A Lunar Development Corporation could address many of the issues associated with sustainable lunar development and settlement within existing treaties. (credit: Anna Nesterova/Alliance for Space Development)
With the impressive achievements of both private companies and governments over the last decade, it is clear that lunar development will become a reality soon whether we are ready for it or not. The significance and consequences of this event on human history cannot be overstated. How this new settlement occurs will have enormous implications for countless generations.
As of now, we have not yet laid an adequate framework for managing activities on the Moon in a way that will promote its peaceful and sustainable development. Absent this framework, a land grab will likely soon develop that will lay the foundations for future conflicts. We urgently need a paradigm that avoids both repeating the destruction of the colonial era or creating a new tragedy of the commons on the Moon. Instead, we need to establish, in advance, an institution that links all of humanity’s interests to the peaceful and sustainable cultivation of the Moon.
The Lunar Development Cooperative (LDC) is such an institution. The LDC can scale from a simple membership-based service provider to the primary institution for resolving issues related to activities on the Moon, depending on how many people choose to participate in it.
The LDC is designed so that everyone is guaranteed to receive more value from the organization than it costs them. This is because the LDC only earns revenue through collecting the value that it, itself, gives to sites on the Moon and through selling services in an open market. It does not tax or otherwise capture any of the value lunar residents create themselves, including from the buildings, natural resources, or other goods or services they develop.
Nations, and the corporations and individuals within them, are free to go it alone and not participate in the LDC, but by doing so they would be at a serious disadvantage, because they have to fund lunar infrastructure and services on their own. They also cannot create guidelines and standards for the Moon that have the same level of global political support.
The LDC strongly upholds and helps implement the Outer Space Treaty of 1967. It also makes a top-down, intergovernmental regulatory authority unnecessary. The LDC instead institutes international cooperation for lunar activities and makes the benefits of the Moon available to all, including developing countries. By collecting the use value of the sites it licenses, the LDC helps prevent national appropriation of territory and ownership of land on the Moon. It also protects the rights of license holders to the assets they create.
Organizational structure of the LDC
The LDC is a public-private cooperative corporation consisting of both national government (sovereign) investors and non-state investors. It has a shareholding and management structure similar to other public-private corporations, with 51% or more of the equity in the LDC reserved for non-state/private investors, and 49% or less reserved for sovereigns from around the world.
The LDC encourages investment from as many individuals as possible. It aims to make its shares publicly tradable relatively early in its life, which would enable individuals and other non-state parties to invest in the LDC at an affordable minimum investment (e.g. $1). The average person in a developing country, schoolchildren, and individual space enthusiasts can all have a share in the Moon’s future.
The proportion of a nation or non-state investor’s equity share is determined by the amount of their capital contributions and the series in which they invest. Initial investors get the lowest cost shares, giving them the largest ownership proportionate to their capital contributions, incentivizing them to invest early.
However, developing countries can acquire stock options in the LDC at early round valuations, so that they can have a larger share in the LDC than their economy would ordinarily allow in the near term. An example: When the LDC is formed, its stock is priced at $1 per share. A certain developing country chooses not to make a major capital investment in the LDC at this time; however, it purchases stock options for $0.10 each as part of a pool of options set aside for developing nations. Five years later, the LDC’s share price is $5 per share. The developing country exercises its options and purchases shares for the original price of $1 per share.
Safeguards prevent any one person or state from acquiring significant control over the LDC. After a certain point in the LDC’s development, no shareholder can hold more than certain percentages of the state or private portions of LDC equity. For example, each state might be limited to no more than 10% of the shares reserved for states and each private party might be limited to no more than 5% of the shares reserved for non-state entities. Moreover, the shareholders’ agreement includes strong conflict of interest policies and protections for minority shareholders. It is very difficult, if not impossible, for any shareholder to steer the LDC to serve their own interests at other shareholders’ expense.
The LDC can be incorporated in any one of the jurisdictions of its founding state shareholders. Alternatively, the LDC cannot incorporate in any particular state (as is the case with other multilateral institutions) but instead select a particular country’s laws to govern disputes in its shareholder’s agreement. Its shares can be traded on either one particular stock exchange, on several different stock exchanges, or even on its own blockchain exchange.
LDC shareholders vote to appoint a board of directors to oversee the organization. The board of directors appoints management, which will increasingly consist of lunar residents. The LDC is also informed by a board of advisors, to which any nation or indigenous people group may send a representative regardless of whether it invests as a shareholder. The Board of Advisors appoints an independent inspector general to hold the LDC accountable and issue public reports on its actions. All parties are bound to a shareholders’ agreement and to bylaws that govern the LDC.
The shareholders’ agreement requires that, as the Moon develops, larger and larger portions of its shares are owned by lunar settlers themselves. The LDC will do this by issuing new batches of shares available only to lunar residents once certain milestones of lunar population and returns for existing shareholders are reached. This policy avoids “foreign” control over lunar society and makes the LDC a true cooperative.
Figure 1: LDC organizational chart
LDC services to members
The LDC provides an adaptive framework for supporting a sustainable lunar economy. It can offer its license holders either a minimalist, background layer of support or more intensive services depending on their needs and desires.
The LDC offers membership to anyone planning to carry out operations on the Moon. In the early years, members pay only a nominal fee in exchange for utilization licenses. The licenses allow members access to LDC infrastructure and services for an initial period of 20 to 30 years. Members may select any site they wish, provided the site is not off-limits (such as for environmental or historical purposes) and use of the site will not interfere with other parties’ pre-existing use. License holders must begin activities on the Moon within a defined period of time (e.g., five years) or the license terminates.
The LDC does not claim territory for itself, but merely provides services to the sites its members choose to utilize, wherever those may be. Non-members may utilize sites without an LDC license, but they will not have access to LDC services. The LDC will aim to make its services valuable enough that virtually all lunar enterprises want to be members.
Once a member begins using a site, its license effectively helps protect it from interference at that site for the duration of the license. The LDC license prohibits members from interfering with other members’ uses, and states that participate in the LDC are required to prevent their nationals from interfering with LDC license holders’ activities. Over time, the LDC will work toward broad international recognition of non-interference standards. The LDC will have an economic incentive to build lunar infrastructure to minimize risks of interference, such as protective barriers and launch pads.
LDC members may choose to pay separate fees for many services a la carte. Because license holders purchase these services voluntarily, the services are guaranteed to create more value than they cost. If they do not, people will not buy the services from the LDC.
Examples of services the LDC proposes to offer members:
- Improving and streamlining launch clearances
- Deploying orbital and surface telecommunications and remote sensing infrastructure
- Offering insurance and emergency rescue services
- Building translunar space infrastructure to facilitate access to the Moon
- Offering backup reserves of oxygen, water, batteries, and other necessary goods
- Legal and diplomatic protection against harmful interference
- Blockchain-based site-utilization registry to identify interests and avoid disputes
- Establishing trading outposts for supplies, such as mining equipment, food, and other goods and services useful for human habitats
- Building landing pads and protective barriers
- Providing transport and logistics services, including warehouses, landers, surface transportation, and other distribution infrastructure in orbit and on the lunar surface.
- Developing common-use infrastructure to support several settlements in an area (power plants and distribution grids, spaceports, common areas, etc.)
- Developing common standards for technical processes and commercial goods based on evolving practices
- Forming community partnership agreements between license holders and groups on Earth (e.g., educational live streams with schools, etc.)
- Gathering and disseminating useful information to lunar settlers
- Developing standardized contracts for use in lunar transactions
- Facilitating the creation of dispute resolution systems, including arbitration and courts
- Codifying an evolving body of common law for the Moon based on widespread customs, commercial and civil best practices, court and arbitration decisions, and national legislation.
The LDC tends to concentrate infrastructure and public services in certain areas to encourage clusters of development, or cities. The optimal locations for these cities are areas with natural advantages, such as the Peaks of Eternal Light, permanently shadowed craters, and lava tubes. A cities-based approach helps avoid a “resource curse” by encouraging the formation of a diversified economy, rather than one based exclusively on natural resources.
To avoid monopolization, the LDC must not depend on these services as part of its long-term business model. As a result, the LDC’s bylaws:
- Prevent the LDC from restricting competition in all service areas;
- Force the LDC to support other providers of similar services as soon as they exist;
- Sell off service lines once a competitive market for them can form;
- Set regulated rates for any natural monopolies; and
- Require that an increasing share of the LDC’s income come from site-utilization licenses.
While the LDC’s services will provide a small, early revenue stream, they primarily serve to increase revenue from site-utilization licenses over the long term. The services will lower the barriers to reaching the Moon, which will make site-utilization licenses more valuable in the succeeding decades.
How site utilization fees are determined after the initial license terms
At the end of their initial license terms, some LDC members will be utilizing sites that are highly desired by other parties. It is critical that parties who can make more efficient use of these sites are able to utilize them and that these sites are not effectively appropriated by the current users.
As a result, at the end of the initial license periods, the LDC will hold auctions for the utilization licenses of those sites. At the auction, the member currently utilizing the site, as well as any other party, may submit bids for the right to access LDC services at the site for the next 30 to 40 years. Bids are multiyear, consisting of the amounts the bidders are willing to pay for each year of the license. These payments start immediately and increase over time. The LDC selects the highest bid, which determines the member’s fee schedule over the next term of the license.
Existing users’ rights to the assets they created at the site are protected in numerous ways. Prior to the auction, an independent appraiser determines the value of the existing user’s assets that are attached to the site (e.g., habitats, launch pads, power grid, etc.). Any bidder that proposes to use the site in a way that prevents the current user from also continuing to use the site is forced to set aside this value in escrow. These funds will be paid to the existing user if that bidder wins. If the existing user disagrees with the appraised value, it can conduct its own appraisal and seek mediation and, if necessary, arbitration, to determine the correct value.
In the auction, the existing user can bid and renew the license for 10% less than any other bidder. The existing user can also form joint bids with other bidders or arrange for the LDC to divide the license so that the existing user can continue using the site alongside the new user.
As activities on the Moon mature, the LDC supports the development of settlements. The LDC offers a range of public services to complement the functions governments perform for lunar occupants. The LDC may have much less involvement in some settlements than in others. For instance, several license holders located near each other might provide their own public services and administration. These settlements can establish their own rules, provided they do not harm other lunar operations or violate basic human rights.
Settlements that are more autonomous from the LDC keep more of the site-utilization fees for themselves. The LDC shares the income from these areas with the local authorities in proportion to their contribution to the value of the utilization licenses there. The rules for determining this contribution are determined through a neutral collective bargaining process with the settlements, informed by publicly available expert analysis, and overseen by an impartial arbitrator. The LDC is very open to offloading some of its responsibilities onto these settlement administrations and sharing the utilization fees with them, because it gives them an incentive to manage their settlements well, which is in everyone’s interest. The principle of subsidiarity helps the LDC’s bottom line.
Figure 2: Positive Feedback Loops in LDC Business Model
How reliance on site-utilization fees promotes good lunar governance
Dependence on site-utilization fees gives the LDC a strong economic incentive for good management. If the LDC provides public services and protects the Moon, demand rises, which, in turn, raises the value of utilization licenses and thus the LDC’s revenue. The LDC can then use this revenue to invest further in even better services, which raises its revenue further. Conversely, if the LDC makes poor decisions or allows the Moon to be harmed, utilization fees drop, which reduces the LDC’s revenue. Thus, the LDC will do all that it can to avoid or resolve conflicts efficiently, reduce crime, prevent over-exploitation of natural resources, and protect the environment. The Moon and its commons are an asset that the LDC has a strong interest in nurturing.
Similarly, the LDC has a strong motivation for making the most effective investments in space infrastructure and services. For instance, it will innovate new methods of allowing multiple people to carry out operations near one another without interference. It will also make the most economically efficient investments in cislunar infrastructure and services, since this will maximize revenue from site-utilization licenses, while minimizing costs.
The LDC has the incentive and ability to make rapid adjustments when needed. As new discoveries and technology emerge, the LDC’s independent corporate management structure gives it the ability—and its financial interest in the Moon gives it the incentive—to keep up and adjust quickly to new realities. If activities are damaging protected areas or facilities in unexpected ways (e.g., if the mining of water ice is threatening other important resources) the LDC acts quickly and adopts, or invents, the most cost-effective technologies possible to avoid these harms.
The LDC also provides its state and non-state investors with a return on their investment. As revenue grows, the LDC can repay lenders; reinvest in upgraded services, infrastructure, and regulation; and distribute dividends to its shareholders. Since governments are included as shareholders, they generate a profit from the LDC, instead of losing money every year through appropriations to their space programs. LDC shareholders might agree to reinvest all profits generated in the first several decades and only distribute dividends afterward, in order to force the LDC even further to prioritize long-term value and preservation of the Moon over short-term returns.
Finally, by collecting site-utilization license fees, the LDC prevents both private parties and states from ever owning or appropriating territory on the Moon. As such, the LDC upholds even the most expansive interpretations of the Outer Space Treaty. It also ensures that the LDC collects the value that it creates, rather than letting licensees “free ride” off its services.
Legal framework for the LDC
The LDC does not require a treaty or convention to be adopted. Its founding documents are simply a shareholders’ agreement and bylaws formed by the state and non-state founders. The shareholder’s agreement imposes enforceable contractual obligations on both state and non-state shareholders. This means that claims can be made between two private shareholders, between a private shareholder and a state shareholder, and between two state shareholders. Shareholders can enforce these obligations in domestic courts, international courts, and, in some cases, through international investor-state arbitration.
The LDC shareholders’ agreement and bylaws also regulate the activities of the LDC and ensure it acts in humanity’s best interests. For instance, the shareholders’ agreement ties the LDC’s financial interests to good governance by requiring it to rely more on long-term returns through site utilization fees (which involve prioritizing environmental and social concerns) than short-term returns through fees for services. Moreover, the shareholders’ agreement and bylaws can address important issues that do not directly affect the LDC’s revenue, such as visible defacement of the nearside of the Moon for Earth observers.
LDC licenses contain requirements to abide by certain minimum human rights standards and to avoid harm to other areas of the Moon or outer space. The licenses specify the actions the LDC will take to enforce these obligations, including steep fines and denying access to infrastructure. Disputes are resolved in specified courts or international arbitration centers.
Multiple parties hold the LDC accountable to its legal obligations. Any party harmed by the LDC can bring a claim against the LDC in a court on Earth or in arbitration centers or court on the Moon. The inspector general has privileged access to virtually all records of the LDC, investigates complaints, brings legal actions against the LDC, and issues public reports on the status of human rights protection, the rule of law, the environment, and various other matters.
Over time, rules adopted by the LDC can become customary international law. Customary international law exists when, even in the absence of a treaty or convention, there is a general and consistent practice of states that they follow from a sense of legal obligation. Once established, customary international law results in binding obligations that all states must follow. The LDC’s legitimacy under customary international law could emerge progressively with each nation that invests in the LDC as a shareholder, participates on the advisory board, bids for a license, or that simply does not challenge a licensee’s rights. Each of these practices are an explicit or implicit acknowledgment that the LDC’s actions have legal force.
The LDC has the potential to accelerate the responsible development of the Moon rapidly for the benefit of humanity. It does this by creating a positive feedback loop in which investment in infrastructure and good governance of the Moon produce financial returns through site utilization rents that are reinvested in ever-improving infrastructure and governance. The LDC fully complies with the Outer Space Treaty and other instruments of international law ratified by a majority of space-faring nations. As an agent representing humanity, it has not only a mandate but a powerful incentive to preserve and enhance the lunar commons and its long-term use for centuries into the future.
- See Outer Space Treaty, Article 2, (“Outer space, including the moon and other celestial bodies, is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means.”)
- Organizationally, the LDC is similar to port authorities and other large infrastructure operating companies. Like the LDC, some of these entities have a mix of different national governments and private parties as investors and some link their revenue to site utilization. Examples include PSA International, Kaesong Industrial Park, the Copenhagen City & Port Development Corporation, Dubai World, and the Hong Kong Transit Authority.
- Sovereign investments could be made via state-owned space development corporations that buy shares in LDC as a stepping-stone to the development or expansion of their space programs.
- This equity split is designed to prevent the political interests of any one state from overriding the LDC’s long-term financial interests, which would likely undermine the Moon’s economic, social, and environmental condition.
- The World Bank Group’s International Finance Corporation could provide a useful model.
- The fee for site-utilization licenses will grow to match their market value as discussed later.
- If enough states agreed, the LDC might also similarly auction utilization licenses for services at valuable orbital slots, interplanetary transport network pathways, or the Earth-Moon Lagrangian points, thereby ensuring these areas are used efficiently as well.
- The LDC will calculate the net present value of future-year fees to evaluate bids.
- As a result, a utilization license is based purely on site value and not on the value of the improvements occupants make to the site. For purposes of this paper, “site value” is the economic equivalent of “unimproved land value”. As a result, the LDC does not deprive lunar occupants of any value they create, precisely because its license fees are based only on site value and not improvement value. Occupants only create the latter, but rarely the former, as discussed in note 11.
- See the bullets in the earlier section describing example of services the LDC can offer.
- As explained by Henry George and many other economists, site value (or unimproved land value) is rarely created by occupants of the site itself. It is instead created by the provision of services and by economic activity, which make the site more useful. The LDC’s site-utilization fees are therefore designed to collect the amount of value that the LDC’s services give to a site, while letting the site utilizers keep the value they create. As a result, the model prevents site utilizers from capturing rents they did not earn.
- This would most likely be the courts of a jurisdiction selected in the shareholders agreement or in the courts of a state that is party to the dispute.
- Such as the International Court of Justice or the Permanent Court of Arbitration
- Claims by a private shareholder of one country against a state shareholder of another country could avoid sovereign immunity through a bilateral or multilateral investment treaty. There are likely now enough such treaties to potential provide private shareholders with a strong web of protection against most state shareholders. In many cases a foreign investors’ equity investment in a joint venture with a state (such as the LDC) would be deemed a covered investment under such a treaty. Breach of the shareholders’ agreement could be a violation of a treaty’s “umbrella clause” as a breach of contract. Finally, such claims could be addressed in international arbitration, such as at the World Bank’s ICSID or the International Chamber of Commerce, and the resulting awards would be enforceable against state assets under the New York Convention.
- Customary international law may form faster via the principle of particular customary international law (PCIL). PCIL emerges once there is a general practice among states in a particular region (e.g., when those states active on the Moon recognize the LDC’s authority).