Florestal Santa Maria REDD project: Hot air and shiny crypto tokens

Featuring Moss and MCO2 tokens

A logging operation in Colniza. Thomson Reuters Foundation

Florestal Santa Maria is a REDD project covering 71,000 hectares in Mato Grosso state, Brazil. The project is a so-called “sustainable forest management” otherwise known as a logging project. The project is in the municipality of Colniza, a town created deep in the Amazon rainforest by Brazil’s military dictatorship during the 1970s.

The project has sold carbon offsets to Delta Airlines, TAP Air Portugal, Toshiba, Bunge (Bunge Environmental Markets partnered with Florestal Stanta Maria S.A. to set up the project). But in recent years 90% of the project’s offsets have been bought by two cryptocurrency firms, Moss and Toucan and converted to digital tokens.

In November 2022, Brazilian newspaper Globo announced that, in partnership with low-cost airline GOL Linhas Aéreas Inteligentes, it was buying MCO2 tokens from Moss to offset its CO₂ emissions from travel

Moss and MCO2 tokens

Moss claims that the carbon credits that its MCO2 token are based on are “among the highest quality possible in the global voluntary market”.

But reporting by Thomson Reuters Foundation journalists, Avi Asher-Schapiro and Fabio Teixeira, revealed the fact that in private Moss said that it had bought credits of “low quality”. In response to Thomson Reuters Foundation’s investigation, Moss reversed its judgement about “low quality” credits.

In any case, one MCO2 token does not correspond to a specific carbon credit. Moss mixes all its credits - pretty much like the subprime mortgage market that led to the financial crisis of 2007.

Moss sold its MCO2 tokens for far more than it paid for carbon credits.

Moss told Thomson Reuters Foundation that it had paid more US$30 million to conservation projects in the Amazon. Between September 2020 and December 2021, Moss turned more than three million credits into crypto tokens. Moss sold the tokenised credits for as much as eight times what it paid to project developers.

After Thomson Reuters Foundation contacted Verra to ask about the MCO2 tokens, Verra sent a cease and desist letter to Moss demanding that the firm stop using the Verra logo when marketing its tokens.

In May 2022, Verra prohibited the tokenisation of carbon credits from its registry. In January 2023, Verra concluded a public consultation on “a proposed approach to third-party crypto instruments and tokens”.

Saving the planet?

When Moss launched its tokens in 2020, the company announced that its MCO2 token was “Saving the planet by tokenizing carbon credits”.

Felipe Adaime, founder and CEO of Moss, said,

“We believe in a market solution to mitigate the effects of greenhouse gases on global warming. An advanced carbon credit market contributes to sustainable development, and Brazil has the duty and the privilege to be the global natural leader in this sector.”

Thomson Reuters Foundation produced a graphic to show how Moss created its MCO2 tokens:

“I made a lot of money on the acquisition of cheap carbon credits,” Adaime told Thomson Reuters Foundation.

But the price of MCO2 tokens has fallen since the token was launched at US$18.13 in March 2021. The price peaked at US$21.70 in December 2021, since when it has fallen steadily to today’s price of US$1.55.

Due diligence?

In its White Paper, Moss claims that,

“In order to have the highest credibility possible for its underlying ledger, MOSS carries out an extensive due diligence of the environmental projects that generate the carbon credits.”

That’s difficult to believe in the case of Florestal Santa Maria. In a Thomson Reuters Foundation video, Fabio Teixeira explains that, “While the area was still conserved, a lot of the promises that were made to the community were broken.”

Colniza councilman Luis Carlos Silva told the Thomson Reuters Foundation that, “They (FSM) are not following what was established in (project) documents way back in 2012.”

Florestal Santa Maria had promised to build a technical school to teach agroforestry techniques to high-school graduates. The project never started.

Neither did a plan to restore degraded areas of forest.

From March 2013 the project was certified as well-managed by the Forest Stewardship Council, but in March 2017 the certificate was terminated. The project had, among other things failed to carry out monitoring to show that the logging that took place was legal.

In 2012, FSC’s auditors found a series of problems including: violations of labour laws, damage to the forest caused by timber extraction, including logging in areas strictly protected by law, and the lack of management plans and procedures that should be part of its so-called “sustainable forest management”.

Nevertheless, several companies selling carbon offsets from Florestal Santa Maria still claim on their websites that the project is FSC certified - six years after the certificate was terminated.

In 2017, Florestal Santa Maria sold 9,100 hectares to Junp Madeiras, a local logging company. The firm and its partners have since received at least 10 fines from national environmental agencies.

Since May 2022, most of Florestal Santa Maria has been owned by a company called Caraguá. The company plans to keep the carbon project going and, according to Thomson Reuters Foundation, has agreed with Junp Madeiras to leave its part of the forest untouched. Caraguá is also working to get the Forest Stewardship Council certificate re-instated.

Workers for Florestal Santa Maria are subcontracted and paid a near minimum wage. They are not provided with insurance against accidents. Thomson Reuters Foundation’s found that one logger, Roberson de Quadros Lima died while working for the company in May 2021.

Quadros Lima’s family told Thomson Reuters Foundation that Florestal Santa Maria handled his death callously, “as if he were little more than a lost cell phone”. To receive compensation for his death, his mother had to sue Caraguá, Florestal Santa Maria, and the subcontractor that hired Quadros Lima.

Hot air and shiny crypto tokens

When carbon credit ratings agency Renoster reviewed the Florestal Santa Maria project it found that,

“The project’s baseline is extremely aggressive, calling for more than 87% loss of forest cover by 2039. In reality, since the project started, deforestation rates in the region have reduced to approximately 1/3rd of that used by the baseline. The project is therefore being issued with too many credits.”

Renoster estimates that the project is issuing three times as many credits as it should. In other words, two-thirds of the project’s carbon credits are hot air. That amounts to almost 5.5 million carbon credits.

Of course it’s even worse than that, because there simply isn’t room in the remaining carbon budget for accounting tricks like offsetting. Any offset, whether “high” or “low” quality, is making the climate crisis worse by justifying ongoing emissions from burning fossil fuels.

As Polly Hemming, a senior researcher at The Australia Institute told Thomson Reuters Foundation, tokenising carbon credits does nothing to address the underlying problems with carbon credits. Crypto companies, like Moss, “are just just repackaging something old and adding a distracting shining crypto layer to it”, she said.

---