By Jonas Kasper Jensen
Lately, there has been a heated discussion on the impact that minting NFTs has on the environment. Especially proof of work blockchains like Ethereum and Bitcoin has received a lot of criticism. Artists have been confronted with the energy usage they consume when they chose to use NFTs as a medium for distributing their work. In this conversation with Paul Gambill, the CEO of the carbon removal marketplace Nori, we try to get behind the technology and touch upon more sustainable solutions to NFTs – what they look like today and what will be possible in the future.
Jonas Kasper Jensen (JKJ): To begin with I would like to hear what Nori is.
Paul Gambill (PG): Nori is a carbon removal marketplace. We work with what we call suppliers. These are people who are removing carbon dioxide from the atmosphere and then sequestering it. Primarily today that is farmers who are changing their farming practices. This is called regenerative agriculture. By changing these practices to regenerative agriculture practices, they are sequestering carbon in their soils. They go through a measurement and verification process with us and then we create certificates of that carbon that have been removed. We actually record those certificates as NFTs. We call them Nori Removal Tonnes or NRTs and those NRTs are sold to buyers who are typically companies that are trying to be carbon neutral or carbon negative.
When an NRT is sold to the buyer, they are immediately retired. That’s a carbon market language. It just means that they’re made nontransferable so that the buyer is not allowed to resell the carbon, which is a sort of distinct trait of our marketplace.
We will have two assets. Coming later is our own native token, the Nori token. So there’s the NRT, which is the carbon, and then there’s the Nori token, which is the method of payment for the carbon. And one Nori token will always purchase one tonne of CO2, but the price of the token will obviously fluctuate like any other cryptocurrency relative to supply and demand. And so that’s how we are facilitating price discovery so that the market can actually figure out what is the value of pulling one tonne of CO2 out of the atmosphere.
We’ve been around since 2017 and we’ve worked with farmers who accounted for I think a little over 80,000 tonnes of CO2 removed. It’s almost one and a half million dollars paid out to farmers for that carbon sequestration.
JKJ: Can you describe how the NRT works and why you chose to use an NFT as a carbon removal certificate?
PG: To explain that we have to go back in time a little and look into the history of carbon offsets. We have to go back to the Kyoto Protocol from 1997 that pretty much every country except for the US adopted back then and it created a framework for how carbon trading could happen. The objective back then was to have the developed countries of the world pay developing countries for storing their carbon assets. Basically, it’s an equity thing: We are developed countries because we burned all those fossil fuels to generate all of that energy that has made us able to grow as we have. And so who are we to say to developing countries that they don’t get to do the same thing for their people? And so that was the objective of that protocol.
But in practice, it ended up being mostly private organizations paying other private organizations for carbon offsets. And carbon offsets have almost entirely been projects that reduce or avoid future carbon emissions. They’re not doing anything about past carbon emissions that are already up in the air. The problem with that, from a climate change perspective, is even if we were able to magically turn off all sources of carbon emissions tomorrow, there is still far too much carbon in the air.
And so we have to remove it. We have to remove probably over one and a half trillion tons of CO2 in order to restore the atmospheric carbon balance back to what it was prior to the Industrial Revolution.
When I started working in this space in 2015, I was trying to understand how big the carbon offsets market actually was. I was looking at analyst reports which were compiling different surveys about the carbon offsets that big companies had been purchasing. Back then, and it is still the case today, the way that big companies buy carbon offsets is by partnering with brokers who find individual carbon offset projects and then they connect them and then buy the assets directly from them.
If a big company let’s say publishes an environmental report, they would compile all of that. So they were breaking out the total volume of sales by primary sales and secondary sales. And I thought that was really weird. Why would you have secondary sales? Because if we’re going to be serious about climate change, we should be designing our systems so that every dollar spent on carbon results in net new carbon that’s coming out of the air.
And it turns out that carbon offsets, when they were made in those frameworks, were set up out of Kyoto where they wanted a tradable commodity asset. They wanted a thing that could be traded so that you could figure out what the price of it actually should be. And naturally, they chose the carbon credit itself. But that enables all sorts of different vectors for fraud, for double counting and for basically enriching middlemen at the cost of pulling more carbon out of the air.
For Nori´s design, we decided from the very beginning we would require that the carbon can only be sold once because it shouldn’t be sold more than that. We want to accelerate the rate at which carbon is being drawn out of the air. So it made perfect sense that if we were going to do this on the blockchain and record the transparency of who did the removal, when it happened, where it happened, who did the verification and so on, that NFTs were the exact right solution for that. It’s almost trivial to make an NFT nontransferable so that it’s just there in that buyer’s wallet forever.
JKJ: So as a buyer, you can’t transfer the NFT, it’s locked to your wallet, and that makes sure that it is not sold on the secondary market and becomes this commodity that people trade?
PG: Right. And we still want a tradable commodity asset. So that’s the role that the Nori Token plays. And that’s why we have a second asset. So if you’re a company and if you’re really savvy and if you think that the carbon price is going to be higher in the future, and you want to hedge against that, then you should buy extra nori tokens.
Say you have to offset 50,000 tons every year for the next three years. Buy 150,000 NORI tokens, because you can think of the Nori token as if it’s a gift card for carbon. You can hold it, but you haven’t bought carbon yet, you have the ability to buy carbon with it. And so if you are doing that then you’ve got 150,000 and then you can use 50,000 in the first year, 50,0000 the second year and 50,000 in the third year. If it turns out that you don’t actually need to buy as many in the future, well now you can go sell those surplus tokens and go from there. But in that way they’re still able to do market transactions and still able to do financial planning, but we’re not reselling carbon, which is what we want to avoid.
JKJ: The NFT space has gotten a lot of criticism because of the environmental impact it has when minting NFTs. Do you have any thoughts on this? For me at least, it’s rather difficult to navigate this criticism and understand what is right and what is not. From your perspective how should people that work with NFTs react to the criticism?
PG: Well, the criticism is stemming from people’s concern about proof of work blockchains that are using large amounts of energy in order to secure the transactions on that chain. And there are only two widely used blockchains that use proof of work. One is Bitcoin and the other is Ethereum. Bitcoin is Bitcoin. And, you know, we’re not using that for NFTs, and Bitcoin is just going to stay doing what it’s doing forever. Ethereum is transitioning to proof of stake. Hopefully by this summer and then that energy usage issue becomes negligible and more or less goes away. So until then, at Nori, we have actually seen quite a bit of traction from customers who are NFT artists and we have even partnered with different NFT applications and marketplaces.
We have partnered with The Sandbox and we are also a partner with Rarible. So anyone who is minting an NFT on Rarible can choose to purchase a ton of CO2 from Nori and remove any emissions associated with that transaction.
One of our taglines at Nori is “Emit Less – Remove the rest”. There are always going to be things for which energy is necessary. If the source of that energy is fossil fuels, then that means carbon emissions. If you can’t get rid of that, remove the carbon emissions. And that’s where we’ve actually had a lot of customer traction in the last year.
JKJ: So artists that are aware of the impact on the environment they have when they mint on Ethereum they can use the NRT to reduce the emissions. And within the next half-year, we might be over this kind of conversation on the environmental impact of NFTs because Ethereum which is the blockchain that has the highest impact on the environment has transitioned to proof of stake?
PG: I believe it should be. Yeah.
JKJ: Projects like the NRT that you work on at Nori are part of the solution, and thus blockchain might provide a more sustainable model for how we think of and record removed carbon emissions?
PG: Yeah. And if we think about where the demand for these carbon removals is coming from, a lot of it, I believe, is going to be coming out of the web three crypto space in the future. So crypto is a solution to the problem, not the problem itself.