Using only a smartphone app and information on Reddit, thousands of small investors recently demonstrated how personal technology has started to democratize access to financial markets.
Earlier this year, a grassroots group of investors, using Robinhood software, started buying up the stock of struggling video game seller GameStop. They drove the price up so much it created huge losses for the fund managers who had shorted the stock.
The episode is a lesson in how institutional barriers that once made market participation difficult for small investors have been removed, thanks to smartphones and the internet. As the Wall Street Journal noted, individual investors “can communicate instantaneously, band together by the thousands—millions, perhaps—and buy or sell commission-free.”
The case of GameStop is unique in the amount of media attention it garnered, but people across the globe are taking advantage of the same low cost of information and collaboration to tackle some of our most pressing problems. In my field—environmental policy—there has been an explosion in the number of projects that make use of small technology to reduce CO2 emissions, protect wildlife, and reduce ocean plastic. Although these low-key projects don’t receive the attention earned by GameStop investors, their impact is likely to be more meaningful and long-lasting.
Environmental groups across the globe are taking notice. Highlighting the opportunity of small-scale technology, World Wildlife Fund recently noted, “Big ideas are out there, waiting to become bold solutions—we only need the power to connect people with big ideas to the right tech tools, and to experts who know how to put these tools into action.” While political solutions to big environmental problems are frustratingly slow and, often, ineffective, the power of people unified in purpose, connected by information, and empowered by technology is a source of environmental optimism.
How environmental challenges have changed
These new tools are arriving at an important time. Today’s environmental threats are very different from those we faced 50 years ago, a fact highlighted by Bill Ruckelshaus, the first director of the Environmental Protection Agency. “Over the course of the past four decades,” he wrote in the Wall Street Journal in 2010, “we have largely brought the point-source pollution problem under control. By the same token, we have made little or no progress on non-point-source pollution,” like runoff from streets that carries bits of tire rubber and brake dust into the water.
Lake Erie offers a good example of the changing nature of environmental challenges.
When heavily polluted rivers like the Cuyahoga River used to catch on fire, as was famously documented in 1969, they became powerful symbols of the desperate state of American rivers. The primary cause of the pollution in the Cuyahoga and in places across the country were single-point sources—large outfall pipes that delivered massive amounts of pollutants directly into the water. When the EPA was created two years after the 1969 river fire, the agency focused on these major causes and dramatically reduced water pollution.
Today, not far from where the Cuyahoga drains into Lake Erie, another type of water pollution is growing: algae blooms fed by the phosphorous in water runoff from nearby agricultural lands. Researchers at Heidelberg University found the cause by recognizing that phosphorous levels in the lake surged after heavy rains carried fertilizer from fields into streams and rivers that flow into Lake Erie. The sources of runoff that cause the toxic blooms are widely distributed and difficult to target. Although each individual source contributes only a small amount to the problem, the aggregation of pollutants contributed to several “do-not-drink” warnings around the west end of the Great Lake.
Acknowledging these important changes, Ruckelshaus noted, “Yesterday’s solutions worked well on yesterday’s problems, but the solutions we devised back in the 1970s aren’t likely to make much of a dent in the environmental problems we face today.” In the same way that large, concentrated sources of pollution required a large, focused solution, distributed sources of pollution require distributed solutions. These solutions are now available thanks to technology that aggregates individual efforts in the same way that rainfall aggregates the pollution that is harming Lake Erie.
Technology reduces the cost of collaboration
The GameStop stock-buying example shows that such personal efforts are not only possible but can have a meaningful impact. The key reason is that technology has dramatically reduced the costs of collaboration, a problem identified by Nobel Prize-winning economist Ronald Coase.
Imagine ordering pizzas for 100 people, promising that everyone would receive the toppings they want. This would be a difficult and time-consuming task. The time and resources required to gather the information—the transaction costs—mean it would be difficult to get the type and amount of pizza each person wants. The likely outcome is that you would simply order a generic combination of cheese, pepperoni, and vegetarian pizzas. Most people will be satisfied, but the solution will be far from optimal.
This is the problem identified by Coase. Information and coordination have costs, and the higher the costs, the less likely a solution will be optimal for everyone involved. Coase used the example of a factory that creates air pollution that causes health problems in a community. The company could find out how much it would take either to eliminate the harm or compensate each resident individually, but finding all those comparative amounts is virtually impossible. In such cases, government agencies act as a surrogate for those harmed by the pollution. Coase explained, “There is no reason why, on occasion, such governmental administrative regulation should not lead to an improvement in economic efficiency. This would seem particularly likely when, as is normally the case with the smoke nuisance, a large number of people are involved and in which therefore the costs of handling the problem through the market or the firm may be high.”
Reducing transaction costs, however, creates the opportunity for better solutions. Want everyone to get exactly his favorite type of pizza? A smartphone app could easily let everyone enter his or her favorite toppings and create the perfect order—even for those who want pineapple. The cost of gathering and sorting the information is virtually zero when data are individually entered and then organized by a computer.
We are only beginning to put that same principle to work solving environmental problems, but there are already several exciting examples.
Improving environmental solutions with information
Improving access to public transit has long been identified as a key to reducing transportation-related CO2 emissions. Riders, however, have to build their schedule around the routes and times selected by transit planners who have imperfect information. A company called Pantonium is trying to change that, improving the efficiency of bus routes by letting riders determine where the buses go.
[pullquote]Small actions by thousands or millions of people can aggregate to produce big environmental benefits.[/pullquote]
The city of Belleville, Ontario, faced a complex challenge determining the timing and routes for its transit system. “During the day you have irregular demand,” said Remi Desa, one of the founders of Canada’s Pantonium. “In the evening you have shift work or people going to different places. It is really difficult if you don’t have an understanding of where people want to go.”
Pantonium developed an app that allows people to indicate where they are, where they want to go, and what time they need to arrive. That information is combined with some other parameters—the city says no ride should take more than 45 minutes, for example—and an algorithm creates routes on the fly, relaying turn-by-turn instructions to drivers. The results have been positive for riders and for the environment.
After launching the app, ridership for the on-demand bus routes increased by 300 percent. It also became clear that the existing routes did not match the needs of potential transit riders. The flexibility of the routes also allowed drivers to skip stops not requested by users. Using a more direct route not only made the trip faster for riders but reduced CO2 emissions by reducing miles traveled.
Making the system more customer-friendly made public transit a better option for some trips. Running just five buses, Pantonium estimates an annual CO2 reduction of about 400 metric tons, the equivalent of taking 100 cars off the road.
Like the theoretical pizza topping app, reducing the transaction cost of gathering individual information made an extremely complex problem simple. This isn’t the only example.
iNaturalist is an app that helps citizen scientists identify and report counts of plants, insects, and wildlife. It can also be used to mark the location of invasive species for eradication. Last year, I participated in the “Great Scotch Broom Census” hosted by the Washington Invasive Species Council using iNaturalist. The Council and local governments used the data to find and remove the species.
The app is a big improvement over the previous system in which people would simply phone in reports to government offices. In many cases, reports from the public misidentified species, mistaking native plants for invasive that look similar. The iNaturalist app combines artificial intelligence and a photo which allows local governments to confirm the identity of the plant species reported before they make a trip to that location.
Reducing electrical bills and increasing environmental benefit
Personal technology is also reducing the barriers for individuals who want to use renewable electricity and save money. Octopus Energy is a new utility built on this principle.
The fastest-growing utility in Great Britain, Octopus Energy, was recognized as the “Tech Company of the Year” at the 2020 National Technology Awards in London. The innovation at the center of its success is “Kraken,” software that automates the energy system and engages customers with flexible pricing and tools that allow them to adjust their energy use, save money, and cut CO2 emissions.
Daily electricity prices typically increase in the early evening as demand increases and energy producers increase generation supplied by natural gas or coal-powered plants. Shifting consumer demand away from these peak hours not only saves money but also reduces the amount of fossil-fueled power required to meet the needs of homeowners.
Octopus has fully embraced this approach, combining price incentives with technology that allows customers to adjust how they use electricity. On very windy nights, Octopus even offers negative prices, actually paying people to charge their electric cars or run clothes dryers to absorb excess generated electricity.
Customers and innovators are jumping on board.
Octopus makes its real-time prices and projections available on an “application programming interface” (API) that can be integrated into smartphone apps developed by third parties. Several apps have been developed to help people optimize their energy use, including a system that schedules heat pumps to turn on or off based on price. Customers are reaping the rewards.
According to Octopus, during the last eight months of 2020, those using the “Agile” pricing tariff saved an average of £250 ($325), compared to the standard tariff offered by the utility.
Allowing consumers to respond to prices and shift demand away from peak hours also reduces CO2 emissions. The system is so flexible that Octopus created a “Fan Club” tariff that reduces prices when two wind turbines owned by the utility are spinning. Octopus also acquired Evolve Energy, a Texas-based utility that uses tools like the Google Nest thermostat and artificial intelligence to reduce a home’s CO2 footprint by as much as 70 percent without much change.
What the Robinhood app did for small financial traders by reducing the cost of transactions, Octopus and Evolve have done for homeowners and electricity—making it easy and inexpensive for people to respond quickly to price signals. People can argue about Robinhood’s impact on financial markets, but for Octopus and Evolve customers the result has been the reduction of electrical bills and more environmental benefits. With 17 million electricity accounts now using Octopus’s Kraken system, the impact is being felt at the grid level. During a windstorm in November 2019, grid managers in Great Britain even tweeted a “big thank you” to Octopus customers for helping absorb the surplus electricity generated by wind power.
Democratizing environmental action
The grassroots “buy” run on GameStop stock demonstrated how reducing the barriers to information and action is a powerful force that can produce consequential results. Those events drew attention precisely because they were both meaningful and somewhat controversial.
Quietly, the same forces are at work in the environmental sector—reducing CO2 emissions, magnifying the role of citizen scientists, and addressing distributed sources of pollution that government agencies find difficult to address. The growth of personal environmental technologies is not new. What is now clear, however, is how small actions by thousands or millions of people can aggregate to produce big environmental benefits.