The Role of a Digital Pound in Promoting Sustainability

First published by Digital Pound Foundation, co-authored by Claire Conby

Executive Summary 

The Digital Pound Foundation Use Case Working Group has been working together to identify, develop and refine a series of key use cases that can be used to illustrate the potential of a retail digital Pound for the UK citizen. With a focus on innovation and use cases that cannot easily be served using existing payment rails, we seek compelling examples that highlight efficiency and new functionality. 

During this work, it became clear that whilst the availability of a digital Pound to the retail user has some benefits, predominately in terms of enabling choice (e.g. for those seeking a digital form of physical cash), the wider benefits are only fully realised when you have a digital ecosystem that supports and interacts with the digital Pound. We’re therefore not exploring use cases as a theme in isolation, but rather examining how a digital Pound makes it easier to leverage the wider ecosystem benefits of a new era of the Internet. 

In this document, we focus on the broad topic of sustainability, exploring different areas where the digital Pound may become an enabler of more eco-conscious practices.  

Sustainability has become one of the most pressing challenges of the 21st century. Climate change affects us all and preventative action is becoming an increasing priority, with governments and regulators imposing more requirements on companies to ensure they meet their ESG commitments. Individuals are more aware of the impact of their actions and demand the companies and brands they buy from assume responsibility.  

The financial system, supported by robust and secure digital currency, has an important role to play. This paper sets out our thinking on how a digital Pound can play a pivotal role in supporting sustainability efforts. We’ll delve into significant aspects of how the digital Pound can support the circular economy, promote efficient resource usage and streamline the disbursement of grants. 

Introduction  

The Digital Pound Foundation Use Case Working Group has been working together to identify, develop and refine a series of key use cases that can be used to illustrate the potential of a retail digital Pound for the UK citizen.  

The group has focused on five use case themes: 

• Making tax effortless 

• Only pay for what I use 

• Control your money 

• Supporting sustainability 

• Receiving grants you are due 

This paper will explore the Supporting sustainability theme. Of particular relevance here is the opportunity to work through case studies where a digital pound is a direct replacement for physical cash. 

Use of a digital Pound means that micro-cash rewards can continue but in a digital form, aligning with the core rationale for a CBDC. The financially excluded can also receive their rewards where physical cash would not make sense for cost or distribution reasons.

At the other end of the spectrum there are transactional opportunities which are typically too large for physical cash which we will also explore.

Circular Economy  

The circular economy is a sustainable economic model that aims to minimise waste, make the most of resources, enable reuse and reduce the environmental impact of production and consumption.  

Unlike the traditional linear economy, which follows a “take, make, dispose” pattern where resources are extracted, products manufactured, used and then discarded as waste, the circular economy seeks to create a closed-loop system where resources are continuously recycled, reused, and repurposed.  

A digital Pound can support the development of an efficient, convenient and transparent circular economy. It can serve as the foundational platform on which innovations can flourish, interconnecting technologies including Blockchain, Artificial Intelligence (AI) and the Internet of Things (IoT). This not only promises a reimagining of today’s inefficient services but also paves the way for a sustainable future. 

In order to explain how a digital Pound could achieve this, we’ll use an example of a family of 4 – the Wilsons. They are eco-conscious and teach their children how to make sustainable choices. They recycle and aim to save water, gas and electricity. Aside from making a positive impact on the environment, they are always looking to save money and this is where innovative solutions powered by the digital Pound come into play. 

 In the following sections, we will explore how a digital Pound can empower the Wilson family across various aspects of their sustainable lifestyle:  

• Recycling via Deposit Return Schemes  

• Pay-As–You–Recycle Waste Initiatives 

• Clothes Recycling Rewards  

• Circular Economy Sharing, Reselling & Rental Platforms  

• Pay-Per-Use arrangements 

• Grant Disbursements  

Recycling via Deposit Return Schemes  

The Wilson family are active recyclers. Past schemes to encourage recycling, such as paper voucher rewards, receiving cash in exchange for returning empty bottles and cans to store, or free postage to return packaging to the manufacturer have good intentions, however often lacked proper incentivisation and were inconvenient and time-consuming. 

With the advent of the digital Pound, the Wilsons have witnessed a remarkable transformation in their recycling experience. Now when they drop off recyclables at a reverse vending machine, the reward process is instant and hassle-free, with refunds automatically, efficiently and directly credited to a digital wallet held on their smartphone, upon validation of item returned.  

This convenience not only motivates the Wilsons to continue with their recycling activity, but also allows them to accumulate refunds over time. They can then be used for something more meaningful, be it purchasing eco-friendly products, supporting a local charity, or simply contributing to their family budget. The digital Pound has seamlessly integrated recycling incentives into their lives, driving positive environmental impact and financial rewards. 

Pay-As-You-Recycle Waste Initiatives 

The Wilsons appreciate the “pay-as-you-recycle” model, where they are charged based on the amount of waste they generate. Using the digital Pound, they can easily track their waste disposal costs in real-time and have set up automatic payments from digital wallets, ensuring they only pay for the waste they generate every time their bin is emptied. This then enables the taxes paid for refuse collection to reflect the amount collected and for the Wilson’s to benefit from reductions where items are recycled. They enjoy being rewarded for their recycling efforts.

Efficiency is further enhanced by their smart bins which contain Internet Of Things (IoT) sensors. The community that the Wilsons live in decided to implement these and they recognise not only the amount of non recyclable waste that must be paid for, but also recycling not covered by the formal Deposit Return Scheme, such as paper and certain plastic containers which will be rewarded.  

When the Wilsons dispose of a notebook, newspaper or washing-up liquid bottle, the sensors in the bin recognise what type of material it is made from and trigger a smart contract execution. The reward amount due, even if it’s just a couple of pennies, gets credited to the Wilsons’ digital wallet automatically and instantly. This innovative waste management system doesn’t rely on intermediaries to run calculations and payments in the background and is far more convenient, increasing the Wilson’s recycling activity. 

Further, when out and about the Wilson’s like to pick up recycling from the street in an effort to keep their neighbourhood looking clean and tidy. Street bins equipped with a device register the person disposing of the item and automatically credits their account. The Wilson’s children particularly like how this boosts their pocket money! Sometimes their school runs beach clean and neighbourhood initiatives to encourage their children to pick up litter and to learn about recycling. The children are rewarded with credits to the school account, and this contributes to new play equipment and learning resources.

Clothes Recycling Rewards 

As parents, the Wilsons are well aware of how quickly their children grow. The never-ending cycle of outgrown clothes presents an opportunity to promote sustainability while managing their family budget. They actively participate in clothes recycling programs and when they bundle up their family’s used clothing, they’re rewarded with small payments (usually calculated per kg) facilitated by the digital Pound and deposited directly into their digital wallets. Whether they use this for new clothing or allocate it to other family needs, the Wilsons appreciate the eco-conscious and budget-friendly approach. Some of the Wilson’s friends enjoy the cash rewards received for clothes recycling, however do not have bank account facilities. They are able to receive their funds in the form of digital currency, directly to their CBDC wallet on their smartphone.

Circular Economy Sharing & Rental Platforms 

The Wilsons own an electric car and are always mindful of charging point locations. Their friends, who live in various locations both in and out of town, are happy for the Wilsons to park on their driveway and use their charging point while they are away and are paid automatically for any usage.

Taking this one step further, when the Wilsons don’t need it they make their car available for others to use and get paid automatically from the moment the car is removed from their drive to when it’s returned. Smart contracts handle the payment, insurance, damage protection etc with devices at home & in the car (on-board cameras, damage detection etc) recording usage plus any damage that might occur which is automatically covered by the insurance linked with the smart contract. 

You may also be interested in: From NFTs to Smart Contracts: The Digital Pound’s Role in Modernising Car Purchases

Pay-Per-Use Arrangements 

The Wilson family has always been mindful of their utility consumption and nowadays the importance of conserving the worlds’ resources is as important as day-to-day family budget considerations.  

The Wilsons have smart meters installed for water, gas and electricity, which measure daily consumption in real-time, figuring the exact amount due each day.  No more prepayments, overpayments or the anxiety of receiving surprisingly high utility bills and the hassle of contacting the utility company about them.  Instead, the family gets full visibility into their utility usage with instant billing based on exactly what’s used.  

Further the Wilson’s smart meters are integrated with an AI system that monitors consumption and provides insights and recommendations on how to be more efficient and sustainable. The system may suggest how to optimise heating settings, an upgrade to more energy-efficient appliances or alert them if their tap is leaking.  Further, the system may suggest an alternative utility provider that would be more cost effective given the Wilson’s rate and pattern of usage.

Pay-per-use models often involve micropayments for small amounts of resources consumed and this is exactly where a digital Pound can add value and help create an efficient, secure and transparent ecosystem.

Grant Disbursements  

From time to time, the Wilsons receive grants for eco-conscious initiatives such as installing solar panels or other energy-efficient home improvements.  

Government entities responsible for grant disbursement currently rely on legacy procedures and payment methods, which can result in delays and fraud. With a digital Pound the process can be made much more efficient, with payments released only when certain conditions are met – for example when images of the Wilsons’ solar panel installation and associated energy readings are submitted. 

Once a grant is approved, it can be automatically allocated to the recipient’s digital wallet, eliminating the need for manual processing, reducing administrative overhead. This type of payment brings traceability and transparency which reduces the risk of misallocation or misuse of funds and government agencies can additionally get access to real-time reports allowing them to monitor impact and effectiveness. 

Recently there have been two clear examples of challenges that the UK government has faced in grant disbursement: for Covid and Energy Subsidies.  

Over £98bn of Covid grants were distributed and whilst necessary to support 15 million jobs, the total value of error and fraud under highly pressurised circumstances was estimated to be £3 – £7bn.  

Energy subsidy grants have been offered and days before the voucher expiry deadline, more than £100m worth were still to be claimed, largely by those using prepayment energy meters – who often are on low incomes and therefore are likely to need financial support the most. This lack of redemption was thought to be due to having to apply to get the money, compared with others with energy provider accounts whose grant was applied automatically. 

With a digital Pound, both of these grants would be distributed directly using the mobile phone number as an identifier and redeemed directly to a wallet, bank account or automatically as a pre-payment meter top-up through a smartphone application. There would be significant distribution efficiencies, reductions in cost and fraud plus the ability to ensure those most in need receive the grants they are due.

Building blocks and why a digital Pound is needed?  

The development of a sustainable circular economy is underpinned by several critical building blocks which are essential in creating a robust and efficient ecosystem that fosters sustainability:  

• Blockchain technology:  Blockchain technology ensures transparency, traceability, and security in financial transactions and data sharing. It plays a critical role in the circular economy ecosystem by recording transactions related to resource management, recycling, and sharing. 

• IoT and smart sensors: The Internet of Things (IoT) and smart sensors are instrumental in tracking and monitoring resource usage in real time. These devices are embedded in various ways, from smart meters for utilities to sensors in recycling systems and sharing platforms that allow real-time recognition of consumption and automated billing.

• Smart contracts: Smart contracts automate and enforce the terms of agreements in a transparent, tamper-proof manner. In the circular economy, they facilitate efficient and trustworthy transactions, from pay-per-use models to recycling incentives. 

• AI and data analytics: Artificial Intelligence (AI) and data analytics provide insights, recommendations, and predictive capabilities that enhance resource efficiency and sustainability. These technologies are critical to optimising resource use in real time. 

Among these building blocks, the digital Pound emerges as a pivotal and indispensable component, enabling:  

• Efficient and cost-effective micropayments: The circular economy relies heavily on micropayments – tiny amounts of money that are being transferred very frequently under models such as pay-per-use. Their low value and high frequency means that traditional payment methods, such as credit cards or bank transfers with their relatively high transaction fees are impractical. The digital Pound offers a cost-effective alternative, as it streamlines these small transactions without incurring excessive fees. 

• Instant transactions: The speed of micropayments is paramount and with the digital Pound micropayments can be processed instantly. This speed is crucial to various applications from recycling incentives to IoT-based micropayments, ensuring that users receive their rewards or pay for services in real-time. 

• Transparency: Digital Pound transactions are recorded on a ledger, providing transparency and immutability (records cannot be deleted). This transparency is key for micropayments enhancing trust and accountability, with users easily able to view their payment history – reducing the risk of disputes or discrepancies. 

• Enhanced security: Security is a top concern for micropayments, with the digital Pound ensuring a high level of protection. It offers protection against fraud and unauthorised access, safeguarding users’ digital wallets and their financial assets. 

• Digital wallets: Digital wallets, linked to a digital Pound, allow individuals and businesses to store, manage, and transact digital currency securely. Such wallets are at the core of payment and incentive systems for the circular economy. 

• Programmable payments: Programmable payments enable users to set predefined rules for transactions, streamlining recurring payments and ensuring that users maintain control over their financial interactions. 

With the right design, the digital Pound has the potential to revolutionise the way we approach sustainability and resource management in a circular economy. It can serve as a trusted, secure and accessible digital currency, connecting various building blocks to streamline microtransactions and foster innovation.