Immune to irony, Nori puts a carbon market on the blockchain

The Ethereum blockchain isn’t exactly the first thing that springs to mind when you’re thinking of solutions to climate problems, but that’s what Nori has built as an engine to encourage farmers to use carbon-negative farming methods to pull carbon from the air and put it back into the ground. The company just raised $7 million of venture capital to shed some of the painful irony inherent in running carbon removal on one of the most wasteful blockchains in the world by moving its operations off Ethereum and onto Polygon. The company is also exploring new sources for carbon capture, further building its carbon removal marketplace, and releasing a token to facilitate it all.

Nori focuses on carbon removal rather than emissions reductions or avoidances. Its marketplace provides financial rewards to farmers, who use regenerative farming practices that involve soil carbon sequestration. Soil sequestration is the first of Nori’s carbon removal offerings, with additional methodologies coming to market in the future.

To date, the company has around 10 farms on its program, has distributed $1 million to its farmers and has seen around 2,200 transactions from buyers for carbon credits.

Now, as a climate fan, and exercising my duties as a journalist, I went ahead and bought a ton of carbon to see what would happen. I got a shiny certificate, and Nori dutifully registered my certificate on the Ethereum blockchain. I’m immediately tempted to do the math; 2,200 transactions on the Ethereum blockchain means that you burn a hell of a lot of energy in the process. At today’s rates (according to Digiconomist), that’s around 583 megawatt-hours burned just to keep track of the carbon credits. The EIA estimates that the average household in the U.S. uses around 10.7 MWh per year, so that’s about 54 houses’ worth of power consumption — or about 27.5 tons worth of carbon emissions. Faced with these types of numbers, I face-palm so hard that my brain turns into CO2 and increases my own personal carbon emissions in the form of steam coming out of my ears.

To be fair to Nori, the cost of Ethereum transactions has sky-rocketed, and depending on when each of the transactions happened on the chain, they will have spent a lot less energy to get to 2,200 transactions — and once I’d finished raging my discontent at Nori’s founder, he explained that when they founded the company in 2017, there wasn’t much of an alternative to using the Ethereum blockchain. They are aware of the problem, however, and are migrating to Polygon as soon as possible.

“In 2017, where else would we have gone? Ethereum is by far the largest blockchain with the most developer tools. There was no other option at the time and it’s exciting to see all these different layer two solutions that are kind of coming available finally, starting late last year,” said Paul Gambill, CEO at Nori. “The one thing to keep in mind is that this is a relatively nascent operation until now.”

With the proof-of-concept in place and the need for a carbon-removal market proven out sufficiently to close a $7 million Series A round led by M13, with Toyota Ventures making its very first investment out of its climate fund, and participation from seed investor Placeholder, Nori is ready to strap on its walking boots and start walking the walk. First on the to-do list is to move its application to Polygon.

“At scale, [Ether] is not for us. It’s not like we are a high-thoughput, high-transaction type of application on the chain, but we are moving over to Polygon, and then hopefully merge in June or July. That will make the issue go away, so for us, [energy consumption] is basically a non-issue,” says Gambill, describing the difference between the company’s current solution and the new one. “Polygon is a proof-of-stake validator chain. The amount of energy used to operate it is basically negligible, compared to a proof-of-work chain.”

Whether Polygon is as efficient as it claims is yet to be seen, but its creators claim that its efficiency is so extreme that even if it uses 1,000x more power than currently expected, it’d still take many orders of magnitude less power to run Nori’s solution than running it on Ethereum. Which raises my next question — why bother with the blockchain at all — why not just use a database?

“That’s my favorite question. A report in 2017 was looking at the total volume of voluntary carbon offset trading. In the numbers, they broke it down by primary sales and secondary sales. I thought, well, that’s weird. What the heck is a secondary sale?” Gambill explains, pointing out that secondary sales were twice as big as the primary sets of transactions. “What’s happening is that these carbon credits are being created, and then they’re sold to brokers who then resell them to other brokers, and they get sold on many, many times. And actually, very rarely do they end up being retired by an end buyer.”

As so many other things that become commoditized, the carbon credits get re-bundled and re-sold on a market behind closed doors, by middlemen who are charging transaction fees for pushing a piece of paper around.

“That’s not going to accelerate the rate at which we pull carbon out of the air,” Gambill notes drily. “Our fundamental philosophy is if you’re going to be serious about climate change, then you should design systems that result in every new dollar being spent resulting in new carbon being taken out of the air.”

Nori is running two different assets, an NRT and the Nori Token. The NRT is a Nori Carbon Removal Tonne, and it represents one tonne of CO2 removed from the atmosphere for a minimum of 10 years. Once completing the Nori enrollment process, a supplier of NRTs can register them on the Nori marketplace. NRTs, in turn, are sold directly to individuals and organizations seeking to mitigate carbon emissions. This way, anyone can participate in reversing climate change. Given that you’ve read this far in this article, you are clearly a patient soul — if you also have the cost of a tray of lattes laying around, and a desire to expend a godawful amount of energy in doing so, you, too can experience the power of Nori firsthand and spend $15 to pull a ton of carbon out of the air now.

The token (“NORI”) is launching later this year.

“The Nori token is not launched yet — we wanted to prove out the concept. Carbon itself is difficult and when you start introducing crypto, it makes it much more complicated. We’ve spent the last four and a half years building out the carbon side of the business proving that there’s significant supply and significant demand out there,” explains Gambill. “One token purchase is one NRT — or one ton of carbon removed. The idea is that whatever the price of the token is, becomes the carbon reference price. The only way that we have any information today around Voluntary Carbon Offset purchases is when companies choose or volunteer to report the prices — for example if a company like Microsoft publishes an environmental report for its shareholders. If they didn’t do that we wouldn’t even know.”

Nori promises to immediately retire any NRT that is purchased, preventing the re-sale of carbon credits, and effectively killing the resale value for the carbon credits. That’s the most important reason for using the blockchain, but the Nori team has other arguments, too.

“To date, the carbon offset industry has struggled with endemic problems including double claiming of credits”, said Gambill. “The immutable nature of the blockchain establishes transparency for credits, providing rewards for carbon removal to its community. That’s the most important reason — but there are two others. Having a tradable commodity asset in the form of the token means that we can price carbon more transparently.”

The third reason for embracing the blockchain is an insurance mechanism of sorts against a public relations nightmare. As ProPublica reported a couple of years ago, carbon credits are sold and re-sold in ways that turn them into a running joke, without ever actually resulting in improvement. Worse, companies were able to point to the carbon credits they had bought (whether in good faith or as an empty gesture) and greenwash themselves. When a company gets caught out, things get ugly, and there have been examples of companies avoiding carbon-offsetting because there was no sure-fire way of ensuring that those trees they paid to have planted didn’t get ripped up a couple of years later to make space for whatever the agricultural crop du jour might be.

“Big enterprise companies like Microsoft or Salesforce or whatever experience this problem — when they’re buying carbon offsets, they actually see it as a liability. Not just financially, but reputational: if they’re buying forestry credits, and then that forest gets harvested or burns down or something, they have no recourse. There’s nothing that they can do and they’re going to get destroyed in the press for it,” explains Gambill. “I was told by the director of sustainability at JetBlue years ago that ‘I just don’t want an investigative reporter showing up on my door telling me that thing I paid for, it didn’t actually happen.’ So in order to mitigate that risk, they hire big consulting teams. They work with a bunch of different brokers and they spend a lot of time and effort doing diligence on single projects. And that’s just not scalable. It drives transaction costs up.”

Nori’s solution is to shoulder the liability and offer a 10-year warranty. The farmers who do carbon sequestration have to re-verify that they are still sticking to their contracts every few years. Of course, when they are selling new carbon, they are also signing up for a new 10-year period, which further locks the better agricultural practices in, extending the practice. The company does this by paying the farmers in NORI tokens, which vest over time. If they hold up their end of the bargain, the tokens vest and they can sell them on the market. And, because these are tokens, there’s an implied hope that the value of them goes up as they vest.

“If we discover at verification that there was some sort of carbon loss, we claw back the restricted tokens,” explains Gambill. “We use those tokens to go buy new NRTs on behalf of the original buyer, from some other supplier. We’re only able to do that because the token is always worth one ton. If we did that with cash, then we’d be susceptible to large price changes and it would just not work at all. So those are the three reasons why we do this on-chain.”