Why Bitcoin May Actually Speed Up The Transition To Renewable Energy

One of the great Bitcoin secrets has long been the amount “mined” from dirty coal. This has become an international debate when Tesla boss Elon Musk abruptly stopped accepting bitcoin as a payment for the company’s cars, as he pointed to the coal used for mining in his tweet: “We are concerned about the rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially after coal, which has the worst emissions of any fuel.”

Immediately, miners rushed to go on a public relations campaign. Two days after Elon Musk’s tweet, publicly-listed crypto miner Argo announced that it signed a new agreement that is similar to The Paris Agreement. It’s called the “Crypto Climate Accord” (CAA), which promotes industry decarbonization. Two main objectives of the CAA are to reach net-zero emissions from electricity consumption by 2030 and to reach net-zero greenhouse gas emissions by 2040. So far, the agreement had collected 40 signatories including 20 prominent cryptocurrency companies.

But Will The Agreement Be All Talk?

The agreement does sound aspirational. After all, nearly all companies are feeling the peer pressure to go net-zero emissions. But is it realistic for mining operationsCrypto mining is a business and it must make a profit. Therefore, in order for the renewable initiative to succeed, it must make financial sense.

There are plenty of bitcoin hobbyists who would debate for hours on why bitcoin should replace the fiat currency, but the data shows that miners are purely driven by profits.

How Do Miners Decide Which Coin To Mine?

The University of Cambridge conducted its 3rd Global Cryptoasset Benchmarking Study. During the survey, researchers asked miners how they decide which crypto coin to mine. The top three criteria are monetary-driven. Namely, 70% of miners consider the daily reward amount and the price of crypoasset as their top two most important criteria, and only 13% chose coins based on ideology or personal affection.

Coins selection criteria

(Source: University of Cambridge’s 3rd Global Cryptoasset Benchmarking Study)

The point: Miners are not a group of ideological people; in order for them to transition to renewable energy, it must be validated by profits. Now, this is when things become interesting. After the fixed cost of capital equipment, utilities (electricity cost) make up the largest expense of a miner. Therefore, if the cost of electricity goes down, it is the biggest leverage to their profit margin. After all, crypto mining is about maximizing the number of hashes (volume) per kW of electricity.

Cost breakdown of hashers per region

(Source: University of Cambridge’s 3rd Global Cryptoasset Benchmarking Study)

The most efficient way to generate the highest hashes/kW is through the usage of solar energy and hydroelectric. Why? Of course, these are the cheapest ways to produce electricity — outside of government-subsidized energy.

Here’s one piece of evidence of this relationship: During its wet season, half of the global mining takes place in one region of China – Sichuan. The reason is simple — the abundance of hydroelectricity in the region. During the rainy season, Sichuan’s electricity prices are as low as anywhere in the world. As a result, only 5% of Sichuan bitcoin mining power comes from nuclear or burning coal, and 95% is from renewables. The data clearly shows that miners will seek to use the cheapest source of energy.

Therefore, because their profit margin is closely aligned with the cost of electricity, bitcoin miners are far more incentivized to shift to renewable energy — versus many other industries that are slowly transitioning to clean energy.

Bitcoin May Speed Up The World’s Transition To Renewable Energy

One key feature of a mining operation is that bitcoin can be mined anywhere in the world. Why is this important? This offers a solution to two of the biggest pain points for utility companies that produce renewable energy.

PAIN POINT #1: Renewable energy is often not stable in its energy production. For example, solar power receives a surplus of energy during the sunny time but receives no energy during the nighttime. Unfortunately, battery technology is not advanced enough that it can hold an abundance of energy from the daytime and release them during the nighttime on a large scale.

PAIN POINT #2: Many of the renewable energy stations are located in remote areas where the land is large to build out solar power, hydro energy, and wind farms. Once again, battery technology is not advanced enough to make it business sense to store and transport energy from these rural regions into the urban centers where a bulk of energy demand is at.

SOLUTION: Bitcoin mining is not constrained by locations. The operations can exist anywhere in the world, so the miners can utilize power sources that are inaccessible for most other applications. Let’s look at hydropower (a source of clean energy) as an example. Only 7% of the USA’s energy source came from hydropower, according to U.S. Energy Information Administration. But yet, hydropower makes up 62% of the mining energy:

Power source of hashing facilities

(Source: University of Cambridge’s 3rd Global Cryptoasset Benchmarking Study)

Why the big discrepancy? The answer is simple: We mentioned previously that half of the world’s crypto mining happens at Sichuan during its rainy season. In the past, enormous quantities of renewable hydro energy were wasted every year during the wet season in Sichuan and Yunnan. However, it has turned into the most popular region for crypto mining where it is responsible for almost 10% of global Bitcoin mining in the dry season and 50% in the wet season.

ARK Invest and Square’s Thesis

This is the heart behind ARK Invest and Square’s thesis that bitcoin incentives the expansion of renewable energy. Right now, utility companies have little incentive to expand their renewable operations because of a lack of technology to store and transport energy. However, bitcoin mining already flocks to rural areas where most renewable energy production is in. As a result, utility companies will have customers for their surplus energy. Square Crypto, an official account of Square’s Crypto division, tweeted this point on April 21, 2021:

Square Crypto tweets

Bottom line: Crypto mining has simple math — lowering the cost of electricity is the biggest leverage to their profit margin. Therefore, the incentive is heavy for them to transition to clean energy where the cost is cheaper. What’s more, the demand for clean energy by the miners will incentivize utility companies to expand their renewable energy capacity long before battery technology is ready to make it viable to run the world 100% on clean energy.

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worries, soaring global prices

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

US Holiday Lights Use More Electricity Than El Salvador Does In a Year

At this time of the year, sparkling trees and decorated lawns have taken over. A 2008 study from the US Energy Department’s Energy Information Administration (EIA) found that decorative seasonal lights accounted for 6.6 billion kilowatt hours of electricity consumption every year in the United States. That’s just 0.2% of the country’s total electricity usage, but it could run 14 million refrigerators. It’s also more than the national electricity consumption of many developing countries, such as El Salvador, Ethiopia, Tanzania, Nepal, or Cambodia.

Lights at home are probably the most visible use of electricity. For American households, lighting alone accounts for 14% of total residential electricity consumption. Yet electricity powers so much more than lights and the majority of electricity is used, often invisibly, outside of the home. But how much more?

Using data from the EIA and the UN, we calculated the aggregate electricity consumed by households as a ratio of total national electricity in all countries with available household census data for 2010-11. The range is from Korea (where just 14% of electricity is consumed by households) to Ghana (57%). For most countries, the rate is 25-35% and the (unweighted) global average is about 30%.

Put another way, 70% of electricity is used outside homes in the industrial and commercial sectors. That may partly explain why governments aim beyond residential systems when they commit to develop their energy sectors. Political leaders want to build modern energy systems to power a competitive economy, create jobs, and generate wealth. That’s also why solar lamps and off-grid residential systems are useful for some purposes, but will only be one component of any national energy strategy.

 Census data from the years 2010 and 2011. Source: EIA International Energy StatisticsUnited Nations Statistics Division Demographic Yearbook (2000 – 2014) 

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DISCLAIMER

CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.

60 largest banks in the world have invested $3.8 trillion in fossil fuels since the Paris Agreement

Major banks around the world are still financing fossil fuel companies to the tune of trillions of dollars.

A new report, published Wednesday from a collection of climate organizations and titled Banking on Climate Chaos 2021, finds 60 of the world’s largest commercial and investment banks have collectively put $3.8 trillion into fossil fuels from 2016 to 2020, the five after The Paris Agreement was signed.

“This report serves as a reality check for banks that think that vague ‘net-zero’ goals are enough to stop the climate crisis,” says Lorne Stockman, a Senior Research Analyst at Oil Change International, one of the organizations authoring the report, in a statement released with the report. “Our future goes where the money flows, and in 2020 these banks have ploughed billions into locking us into further climate chaos.”

On an annual basis, total fossil fuel financing dropped 9% in 2020. But the report attributes that to Covid-19-related restrictions on demand.

The report also found that “fossil fuel financing … from the world’s 60 largest commercial and investment banks was higher in 2020 than it was in 2016,” the first full year the Paris climate greement was in effect. It is worth noting that President Donald Trump withdrew from the international agreement in 2017. President Joe Biden rejoined The Paris Agreement on his first day in office.

The three banks that did the most fossil fuel financing in 2020, according to the report, were

  1. JPMorgan Chase at $51.3 billion;
  2. Citi at $48.4 billion; and
  3. Bank of America with $42.1 billion.

A representative of JPMorgan Chase told CNBC Make It that the bank could not comment on a third party report. But the bank did direct CNBC Make It to its initiatives addressing climate change, including “adopting a financing commitment that is aligned to the goals of the Paris Agreement” and facilitating $200 billion in clean, sustainable financing by 2025.

Citi directed CNBC Make It to a blog post published Tuesday from Val Smith, the bank’s Chief Sustainability Officer. In the post, Citi said it will work with existing fossil fuel banking clients to transition first to a public reporting of greenhouse gas emissions and then to a gradual phase out of financing offered to companies that don’t comply in adhering to carbon reduction standards.

“As the world’s most global bank, we acknowledge that we are connected with many carbon-intensive sectors that have driven global economic development for decades,” Smith wrote. “Our work to achieve net zero emissions by 2050 therefore makes it imperative that we work with our clients, including our fossil fuel clients, to help them and the energy systems that we all rely on to transition to a net-zero economy.”

Bank of America did not immediately respond to CNBC Make It’s request for comment.

The Banking on Climate Chaos 2021 report comes as indicators show global economies are not currently on track to meet the emissions reductions established as part of The Paris Agreement in 2015.

The 2020 report is the 12th annual, though the scope of the report has expanded in that time. The report was a collaboration by seven non-profits: Rainforest Action Network, Bank Track, Indigenous Environmental Network, Oil Change International, Reclaim Finance, and Sierra Club.

The report authors aggregate bank lending and underwriting data using Bloomberg’s league credit methodology, meaning credit is divided between banks playing a leading role in a given transaction, and uses data from Bloomberg Finance L.P. and the Global Coal Exit List.

Also, banks are given the opportunity to weigh in on the findings. “Draft report findings are shared with banks in advance, and they are given an opportunity to comment on financing and policy assessments,” the report says.

Bitcoin vs. the Petrodollar: Which Is More Environmentally Friendly? – Ep.238

Last week, Tesla announced they will no longer accept Bitcoin as payment for vehicles. In a timely episode, Alex Gladstein, chief strategy officer at the Human Rights Foundation, and James McGinniss, CEO and co-founder of David Energy, come onto the show to discuss Bitcoin, the petrodollar, and how to contextualize the energy usage of the first cryptocurrency (BTC) versus the leading fiat currency (USD). Show highlights:
● their backgrounds and how they became interested in the intersection of currency and energy usage
● why Alex and James really think Tesla stopped accepting BTC as payment
● why James thinks Bitcoin’s energy intensity is a “feature, not a bug”
● Alex on the history of the petrodollar and how the USD in recent decades has been tied to fossil fuel production
● comparing the carbon cost of a dollar to Bitcoin’s energy consumption
● what both James and Alex think of the Square and Ark Invest research paper saying renewable energy production could be tied with Bitcoin mining
● why measuring Bitcoin’s energy usage is difficult
● how Bitcoin mining in China is changing for the better
● how the Biden administration might impact Bitcoin
● where to find more information on Bitcoin and energy consumption

Thank you to our sponsors!

E&Y: https://ey.com/globalblockchainsummit
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Episode Links

People:
Alex Gladstein
Twitter: https://twitter.com/gladstein
Human Rights Foundation: https://hrf.org/
James McGinniss
Twitter: https://twitter.com/James_McGinniss
David Energy: https://www.davidenergy.com/

Recommended Reads:
“Uncovering the Hidden Cost of the Petrodollar” by Alex Gladstein
https://bitcoinmagazine.com/culture/t…
“Think BTC is a Dirty Business? Consider the Carbon Cost of a Dollar” by Susan Su
https://susanfsu.medium.com/think-btc…
“Bitcoin is Key to an Abundant, Clean Energy Future” by Square and Ark Invest
https://assets.ctfassets.net/2d5q1td6…
Elisabeth Steyn thread on Tesla and energy credits
https://twitter.com/Elisabeth_Steyn/s…
“Tesla seeks entry into U.S. renewable fuel credit market” by Reuters
https://www.reuters.com/business/sust…
“Debt” by David Graeber
https://www.amazon.com/Debt-First-5-0…
Others:
Bitcoin energy consumption index
https://digiconomist.net/bitcoin-ener…
Cambridge study on cryptoassets
https://www.jbs.cam.ac.uk/wp-content/…
Triffin Dilemma
https://dailyreckoning.com/the-triffi…

Alex Gladstein’s Recommended Follows:
Nic Carter

Lyn Alden

Susan Su

Luke Gromen

Michael Hudson

Bitcoin’s Energy Consumption (Is Becoming more Efficient)

Bitcoin’s energy consumption has stayed flat since mid 2018 (almost 3 years), despite huge growth in users, and dollars moved on the network. Many skeptics point to the irony of Tesla buying Bitcoin (because of its focus on renewable energy), but fail to understand this. The monetary system requires energy. Yes, Bitcoin consumes a lot, but it’s not more than we can handle, especially if the trend of rising average transaction values continues. What are your thoughts on this? Was it hypocritical for Tesla to buy Bitcoin? Are you happy they did?