoping) that the prosperity resulting from technological advancement would partly be used to reduce environmental degradation.
Certainly, we are on the clock. The ‘point of no return’ is impending. Innovative solutions are needed. However, some remedies could be just as disruptive as the problem they address. Instead, it is possible to ‘tweak’ the existing legal infrastructure piecemeal—to confront the issue, observe the results, and modify the legal approach accordingly—while adhering to the objective of protecting the only planet we have.
About the Authors
Mr. Lorenzo Fiorito holds an LL.M in Comparative and International Dispute Resolution from the Centre for Commercial Law Studies, Queen Mary University of London, and is currently a student barrister at BPP Law School.
Managing Editor: Naman Anand
Editors-in-Chief: Muskaan Singh and Hamna Viriyam
Senior Editor: Naman Jain
Associate Editor: Muskaan Aggarwal
Junior Editor: Manav Ganapathy
Preferred Method of Citation
Lorenzo Fiorito, “Distributed Ledger Technology illustrates the Paradox of Productivity: Law may help to Answer it” (IJPIEL, 26 October 2022)