Prediction Markets Could Create the Missing Incentive for Climate Action

11 Aug 2025 - Raúl Santiago Molina

We know climate change is real. We know it’s happening now. And yet, we do nothing about it. We treat it as something we prepare for rather than something we actively avoid and nobody thinks they can make a difference. But what if there was a way to change that, and even profit from climate success?

The main problem is that there’s no clean, scalable economic incentive tied to making climate progress happen. Sure, there are subsidies, credits, and ESG funds. But for most people there’s no direct way to profit from success in hitting climate targets. For young people and entrepreneurs, this means that betting your career on climate just looks like a bad financial decision.

For example, if the U.S. meets its 2030 goals, the benefits are diffuse, global, and slow to materialize. And that’s exactly where prediction markets come in.

Enter The Invisible Hand

Ask anybody out on the street and if you gauge the common sentiment they’d say that the probability of solving climate change is extremely low. Heck, even people working in climate believe it’s extremely low! This for sure sounds like a market opportunity to me.

Prediction markets let people bet on the outcome of future events. A contract like “Will the U.S. cut net emissions 50% below 2005 levels by 2030?” trades between $0 and $1, reflecting the market’s collective probability estimate.

Right now, if that probability is low, for example 25%, a “YES” share might cost $0.25. However, if the U.S. does meet the goal, that YES pays out $1.

If you are a founder, policymaker, or any kind of person who can move the needle towards that goal, you could buy YES contracts and the market will reward you if you succeed. It’s climate impact turned into a personal hedge.

Towards a Climate Progress Portfolio

For this to be realistic, it makes sense to track core milestones to reach a broader goal. Think “Will wind + solar account for more than 35% of all U.S. electricity by 2030?” rather than “Will the U.S. meet its 2030 climate goals?”.

We can re-imagine big commitments as a sort of index fund for climate progress, composed of many sub-markets that are instrumental for it.

As a quick exercise, I asked GPT-5 for other examples of such sub-markets:

• Coal ≤ 8% of U.S. generation in 2030

• ≥ 100 GW of grid-scale battery capacity by 2030

• EVs ≥ 40% of new car sales in 2030

• ≥ 5,000 miles of new high-voltage transmission lines energized by 2030

• U.S. oil & gas methane emissions ≤ 150 MMTCO₂e in 2029

Each of these markets is independently resolvable from public data, and together they form a high-correlation proxy for the national target. If all these resolve YES, the U.S. almost certainly hits its climate targets.

Why It Works

• Aligned incentives: If you help drive one of these metrics, your YES position gains value.

• Public price signal: The basket’s “YES price” becomes a real-time indicator of national climate trajectory, visible to policymakers, investors, and the public.

• Hedging tool: Utilities, automakers, and industrials could hedge policy or technology risk.

• Capital unlock: YES positions can be used as collateral for loans to fund climate projects.

And indeed, unlocking capital is where it gets really interesting. In theory, a founder could: take a loan, use part of it to buy YES across the basket, spend the rest on their climate project and, if the project succeeds (helping hit the milestones), the YES value rises which repays or refinances the loan.

It’s the same basic logic as a startup founder taking stock options: you get upside if your own success changes the odds of the big goal.

Why This Is Hard and Why It’s Worth It

Launching this tomorrow would require many things, a regulated exchange partner to list the markets (e.g., Kalshi or Polymarket), initial liquidity so traders can get in and out without big slippage and investors willing to accept YES contracts as collateral.

However, if this works, here’s what we could see:

• Better climate forecasting: Public odds for key milestones update daily.

• Market discipline on policy: Lawmakers see a direct market reaction to their actions.

• Founder empowerment: Climate entrepreneurs can literally “bet on themselves” and fundraise against their own projected impact.

• Hedging against inaction: Investors and companies can offset losses from a slow energy transition.

• A cultural shift: Climate success becomes something people talk about like sports odds, creating urgency and engagement.

And indeed, the public has already invested money in such markets: in 2024, Polymarket had a trading volume of $14M on what would be the Global Heat Increase at the end of the year. So I’m hopeful a lot more money can and will be allocated on climate markets under the right incentives.

There has also been some work exploring the idea of prediction markets as a way of getting more accurate forecasts (see here and here). Although the inspiration behind this blog post leans more towards the assymetric upside of proving the markets wrong.

Why Publish This Publicly?

I’m not building this right now. I don’t have the capital, platform, or regulatory setup, and definitely not the experience. But this idea shouldn’t sit in a drawer. It belongs in the open, where anyone (e.g. exchange operators, climate investors, fintech founders) can take it forward.

If you run a prediction market, think about creating this pack. If you’re a climate VC, think about seeding the liquidity. If you’re a founder, imagine using a YES-backed loan to scale your project.

The missing incentive for climate action might just be a price.

Disclaimer: ChatGPT helped me write a lot of this because, trust me, I am really not a good writer. But I believe the idea is worth sharing.

Also would like to thank my friend Sebastian for helping me proof read and edit this post