NFTs: Creating Artificial Value at a Very Real Cost

By Sedi Caine, Law and Policy Clerk

What are NFTs?

Non-fungible tokens (NFTs) are a relatively new type of collectible on the market, one that’s entirely digital. They can be anything from drawings to music and even tweets, but the current craze centers around the sale of digital art. The idea of an NFT is to create a unique identifier for digital art that creates scarcity and value in the original product. Even if others have access to copies of the digital file, only one person owns “the original.”

NFTs are primarily minted on the Ethereum blockchain (you may be more familiar with “Bitcoin,” which uses a similar process). Blockchains are database systems which allow for secure transactions over the internet through a very long and complex series of transactions. A wide network of computers is constantly at work, checking to make sure the chain stays the same and that only authorized additions occur. These transactions are used to verify that the digital item in question is the true, unique work. Think of it as a non-transferable “sticky note,” or a “certificate of authenticity” attached to a digital item which marks it as the “one true” version.

Take, for example, the popular internet meme, Nyancat. Follow that link and you’ll find yourself at a website where you can watch a continuous GIF of Nyancat as he runs across the night sky. The website, maintained by the owner of the meme, is completely legal and accessible by anyone. But a GIF of Nyancat sold in early 2021 for $660,000. So why can we still view it? Selling an NFT only gives the owner exclusive right to the sticky note, not the use of the digital piece. It’s a market centered around the inherent value of owning an original piece, for whatever that’s worth ($69 million for this collection, apparently).

The Environmental Impact of NFTs

The concern around the NFT market is the large and detrimental environmental impact associated with the process of creating, buying, and selling NFTs. This impact is essentially undisputed, with even Ethereum itself acknowledging the system is bad for the environment. The Ethereum blockchain uses an intentionally inefficient process called, Proof of Work, to verify transactions occurring within the network. The proof-of-work protocol requires “miners” (computers running software) to go through an intense race of trial and error to generate a new block to add to a chain. The block contains a record of these transactions, and only one block will be considered a canonical edition to the chain. The process is entirely random which makes the system very secure and ensures the legitimacy of transactions taking place within it. The lucky owner of the machine that generates the canonical block is due to make a hefty profit, while everyone else who competed gets nothing despite the energy consumption of their efforts.

Because the payoff functions this way, the process encourages people to utilize as many computers as possible when mining. Think of it like playing the lottery. Every lottery ticket purchased has the same statistical chance of winning, but a person with 1,000 tickets is more likely to be a winner than a person with one. The way the system functions encourages people to increase their activity within the system, which in turn increases the overall carbon footprint by Ethereum. Currently, a single Ethereum transaction is estimated to use the same amount of energy consumed by an average US household over 4.19 days. Multiply this by the thousands of transactions that occur daily and the energy consumption becomes a lot more worrisome.

NFTs come into the picture because their value is connected to the authenticity assured by use of the Ethereum blockchain. It is not actually the NFT itself which causes the emissions, but the transactions and verification occurring through the system. However, as the NFT market grows, the incentive for additional miners grows as well, and this is where the problem lies. A lucrative market will encourage new entrants, and with record-breaking heatwaves across the Pacific Northwest and an unprecedented snow storm in the South last February, we’re not in a position to encourage such energy-intensive, climate-altering endeavors.

What Next for NFTs?

Despite the negative impacts of NFTs, there is an appeal to the market, particularly for artists. Art has an inherent value and artists deserve to be compensated for their work. NFTs create a new model of ownership for artists which can greatly benefit them in terms of profit. Unfortunately, society is not prepared to handle the costly environmental impacts of the crypto-currency market, and encouraging the production and sale of NFTs will only make the issue worse.

There are technical difficulties to addressing this problem politically. On the one hand, a ban on mining or a tax on the activity may help local governments meet their climate initiatives and encourage more efficient technologies. At the same time, this may encourage miners to outsource their activities, giving foreign markets an advantage over domestic market growth while continuing to harm the environment.

There may be a time when things like Bitcoin, NFTs, and other crypto-based items can be freely exchanged with little to no environmental impact, but we’re not there yet. At a time when we are trying so hard to combat climate change and keep our planet hospitable, engaging in activities with such a large carbon footprint is not in our best interest. Ethereum and Bitcoin have proposed switching to a different mechanism or using renewables to reduce their impact, but as long as NFTs and crypto-currencies continue to operate at their current energy consumption levels and carbon emissions, things aren’t looking great for our climate initiatives. Continuing to produce and encourage the production and sale of NFTs, with the current system in place, is simply unethical and harmful to us and the planet.

The blogs posted on Charged Debate reflect the writers' opinions in their individual capacities, and do not necessarily reflect the perspective of the Green Energy Institute, Lewis & Clark Law School, Lewis & Clark College, or the writers’ past, present or future employers or other associations. Any information in any blog on Charged Debate is meant purely for general educational purposes, does not constitute legal advice and should not be relied upon for any purpose. No representations or warranties, express or implied, are made with respect to any content in any blog posted on Charged Debate.

 

Putting the Pedal to the Metal for Electric Vehicles in 2017

By Joni Sliger, Energy Fellow

Recharging a Toyota RAV4 electric vehicle
Credit: Warren Gretz / NREL

Vehicle electrification is vital to a clean energy future, and it is a process that may soon accelerate in Oregon. Improving Oregon’s transportation system broadly is one of Governor Kate Brown’s top four action items for this legislative session. Her legislative agenda notes that an improved transportation system is necessary as the “backbone of a thriving Oregon economy” and that it can help the state reach its greenhouse gas reduction goals (currently, to reduce emissions 10% below 1990 levels by 2020 and 75% below 1990 levels by 2050). Transportation is Oregon’s highest emitting sector, according to the Oregon Greenhouse Gas Inventory, and amounts for more than a third of all Oregon’s emissions. To combat climate change and meet Oregon’s greenhouse gas reduction goals, we need a cleaner transportation system; for that, we need vehicle electrification.

Some electric vehicles are present in Oregon, but the market has a lot of room for growth. According to a new online dashboard designed by the Center for Sustainable Energy for the Auto Alliance, Oregon ranks third in the nation for the state’s market share of light-duty electric vehicles, measured from 2013 to 2016. But this market share—the number of electric vehicles out of all vehicles in the state—is still only 1.5%. While the proportion of electric vehicles relative to all vehicles is higher only in Washington and California, the overwhelming majority of vehicles sold are not electric. Oregon has made more progress in deploying electric vehicles than most of the U.S.: for example, despite a relatively small population, Oregon ranks 10th in the nation for number of electric vehicles sold, with 10,825 electric vehicles sold in the state from 2011 to 2016. However, Oregon still needs to do more to electrify its transportation sector. 

One way to galvanize the market is through public investment. For example, the Mayor of Portland is one of four West Coast mayors working together to support the transition to electric vehicles. In a Request For Information (RFI) to auto manufacturers, the mayors announced their interest in obtaining or leasing up to 24,000 electric vehicles. The mayors propose to change city fleets to electric vehicles, hoping to lead by example by adopting electric vehicles. Additionally, they hope such high demand will help the young market transition to mass production, eventually resulting in lower prices for all consumers. The bid for the RFI is due March 1, so manufacturers still have time to submit proposals.

While we can hope for legislators to act this session to further support vehicle electrification, they have also taken action recently. Last session, Oregon legislators passed the Clean Electricity & Coal Transition Act. As my colleague, Andrea Lang Clifford, wrote last year, the new law requires the state’s utilities to propose EV charging infrastructure programs, which the PUC may approve if it finds the proposals to be prudent investments of ratepayers’ money. As Andrea noted, this is an incremental step, heavily dependent on the PUC’s views of prudency. While the utilities submitted their proposals in late December 2016, the PUC has yet to rule on them. Among the proposed actions are (1) pilot projects for new charging infrastructure (including charging stations five electric Tri-Met buses); (2) educational campaigns, including showcasing electric vehicles at car shows; (3) additional research into the technologies involved; and (4) a rate change for vehicle charging to incentivize the market switch. (You can read Pacific Power’s applications here and here; PGE’s here; and Idaho Power’s here). The PUC is set to have hearings on most of these applications in early February and decide whether the proposed actions are worth the cost to the ratepayers, so stay tuned to learn how the PUC rules on these proposals.

This year, Oregon legislators are ready to work on major transportation legislation. Hopefully, legislators will advance vehicle electrification and continue moving Oregon towards a clean energy future. 

Overhauling America’s Transportation System

By Ben Swerdlow, Policy Extern

In connection with my previous blog post advocating for self-sufficient green communities, I am going to now turn to the future of transportation, with an emphasis on the transportation of freight. This week’s post specifically focuses on freight because of the large but not always visible role it plays in our lives. Each year, approximately 40 tons of freight are shipped for every person in the United States. This freight can account for a significant amount of emissions.

Container ship CSCL Globe
By Kees Torn via Wikimedia Commons

Just as the internet has brought the world together, so has the shipment of goods in international commerce. In 2014, an estimated 10 billion tons of freight was shipped around the globe, which represented a 66% increase from goods shipped in 2000. With the expectation of continued growth, we must ensure that there is an efficient process to transport all of these goods. Moreover, as more and more goods are shipped, it is imperative that we assess the current status of this shipment system to make it more efficient and green for the future.

To understand how we can increase efficiency in the shipping industry, it is first important to understand the steps involved in the shipment process. The first leg of a shipment’s journey is often on a ship, which is currently where an estimated 90% of global trade occurs. Increasing efficiency in maritime transport is important, especially considering a recent European Parliament report estimated that the emissions from shipping, which currently account for three to four percent of carbon emissions, could be as high as 17 percent by 2050. 

Maritime shipping is currently considered the most carbon efficient transportation method. However, it is still important that we implement emissions controls and consider some alternative fuel sources for oceanic transport. Currently, ships are primarily fueled by Heavy Fuel Oil. This type of fuel is particularly high in sulfur, leading to significant sulfur oxide and nitrogen oxide emissions. With technology ever improving, there have been several attempts at “green” cargo ships, including a partially solar powered cargo ship, and, in future development, an LNG Cargo Ship and even a Dyna-rig Sail System. So far, though, petroleum remains the fuel of choice for the near future, with LNG possibly playing a larger role in the next few years. 

Following the journey on ship, the product can either go from port on a train or a truck. This choice can lead to vastly different emissions. With current technology, a train is four times as fuel efficient as a truck, which indicates that we should favor train transportation. However, the American Trucking Associations report that 70% of the tonnage moving throughout the U.S. is currently carried by truck. The reason for this preference of trucks over trains is due to the flexibility that transportation by trucks allows. 

In order to shift what has become a relatively inefficient overland shipping process that heavily relies on individual trucks, there needs to be a technological shift that can enable a transition to a more green and efficient transportation system. Though it may not be easy to achieve such a shift, a system that can provide green, fast and reliable shipments over great distances could move us away from our current processes. A system like the Hyperloop could forward this shift.

Concept Drawing of Hyperloop
By Camilo Sanchez via Wikimedia Commons

Hyperloop is an enclosed high-speed transportation system, which relies on low friction to travel at speeds approaching 700 miles per hour. To achieve these high speeds, the system uses vacuum tubes where the individual pods can travel. Air compressors on the front of the pods pull the pods forward, while also using that air to levitate with air bearings (effectively, air is used to push the pod up just above the ground). The pod is then propelled forward using linear induction motors, which work via the same principals as a typical induction motor (a normal electric motor) but instead of creating rotational force, these motors provide force in a straight line. 

Building an advanced transportation system, such as Hyperloop, will have a significant effect on how goods are shipped, due in part to the speed that they can be shipped. Even though speed is becoming less of a factor these days due to product forecasting, a system which can move faster than any other method will provide so much additional flexibility that not even the benefits of trucks can outweigh.

While a Hyperloop system could be implemented in several ways, it could provide the most benefit if the system was used to transport freight directly from a port to a distribution center miles away. This would allow goods to be processed closer to their delivery locations. This model could significantly reduce the number of trucks needed for transportation, relieving congested highways and drastically decreasing emissions. 

Overall, technologies like Hyperloop have the potential to disrupt a transport system that relies on old, inefficient technology. This is a very important time in the shipping industry, due in part to emerging technology and in part to the drastic increases in freight shipping. It is therefore imperative that we use this time to look at the shipping system as a whole and prepare for the future.

My next blog post will discuss future technologies for trucks and cars, which have the potential to drastically change how we interact with our personal vehicles. 

Do Bridges Leak? Natural Gas Sure Does – Just Ask California…

By Andrea Lang, Energy Fellow

Last week, I wrote about why Oregonians should be wary of shifting away from coal by investing in more natural gas infrastructure to power our electric grid. Besides the fact that such infrastructure would be in place for years and thus is unlikely to be a “bridge” to renewable energy, it is not necessarily less carbon intensive than other fossil fuels.  While burning natural gas results in less CO2 emissions than coal, there are also lots of methane leakages during natural gas production, storage, and transportation. And since methane is 25-37 times more potent (it depends on the timeframe considered) as a greenhouse gas than CO₂, these leakages are significant.  The ongoing methane leak in California, along with numerous other leaks across the country, illustrates the hidden climate cost of natural gas.

A methane leak in Porter Ranch, California has already leaked more than 86,000 metric tons of methane, or the equivalent of more than seven million metric tons of CO₂. That leak is expected to continue at least into late February or March. In the meantime, you can watch the methane emissions go up in real time on a methane counter created by the Environmental Defense Fund. The leak has caused California’s governor to declare a state of emergency in the area, and has resulted in thousands of evacuations. But in addition to the local impacts of the leak, it highlights one of the major problems with natural gas in terms of global climate impacts. Though invisible to the eye, the leak in California is currently the daily equivalent of driving seven million cars.

  

The California methane leak is by no means an isolated incident. A recent study concluded that for natural gas to produce more climate-friendly electricity than coal, leakage must be kept below 3.2%. However, there is a lot of uncertainty about how much leakage is actually occurring from natural gas infrastructure and whether it is in fact below that 3.2% threshold. Although the EPA has estimated that leakage rates are well under the threshold, numerous studies (see here, here, and here) have concluded that EPA may be drastically underestimating methane leakage.

Chances are, even with all of these leaked emissions, natural gas is still cleaner than coal. But the scary part (aside from the terrible local impacts of large-scale leakages like the one in California) is that nobody is totally sure about how much fugitive emissions really occur. And with natural gas being touted as the “bridge” to a renewable and sustainable energy future, it seems like a big risk to take. In the transition away from coal, we would be much better served by investing in truly green infrastructure, increasing the percent of electricity from solar, wind, and other renewable energy sources.