How to make the climate crisis worse: A story of NFTs, blockchain, and carbon offsets from the REDD Project in Brazil Nut Concessions in Madre de Dios, Peru
Non-fungible Tokens (NFTs or nifties) hit the headlines last month when Mike Winkelman sold an NFT of a digital artwork for US$69 million at Christie’s. Beeple, as Winkelman calls himself, makes a digital artwork every day. You can see them on his Instagram account – where he has 2.1 million followers.
Beeple’s US$69 million work is a collage called “Everydays: The First 5000 Days”. It’s a collage of 5,000 of his digital artworks. Vignesh Sundaresan, A Singapore-based blockchain entrepreneur who uses the pseudonym MetaKovan, bought the NFT – which is basically a digital file.
What is a nifty?
The Nifty Gateway, which describes itself as the “premier marketplace for Nifties”, has a page on its website with the headline “What is a Nifty?”:
If, like me, you have absolutely no idea what a skin in Fortnite is, or a sword in World of Warcraft, or a Neopet, that’s not very helpful.
While the Nifty Gateway’s website isn’t very helpful in explaining what an NFT is, a short diversion into the company’s backstory is worthwhile.
In November 2019, a company called the Gemini Trust Co. bought a startup called the Nifty Gateway. Gemini Trust is run by the Winklevoss twins, Tyler and Cameron.
You may remember the Winklevoss twins from the film “The Social Network”. They were friends with Mark Zuckerberg at Harvard. In 2004, they sued Zuckerberg, claiming that he stole their idea for Facebook. In 2008, the twins won a US$65 million settlement in cash and Facebook shares.
They invested some of the money in Bitcoin – back then Bitcoin was worth about US$8.
Back to NFTs… The Verge has an explainer page about NFTs. Here are the highlights. Non-fungible means it’s unique and can’t be replaced with something else. NFTs are a bit like football trading cards. Or stamps.
Most NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency, a digital or virtual currency, like Bitcoin. A blockchain is a digital, decentralised, unalterable database. It is a digital account book of every transaction that takes place on a network. The data is stored as encrypted blocks and each block is cryptographically linked to all previous blocks.
(If this is confusing, I’m sorry. Investopedia’s “Blockchain Explained” page might help.)
Nifties and climate change
One of the problems with all of this is that Ethereum, like Bitcoin, relies on using vast amounts of energy. No third party, such as a bank, oversees transactions, so cryptocurrencies use “Proof-of-Work” as a security system.
Solving a Proof-of-Work puzzle means generating a random number and hoping that it matches the criteria set by the protocol. If it doesn’t match, repeat the process. And so on.
Once the puzzle is solved the “miner” adds a new “block” of verified transactions on the blockchain. The miner is rewarded with crypto tokens.
Digital artist Memo Akten explains just how ridiculous this all is:
For this reason, endless arrays of computers are sitting around in giant data-center like mining farms around the world, doing nothing but generating random numbers all day every day, in the hopes of rewarding their owners with reaping the rewards.
The inefficiency and energy consumption is deliberate. The security system is simple. Massive amounts of computer power and electricity are needed to write the blockchain, so it is unprofitable to defraud the network.
The difficulty level of mining increases over time as more mining computers (“rigs”) are competing to solve the PoW puzzle. As a result, Ethereum results in about as many greenhouse gas emissions as Croatia.
The website digiconomist.net calculates that one single Ethereum transaction emits as much CO2 as 77,328 VISA transactions. Bitcoin is even worse. A single Bitcoin transaction emits as much CO2 as 951,473 VISA transactions.
Every NFT transaction using Ethereum is responsible for some of the CO2 generated by miners.
In December 2020, Memo Akten created a website (cryptoart.wtf) that calculated the carbon footprint of individual NFTs. Akten analysed about 80,000 transactions relating to 18,000 NFTs and found that the average NFT emits the equivalent of more than one month’s electricity for someone living in the EU.
In the past few months, Akten has written a series of articles looking at NFTs and CryptoArt from an ecological perspective. They are well worth a read.
Carbon offsets
The response to massively polluting blockchain transactions is as predictable as it is dangerous: carbon offsets.
At the end of March 2021, the NFT marketplace Nifty Gateway put out a press release that acknowledges “the growing concern from some regarding the carbon footprint of the NFT movement”.
Nifty Gateway announced that it “is committing to become a carbon negative platform”. It will do so by estimating “our total carbon footprint over time” and at the end of each month it will buy offsets for double the amount its carbon footprint from blockchain transactions. “[I]n theory Nifty Gateway will become a net remover of carbon”, the company states.
Nifty Gateway’s calculations are based on an open-source calculator called cryptoart-footprint set up by Kyle McDonald, an artist and coder. McDonald told the arts website Hyperallergic that his calculations are still evolving.
“Depending on technical details like mining farm energy sources, and philosophical questions like how to allocate responsibility, my numbers could be over- or under-estimated by 2x.”
From 20-22 March 2021, a week before the announcement about becoming “carbon negative”, Nifty Gateway held an auction of eight NFTs.
It was planned to be nine NFTs, but one of the artists, Joanie Lemercier, pulled out because of the Nifty Gateway’s failure to address the climate impact of its NFT platform before the auction took place.
Called #CarbonDrop, the auction raised US$6.6 million for Open Earth Foundation, an organisation that uses “cutting edge digital technologies and multi-stakeholder collaborations to advance open source platforms that help increase planetary resilience”.
US$6 million came from Justin Sun, the founder of the TRON cryptocurrency. Sun bought the NFT to “Oceans Front”. That also happens to be one of the 5,000 artworks included in the $69 million “Everydays” NFT sold in the Christie’s auction. “At the end of the day, if somebody will pay for it, then you can sell it,” Winkelman says.
In a video about the CarbonDrop event, Martin Weinstein of Open Earth Foundation explains that,
“The proceeds of this auction go to a specific project to design and develop what could be best described as a climate internet for the world, a system where everyone in the world can better provide transparency and accountability on their climate impact and actions.”
At the beginning of the video, Jehan Chu of the Social Alpha Foundation says,
“Social Alpha is excited to present this fundraiser for Open Earth and present the CarbonDrop to battle climate change through carbon credit accounting.”
Ughhh. Leaving fossil fuels in the ground will address the climate crisis. If there’s one thing that is guaranteed to make the crisis worse it’s “carbon credit accounting”:
Josh Bijack, of Render Token and CTO of Creol, says,
“So we basically stepped up and said, OK we will offset 500 carbon tons of this whole thing. Completely measured, completely verified, and completely audited.”
The carbondrop.art website explains that the carbon offsets are also NFTs:
These offsets are NFTs themselves provided by Creol.io, which sources from the Verra voluntary carbon offset registry. Specifically, this event support the Madre de Dios forest conservation project in Perú.
The concept of carbon offsets as NFTs is bewildering. Carbon offsets exists to allow greenhouse gas emissions to continue while trying to fool us into thinking that something is being done to address climate change. Making a carbon offset into an NFT means that as well as being a dangerous distraction from the need to massively reduce emissions, the offset itself becomes a source of emissions.
REDD Project in Brazil Nut Concessions in Madre de Dios, Peru
Creol, according to the carbondrop.art website, bought carbon credits from the REDD Project in Brazil Nut Concessions in Madre de Dios. This is a REDD project set up by Bosques Amazonicos SAC (BAM) and implemented by the Departmental Federation of Brazil nut Producers of Madre de Dios (FEPROCAMD).
BAM is a forestry and environmental services company registered in Peru in 2004. (In October 2013, BAM’s director, Jorge Cantuarias also registered a company called Bosques Amazonicos Ltd in the UK. This company was dissolved on 15 July 2014.)
In 2009, BAM signed a contract with FEPROCAMD under which BAM provides technical and financial support for Brazil nut producers, and BAM gets the carbon rights to the Brazil nut concessions.
VCS validated the project in 2012, and in 2014 the Climate, Community and Biodiversity Alliance certified the project. The CCBA certification is supposed to show that projects are improving the well-being of local communities and conserving biodiversity. Verra’s website shows that the CCBA certification has expired and has not been renewed.
The project covers an area of almost 300,000 hectares, consisting of about 400 brazil nut concessions. These concessions range from 300 to 1,000 hectares each, and are granted through 40-year contracts with the Peruvian government. Under the concession rules, families holding the concessions can harvest Brazil nuts and extract timber on a “sustainable” basis, once they have completed the relevant paperwork.
Using Landsat satellite images from 2000, 2005, and 2008, BAM calculated that in the project area 1.23% of forest would be lost each year. Over the 31 year project crediting period just over 100,000 hectares of forest would be destroyed in the absence of the project, according to BAM’s model.
This is a counterfactual baseline – one of the fundamental problems with REDD. It is impossible to verify whether this, or any other, baseline is accurate or not. And yet the baseline is used to calculate how many carbon credits can be sold from the project. Any deforestation below the baseline estimate counts as “avoided deforestation”. As Larry Lohmann, writer and activist with The Corner House, points out,
[T]he problem is not “bad baselines” but the concept of counterfactual baselines itself. That reality does more than invalidate any particular REDD project. It invalidates REDD (and all other offsets) as a whole.
But back in the bizarre world of REDD, BAM’s project documents argue that over 31 years the Brazil nuts project would generate almost 65 million carbon credits, or about 2 million each year.
The project documents include a target that “By the seventh year of the project’s lifetime, deforestation will be minimum or even zero”. This has not happened, as these screenshots reveal: the first image shows the project area from BAM’s project documents, and below that is the tree loss between 2017 and 2020, from Global Forest Watch:
The pink colour represents tree cover loss between 2017 and 2020. And these screenshots from Google maps reveal that while the worst deforestation is close to the Interoceanic Highway, by no means all of it is. The vast majority of the project area remains forested, but there are worrying signs of logging and mining operations in and around the project area.
While the emissions from mining cryptocurrencies, creating NFTs, and transactions on blockchains will remain in the atmosphere for hundreds of years, the forests that are supposed to be offsetting these emissions look increasingly fragile:
Between October 2011 and January 2012, the Centre for International Forestry Research (CIFOR) carried out a study in Madre de Dios, looking at the REDD project. CIFOR’s researchers report that,
One of the greatest challenges facing the initiative is unclear land tenure rights and chaotic zoning, resulting in overlapping land rights in the initiative zone.
They also mention the recent gold rush in Madre de Dios. The REDD project is to the north of the mining zone, but “respondents anecdotally remarked that nut concessionaires often illegally invite miners into their concessions for a percentage of their profit”. CIFOR comments that “BAM does not consider the scale of this practice to be a considerable threat”.
Local NGOs raised concern about timber extraction within the Brazil nut concessions. Timber is almost as profitable as mining, and “may become a potentially difficult livelihood activity for BAM to manage in the future”.
CIFOR researchers also note that of the 126 households that they interviewed, only 62% said they knew about the REDD project. Despite the fact that BAM had carried out workshops and training sessions, local NGOs were households’ main source of information about the REDD project.
CIFOR concludes that,
The initiative can also provide invaluable lessons on communication with local stakeholders. BAM tried to reach the widest audience possible by diffusing information through various means. Despite their best efforts, however, it emerges that outreach was not always sufficient to avoid a sense of uncertainty and confusion. Ultimately, Brazil nut producers have been the recipients of many short-term projects that brought very little sustained improvement to their overall livelihoods. They have also collaborated with many researchers who have extracted information without adequately explaining the purpose of their work. Consequently, they have become skeptical of such outside actors, and their interest in new initiatives is low.