What Elon Musk and Jack Dorsey Miss About Bitcoin and Green Energy, Energy News, ET EnergyWorld
A trio of Jack Dorsey, Cathie Wood, and Elon Musk are promoting the idea that Bitcoin mining may in fact be good for the planet. This is not entirely true.
The basis of the idea is that cryptocurrency mining uses a lot of energy and can be deployed at any time. It could help a developer make money by minting coins at a time when there is a lot of wind or sun, but not a lot of demand for electricity. Better use of wind and solar energy, where electricity production can be intermittent, increases efficiency, lowers prices and helps encourage the green transition.
The theory is based on trends that are already happening regardless of crypto. The cost of renewable energy is falling and an increasing share of energy is supplied by electricity. There are so many existing incentives that the International Energy Agency expects wind and solar power to account for around 12% of electricity demand by 2030, up from 5% in 2019.
Wood says the new research ideas – in an article by his ARK Investment Management LLC and Dorsey’s Square Inc. – “debunk the myth” that mining Bitcoin damages the environment. On Twitter, Dorsey said that Bitcoin “encourages renewable energy.” Musk replied with a word: “True”
But there’s always the fact that mining consumes huge amounts of energy. Bitcoin mining now uses 66 times more electricity than in 2015, Citigroup Inc. said in a recent report. The Center for Alternative Finance at the University of Cambridge estimates that it uses more electricity per year than the Netherlands.
In order to further encourage renewable energy, crypto-miners could sign long-term agreements to buy green electricity. This is what big companies like Amazon.com Inc. are doing to reduce their carbon footprint. This helped fuel a boom in renewable energy assets in the United States.
In their research, ARK and Square proposed that a renewable energy project could be built without a connection to the grid, just to power a Bitcoin operation. This would speed up development, but also make the project riskier in the eyes of a lender, as grid connection might never materialize, making development completely dependent on mining.
But part of the rapid decline in the price of renewables is also due to cheap financing. A bank would likely want to charge a higher interest rate on a project that plans to sell electricity to a Bitcoin miner than if the customer were Google.
“I don’t know how you would assess the risk profile of a Bitcoin mining transaction,” said Albert Cheung, head of analysis at BNEF. “You kind of want your offtaker to be around for 20 years, or at least 10.”
So far, a lot of Bitcoin is produced by the most polluting source of electricity. Research from the Center for Alternative Finance shows that Bitcoin mining is dominated by China, a country currently on the rise in new coal-fired power plants. In the second quarter of 2020, according to the latest available data, the world’s largest polluter mined up to 65% of the coins.
By comparison, Iceland and other Nordic countries, once considered a green haven for Bitcoin, each produced less than 1% of the coins. Their traditional surplus of geothermal, hydro and wind energy is rapidly diminishing. Iceland’s largest utility has said no one will create more power capacity just to power Bitcoin mining.
And by using coal to produce most of its energy, harmful carbon emissions keep increasing. Pollution from China’s coin mining is expected to peak in 2024, releasing as much carbon dioxide as all of Italy, according to a study published in Nature Communications this month.
Additionally, there may also be better uses of renewable energy than making Bitcoin, such as decarbonizing existing energy demand that relies on burning fossil fuels. As Teslas and other electric vehicles replace gas cars, they will need a lot more electricity. Other large polluting industries, such as iron and steel, chemical production and aviation, could also use cheap green energy to make hydrogen.