Does Carbon Offsetting Really Address the NFT Ecological Dilemma?

Last week, the popular non-fungible token (NFT) marketplace Nifty Gateway announced plans to become “carbon negative.” At the end of every month, the platform will purchase carbon offsets — credits representing a stake in an environmental project, like renewable energy or forest conservation — equivalent to double its CO2 emissions. 

Nifty’s promises come amid a heated debate around the environmental ethics of the Ethereum blockchain, the network on which NFTs, unique digital assets representing works of art, are created or “minted.” To approximate its monthly carbon footprint, Nifty plans to use an open-source calculator developed by Kyle McDonald, an artist and coder based in Los Angeles. In March alone, he estimates the platform emitted 9,061 metric tonnes of carbon dioxide, or $181,220 in offsets, more than double its February footprint of 3,861 tCO2 ($77,220 in offsets). 

“If Nifty Gateway follows through on their promise to doubly offset their emissions based on my estimates, they will spend $307,640 to cover their lifetime emissions at $10/tCO2,” he told Hyperallergic, adding that his calculations are evolving as he connects with experts on energy, climate, and economics. “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,” he clarified. According to his calculator, Nifty Gateway is the second most polluting platform after OpenSea. (OpenSea has not yet responded to Hyperallergic’s request for comment.)

In addition to its carbon offset program, Nifty also said it would begin deploying a new minting system, dubbed EIP-2309, which will cut Ethereum gas fees by 99%. In crypto-speak, “gas” is a measurement of the computational resources required to validate a transaction, and “gas fees” are the payments made to miners for their efforts. By reducing gas, the platform will free up bandwidth on the network, but it will continue to operate on Ethereum, which employs energy-extensive Proof of Work mechanisms; a shift to the comparatively cleaner Proof of Stake protocol is still underway.

At the heart of the conversation about crypto art’s environmental footprint are conflicting arguments about the ways in which the Ethereum network consumes energy and the trade-off between its negative effect on the planet and its positive gains for artists. And as platforms like Nifty Gateway and ArtStation turn to carbon offsetting as a way to mitigate the damage, that mechanism is also coming under scrutiny.

Days before the announcement, Nifty Gateway held its “CarbonDrop” auction of eight NFTs by digital artists including Beeple and Sara Ludy. The sale raised $6.6 million for Open Earth Foundation, a new nonprofit advancing digital technology solutions for climate change. Acknowledging the irony of raising funds for an eco-friendly project on a contaminating platform, Nifty Gateway partnered with RNDR and Creol.io to provide 60 carbon offsets for each artwork.

To some, however, Nifty’s efforts fell short. The three-day sale initially featured nine artists; one of them, Joanie Lemercier, dropped out in protest of what he deemed Nifty’s inaction in the face of NFT technology’s ecological pitfalls. In a post on his website, Lemercier said the platform had failed to keep its promise of upgrading to the EIP-2309 minting protocol by the time the sale went live. Nifty also continued minting “open edition” NFTs, limitless artworks with limitless transactions, despite artists’ calls to halt them until a better system was in place. 

By way of example, the offset certificates pegged to the NFTs in the auction totaled 500 CO2e tons of emission reductions; a single open edition drop happening on the same day as the auction, Lemercier explained, accounted for 71 tons of CO2, more than a typical US household emits per year. The CarbonDrop sale may have offset its own footprint, he said, but the platform was still producing significant emissions elsewhere.

For Lemercier, the last straw came the morning after the sale closed, when Nifty co-owner Tyler Winklevoss posted a puzzling tweet boasting that “the entire NFT industry is now carbon negative” thanks to the CarbonDrop auction.

“He transformed the narrative into ‘the problem is solved, and we’ve offset the entire industry,’” he told Hyperallergic. “We were stunned; we couldn’t believe it. This was never what the project was about. We barely offset our own drop, let alone a week of Nifty Gateway or a month of it.”

Open Earth Foundation quickly rectified Winklevoss’s tweet, which has not been deleted, describing it as “misinformation” generated by a since-redacted news article about the auction. In an interview with Hyperallergic, Open Earth founder Martin Wainstein said the proceeds of the CarbonDrop sale will support a range of the organization’s climate accountability projects, such as creating an independent network to track progress on the Paris Agreement, but not cleaning up the entirety of the NFT space.

For those who were already suspicious of NFT technology, Winklevoss’s deceptive claim was one more lofty promise by an industry constantly pledging to disrupt and upend while doing little to redress its own wrongs. Carbon offsetting, some say, is just another example of this virtue-signaling.

The concept of carbon offsetting is premised on mitigating the damage of one’s own emissions by investing in projects that reduce greenhouse gases elsewhere, such as planting trees or implementing clean energy technologies like solar panels. The offset certificates in the CarbonDrop auction, for instance, were sourced from the Verra voluntary offset registry and tied to a forest conservation project in Peru. 

Critics say voluntary offset markets — unlike mandatory compliance offset programs  — are largely unregulated, making it challenging to verify whether reductions actually occur. Even when working perfectly, some worry that they function as a form of “greenwashing” by allowing companies to continue burning fossil fuels and emitting CO2. A forest conservation project in Brazil backed by FIFA for the 2014 World Cup was suspended after loggers destroyed more trees than all the credits sold, ProPublica reported. 

“When it comes to offsets, the jury is still out,” said Heidi Roop, an assistant professor in the Department of Soil, Water, and Climate at the University of Minnesota, in an interview with Hyperallergic. “On the whole, I think the broad consensus is that any of the price points that have been put on a unit of carbon that you’re offsetting are monumentally cheaper than the actual cost of climate change that will be incurred as a result of the production of the emissions of that carbon.”

“Sure, it’s better than nothing. But is it enough? The answer is no,” Roop said. “We are not on a trajectory as a global society to achieve the policy targets laid out in the Paris Climate Agreement.”

Offsets also depend on “additionality,” a measure of the positive impact of an environmental project compared to its negative effects had it not happened at all. This speculation essentially requires companies that sell offsets to make a prediction about the future.

“The project developer has to come up with a story about what would have happened in the absence of the project to save the forest,” said Chris Lang, a climate activist who runs the REDD-Monitor website. “Or for an offset tied to a wind farm, the argument is that in the absence of the wind farm, electricity would be generated by a more polluting form of energy production, like burning coal. That’s one problem with offsets: they’re based on a story.” 

Indeed, unforeseeable factors, like climate change itself, can compromise the outcome of these initiatives. After a massive fire in Oregon last summer, one of the largest forest carbon offset projects in California’s carbon market literally went up in flames.

“In order to stop the climate crisis, what we have to do is dramatically reduce emissions,” Lang said. “The issue with carbon offsets is that they allow continued burning of fossil fuels.”

Those who are for NFT technology tout its radical potential to disrupt the traditionally exclusive art market by empowering artists new to the market to sell their work online, track its ownership, and even make a profit from subsequent resales. And when it comes to Ethereum’s carbon problem, their defense is often based on arguments about degrees of responsibility: minting and trading NFTs represents only a fraction of the Ethereum blockchain’s total energy consumption, which would cost tens of millions of dollars to offset each year, according to McDonald. “This scale of offsets isn’t even available for purchase,” he said.  Furthermore, NFTs are an even smaller slice of the larger blockchain industry, which includes the most polluting network, Bitcoin. The energy usage and carbon footprint of Ethereum are about one-third of Bitcoin’s, according to Digiconomist. 

Crypto purists are also quick to point out that individual transactions related to NFTs do not directly increase emissions. This is because miners, or nodes, are rewarded for each successful block they mine with Ether, the native cryptocurrency of Ethereum, and would presumably continue to do so regardless of whether their blocks were filled with transactions. 

The problem with this logic, says Digiconomist founder Alex de Vries, is that there are several ways in which NFTs are indirectly pushing Ethereum’s carbon footprint further.

“First of all, one has to consider that any amount in gas paid will end up at the Ethereum miners. More activity thus means more money going to miners, which will then acquire and use more energy-hungry devices,” de Vries told Hyperallergic in an email. “Second, since people need to buy Ether in the first place, it also pushes up the Ether price (in USD terms). The latter also increases the value of the money made by miners (who get paid in Ether).”

Amid complex calculations and contrasting viewpoints, many point to the fact that the offline art world has failed to adequately account for its own carbon footprint, even as the NFT space comes under attack. In its recent statement, Nifty complained of what it calls a “double standard”: “Because blockchains give the world such a transparent and accurate accounting of the energy consumption of our industry, they provide a tangible number to focus and dwell on.” The environmental cost of air and automobile travel to fairs and biennales, for instance, has not been properly quantified. A return flight from London to New York emits an estimated 0.67 tonnes of CO2 per passenger; the global aviation industry at large is responsible for 2% of all human-induced carbon emissions. 

Are Nifty Gateway and other platforms’ efforts to quantify and “offset” their impact on the planet paving the way for climate transparency? That much remains to be seen. Proponents of offsetting argue that the system, while imperfect, encourages companies and individuals to quantify, understand, and address their impact, by and large a step in the right direction — and much more than the blockchain industry had committed to before artists got involved. 

“The crypto space hasn’t taken the energy consumption issue very seriously over the last four years,” Wainstein of Open Earth told Hyperallergic. “While a couple of us were raising the red flag, it just really didn’t mobilize. But now artists are involved, and they are a lot more sensitive.”

“The fact that Nifty Gateway is going to show evidence of their impact, that to me is great news,” he said. “And that a lot of that is thanks to dedicated artists and events like the ones we did.”