Decarbonisation

Coordinated global action on climate change is a headwind for Bitcoin mining, whose environmental impact is significant and growing. Critics claim Bitcoin’s carbon footprint, at around 54 million tonnes annually, matches that of Singapore.5 As Bill Gates put it, “Bitcoin uses more electricity per transaction than any other method known to mankind, and so it’s not a great climate thing.”⁶  

ESG fund managers are becoming increasingly vocal about Bitcoin mining’s negative environmental impact.⁷ 

They argue that the industry faces a structural challenge either way – a higher Bitcoin price incentivises more mining with a larger carbon footprint; a lower price leads to less mining but an unattractive investment return.⁸ 

Bitcoin’s association with emissions-intensive energy use (at least for now) means that it is unlikely to be an acceptable investment for ESG investors, which may curtail institutional adoption. Their opposition is already impacting market sentiment and reputational risk will continue to grow as ESG investing becomes mainstream. Politicians have also begun to tighten regulatory oversight, citing Bitcoin’s environmental impacts. On 6 May 2021, Bill A7389 was introduced into the New York Senate, which, if signed, will put a moratorium on operating crypto-mining facilities in the state.  

The industry has shown a new-found urgency in response to these pressures. On 23 May 2021, Musk and MicroStrategy CEO Michael Saylor met with a number of leading miners in North America. Participants agreed to form a Bitcoin Mining Council to promote transparency in energy usage, standardise energy reporting and accelerate sustainable initiatives worldwide.⁹  

The main counter argument against this rising tide of environmental unease is that Bitcoin’s electricity usage remains orders of magnitude less than that of the global banking system, which one estimate claims expends 2.4 billion gigajoules (GJ) annually, compared to Bitcoin’s 184 million GJ.10 In addition, producing new gold produces an estimated 100 million tonnes of CO2 emissions annually, compared to Bitcoin’s 30 million tonnes.¹¹  

As one Bitcoin mining entrepreneur has summarised: “We don’t see a long-term problem related to Bitcoin’s electricity consumption. If it’s a bubble, it dies and consumes nothing. If it’s digital gold, it’s more efficient and will emit much less than the asset it disrupts. And if it’s really successful, it’s because of demand from truly value creating applications that define our future and should be worth the electricity.”¹² 

Another rejoinder is that transacting in fiat currencies such as the US dollar effectively subsidises the fossil fuel industry. According to a 2020 study, developed countries alone spent US$800 billion in 2018 subsidising fossil fuels, compared to the US$140 billion spent worldwide subsidising renewables.13 Finally, Bitcoin mining is capable of supporting the rise of renewables at the expense of fossil fuels – an argument we explore in detail in the next blog post, ‘Rise of renewables’.