A global priority
COVID-19 may have presented the circuit breaker the world needed to decarbonise energy supply chains. A sizeable percentage of the trillions in central bank stimulus now washing through the global economy is flowing directly into low-carbon technologies. In July 2020 the European Union led the way, approving a 500-billion-euro green stimulus package, with 30 percent of funds earmarked for climate action.1
Meanwhile, Beijing’s decarbonisation efforts were given a boost in September 2020, when President Xi vowed China would be carbon neutral by 2060. Key economies Japan and South Korea followed, pledging carbon neutrality by 2050, while India has announced an intention to become a renewable energy superpower.2
One hundred and twenty-four countries have now committed to reaching net zero emissions (Australia is not one of them).3
Most importantly, the United States has recommitted to global climate leadership. The Biden Administration will invest US$1.2 trillion in clean energy infrastructure and reintroduce tough environmental regulations that crimp the profitability of the heavily subsidised fossil fuel industry.
The implications of Washington’s U-turn on climate change can’t be overstated. With the largest stimulus in history behind them, American entrepreneurs are pursuing decarbonisation with unmatched focus and intensity. Jeff Bezos has personally committed $10 billion through his Earth Fund, while 155 (predominantly US companies) with a combined market capitalisation of US$2.4 trillion have called for governments to decarbonise and build net zero targets into their pandemic recovery efforts.4
Implications for Bitcoin mining
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’.
Megatrend summary: Decarbonisation
- Decarbonisation is the most significant megatrend in the world today. A focus for governments, businesses and fund managers alike, it represents a social licence risk to the long-term viability of Bitcoin mining.
- Bitcoin is unlikely to be classified as a responsible investment by ESG fund managers, whose influence is growing. Their opposition may curtail institutional adoption.
- However, Bitcoin’s ecosystem is less carbon intensive than traditional finance or gold mining, and is capable of supporting the rise of renewables at the expense of fossil fuels.
1 Wilson-Otto, Gabriel, Positioning for a Green Recovery from Covid-19, Asia Times Financial, https://www.asiatimesfinancial.com/covid-19-positioning-for-a-green-recovery
2 IEA, India 2020 Energy Policy Review, https://www.iea.org/reports/india-2020
3 Remarks by Angel Gurria, Secretary-General, OECD, Paris, 21 April 2021, https://www.oecd.org/about/secretary-general/oecd-sg-climate-lecture-21-april-2021.htm
4 Science Based Targets, Over 150 Global Corporations Urge World Leaders for Net-Zero Recovery from COVID-19, 9 July 2020, https://sciencebasedtargets.org/news/over-150-global-corporations-urge-world-leaders-for-net-zero-recovery-from-covid-19
5 Digiconomist, March 2021, https://digiconomist.net/bitcoin-energy-consumption
6 Ross Sorkin, Andrew, Bitcoin’s Climate Change Impact is Under Scrutiny, New York Times, 9 March 2021, https://www.nytimes.com/2021/03/09/business/dealbook/bitcoin-climate-change.html
7 Walker, Martin C. W., Can Investors Embrace both Cryptocurrencies and ESG? LSE, https://blogs.lse.ac.uk/businessreview/2021/02/05/can-investors-embrace-both-cryptocurrencies-and-esg/
8 Nasdaq, Can Bitcoin and ESG Co-exist? 2 March 2021, https://www.nasdaq.com/articles/can-bitcoin-and-esg-co-exist-2021-03-02
9 Saylor, Michael, Twitter, 25 May 2021, https://twitter.com/michael_saylor/status/1396915803082080256
10 Held, Dan, PoW Is Efficient, Medium, 11 August 2019, medium.com/@danhedl/pow-is-efficient-aa3d442754d3
11 Inge Røkke, Kiell, Seetee Letter to Shareholders, https://www.seetee.io/static/shareholder_letter-6ae7e85717c28831bf1c0eca1d632722.pdf
13 Center for Energy Studies, Fossil Fuel Subsidy Reform Since the Pittsburgh G20: A Lost Decade? Rice University’s Baker Institute for Public Policy, October 2020, https://www.bakerinstitute.org/media/files/research-document/4a872e65/ces-pub-fuelsubsidy-100620.pdf