Hey, it’s Gavin with your weekly recap of all things internet & money.

This week: missing the forest for the trees with a Hollywood-worthy carbon credits scheme. A new proposal for bank data sharing. And Coinbase feels the luck of the Irish.

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STORIES OF THE WEEK

1) Opening the banks 🏦

The CFPB released a long-awaited proposal on financial data sharing and open banking. Another dose of complexity? Or is the proposal a step in the right direction when it comes to empowering consumers and democratizing access to financial services?

For their part, the Biden administration and CFPB want to see a banking system that is more consumer friendly. They’re hoping to make it easier for consumers to switch banks, bar financial firms from "hoarding" consumer data, and require greater data security from fintechs.

Of course, there’s still a long way to go. There’s a comment period, and you can bet that big banks will have their fair share of comments.

• 📊 Digits: The largest banks ($500b in assets for depository institutions and $10b in revenue for non-depositary) will have 6 months to comply. Smaller institutions will have up to 4 years.

• 💬 Words: “Today’s rule will help ensure financial companies compete based on service quality and pricing” said Lael Brainard, National Economic Council Director.

What it means →

The early view seems to be that this version of the rule would be a win for fintechs and smaller institutions, while there’s less in it for the bigger banks. The proposal bars data providers from charging fees for API access, pushing the cost burden entirely onto the banks. The proposal also calls for a standard-setting body that is itself “fair, open, and inclusive,” but it’s unclear how this will interface with existing standards setting bodies.

Not that many people walk away from an interaction with their bank and say “wow, what a pleasant experience. That was so easy. I love faxing things in 2023.”

So there’s reason to be hopeful that the rule could spur some needed innovation, reduce the chokehold that banks have on transaction data, and lead to a better experience for American consumers.

2) Forest follies🌳

When South Pole, a major player in the carbon offset market, initiated a project in Zimbabwe's Kariba forest, it wasn't merely an effort in land conservation. The project purported to offset tons of CO2 emissions by preserving forest lands that would otherwise be subject to deforestation.

Heidi Blake has an unbelievable investigative piece in The New Yorker that illustrates how the reality is far murkier. South Pole's project, it turns out, didn't prevent as many emissions as claimed. (This isn’t the first time that South Pole has received bad press either.)

In some ways, the story is ripped from a Hollywood screenplay. It includes scrappy startup founders with a big dream, an eccentric Zimbabwean entrepreneur and landowner, and allegations of fraud and systemic failures in the carbon offsets industry.

• 📊 Digits: South Pole estimated 42 million carbon credits for the Kariba project; subsequent analysis found only 15 million could be backed by avoided emissions.
  

• 💬 Words: "The big majority of what you see in the market, in my view, boils down to a lot of greenwashing, a lot of marketing, a lot of money-making," said one of the original founders of South Pole.

What it means →

The story raises fundamental questions about a pretty important piece of the climate finance landscape: carbon offsets.

These offsets are supposed to be a fairly straightforward trade: you emitted a bunch of carbon, so you pay money to buy credits. Those credits represent carbon that would have been emitted, but wasn’t, because you paid to—for example—protect a forest!

But the fundamental problem is that you’re offsetting real emissions today with the promise of a forest being protected in the future. And you have to make calculations about how much of the forest WOULD have been cut down if you hadn’t protected it. You need a reference area, and satellite mapping and predictive modeling. There’s complexity and subjectivity injected into the process.

There’s also a misalignment of incentives. South Pole and similar entities get paid more $$ the more credits they issue, so they’re incentivized to…sell more credits. And when it turns out that maybe your forest isn’t worth as many credits as you thought? Well, you have a reason to either come clean and blow up your business, or try to obfuscate the truth.

The South Pole story shows some of the limits of carbon credits, and the need for other alternatives when it comes to tackling climate change.

Quote of the week