What has been done and what still needs to be done to decarbonize crypto.
Cryptocurrency has an energy consumption problem. Bitcoin alone is estimated to consume 127 terawatt-hours (TWh) a year — more than many countries, including Norway. In the United States, cryptocurrency activity is estimated to emit from 25 to 50 million tons of CO2 each year, on par with the annual emissions from diesel fuel used by US railroads.
Decarbonizing the crypto industry thus remains essential to achieving a safe climate future. Yet, while RMI is proud to have played a role in initial decarbonization efforts in the crypto industry, moving forward, we will focus on decarbonizing the grid rather than crypto transactions.
In this article, we reflect on the state of the crypto industry: what work has been done so far, the challenges of decarbonizing crypto, and how RMI will continue to pursue this goal as part of our larger effort to decarbonize global supply chains.
Progress to Date
As exorbitant electricity consumption from crypto mining became a public concern, RMI’s first step was to act as a co-convener of the Crypto Climate Accord (CCA), along with our partners Energy Web, the Alliance for Innovative Regulation (AIR), and the World Economic Forum. The CCA serves as a “private sector-led initiative focused on decarbonizing the cryptocurrency and blockchain industry,” where solutions and technologies for crypto decarbonization are created collaboratively among players across the web3 and crypto space.
As part of the CCA, RMI spearheaded the development of the CCA Accounting Guidance, a foundational guide to allocating emissions for the crypto industry. The guidance highlights the importance of a consequential accounting approach and the use of marginal emissions rates as a key to understanding crypto’s emissions impact. The guidance further supports the need to gauge grid impact rather than average emissions when assessing emissions impact.
This initial work was followed by participating in a roundtable during the drafting of the Crypto Climate Impact Accounting Framework, developed by the Crypto Carbon Ratings Institute (CCRI) and South Pole. This framework sought to define a methodology for allocating GHG emissions for crypto transactions and holdings. Because institutional investors hold an outsized stake of the crypto market, allocating emissions for these activities is vital to pressure both investors and crypto industry leaders to change their current practices.
Challenges with Crypto Decarbonization
Proof-of-work energy usage
With lawmakers increasingly looking at the effects of Bitcoin mining, from both an environmental and grid-resiliency perspective, lowering energy usage of this crypto currency is a must. Bitcoin is the only major currency that uses proof-of-work mining. The large energy usage associated with proof-of-work mining is an inevitable consequence of the fundamental nature of its algorithms.
Ethereum moved to a far less energy intensive proof-of-stake consensus mechanism, reducing that network’s electrical usage by over 99.9 percent. (Here’s a discussion of the difference between proof-of-work and proof-of-stake.) A single transaction on Ethereum’s proof-of-stake network is now similar to the electrical usage of a Mastercard transaction. As a result, when we speak of the emissions impact of “crypto,” we are now largely speaking about the emissions impact of Bitcoin.
To mitigate crypto industry emissions, RMI supports the “Change the Code, Not the Climate” campaign, launched by Greenpeace and the Environmental Working Group, intended to motivate Bitcoin to move away from proof-of-work and toward a less energy-intensive consensus mechanism.
A co-benefit of Bitcoin changing its consensus mechanism would be to mitigate Bitcoin’s significant e-waste problem. As proof-of-stake and other low energy protocols require less computing power and no specialized equipment, Bitcoin ditching proof-of-work would mean the network would require far less hardware — an additional win for the climate.
In addition to energy usage and e-waste, the price volatility associated with Bitcoin and other cryptocurrencies is a cause for concern. When prices are high, Bitcoin miners may be willing to power their operations with clean electricity. But as the price of Bitcoin comes down, smaller profit margins mean industry players are likely to seek out the cheapest electricity possible, which may not always be the cleanest. Digiconimist currently estimates a “cost percentage” of Bitcoin mining, which shows that miners spend a majority of their income on electricity.
Furthermore, there are attempts to use Bitcoin for demand response on power grids, with Texas’ ERCOT being the prime example. There are concerns, however, about the ability of Bitcoin miners to be relied upon for these services. If prices are too high, miners won’t prioritize limiting power usage, putting increased pressure on a grid that has experienced significant stress in recent years.
With emissions on the scale of entire countries, it is imperative for Bitcoin mining, in the absence of changing to a low-energy consensus mechanism, to be powered by new renewable energy, rather than drawing from existing renewable capacity. Because of the flexibility of Bitcoin’s load, or its ability to be mined anywhere in order to balance energy supply and demand, miners who are conscious about their footprint should be able to contract renewable energy to power their operations. Unfortunately, as public data from Greenpeace shows, this is not currently the case. Bitcoin miners are largely contracting energy from fossil sources and claims of sustainability tend to be based on being co-located near renewables.
Some Bitcoin miners may not have direct control over their electricity usage if their mining computers are contracted out to larger data centers. This, combined with the fact that miners are not longstanding businesses with well-established credit, may make it difficult to dictate their electricity supply. In order to drive further renewable energy generation, rather than take credit for an existing portion of renewable capacity, Bitcoin miners must contract renewable energy directly.
But while energy usage remains high in Bitcoin mining, it is imperative that this energy is clean, sustainable, and additional. To ensure this, RMI developed the Renewable Energy (RE) Emissions Score, designed to assess the material impact of renewable energy procurement. By measuring the emissions impact, as well as the value provided by off-takers of renewable energy, the RE Emissions Score will allow any company, not just Bitcoin miners, to make meaningful claims about renewable energy procurement, prioritizing investment in high emissions areas and low-cost renewable projects. If Bitcoin mining is to continue, it must be powered by additional renewables so that it does not inadvertently increase required grid capacity and lead to more fossil generation.
The RE Emissions Score was born out of a need to allow Bitcoin miners to make quantifiable claims of renewable energy use and investment, but its implications are much wider. Any company currently procuring renewable energy can use this approach to show its commitment to total grid decarbonization. Focusing on the decarbonization of the grid as a whole is vital to any strategy for reducing crypto emissions.
The climate effects of crypto, especially Bitcoin, are no secret. With an extremely large appetite for energy, crypto has the potential to serve as an impediment to climate progress. Price volatility has hampered climate action in the space, and without proactive procurement by miners, regulatory pressure is inevitable. Campaigns such as the CCA show an interest in addressing these issues within the community. Participating organizations cannot afford to allow these pledges to be mere words, they must act. Guidance on measuring emissions, such as the CCA Accounting Guidance and the Crypto Climate Impact Accounting Framework, are vital first steps toward allowing industry participants to understand their own climate impact and take action to reduce it. The dictum applies: you can’t manage what you can’t measure.
Until such a time that a less energy-intensive consensus mechanism for bitcoin is developed and available, current Bitcoin mining operations should be powered by additional, renewable energy. The RE Emissions Score provides miners with the means to help ensure that contracted power is renewable and additional, which will be necessary to decarbonize US electricity grids by 2035.
Though our direct engagement with crypto is coming to a close, RMI’s work to decarbonize the grid and transform the global energy system will continue.
This article has been sourced from RMI and can be accessed here