Bitcoin mining companies must prove carbon neutrality as new regulations come to play, but are carbon offsets enough?
Bitcoin (BTC) mining has always been a controversial topic. But, Bitcoin’s proof-of-work (PoW) model has reached new levels of concern as senior decision-makers and investors pay closer attention to environmental, social and governance factors.
As such, many crypto miners are highlighting environmentally friendly practices by acquiring carbon offsets. Yet, some would argue that this isn’t enough to guarantee green Bitcoin mining. Other risk factors may also be involved with carbon credits.
For instance, Kevin O’Leary — the Canadian entrepreneur better known as “Mr. Wonderful” for his role on Shark Tank — told Cointelegraph that he typically indexes public mining companies like Marathon Digital Holdings, Riot Blockchain Inc. and others. However, O’Leary pointed out that once these companies claimed carbon neutrality through carbon offsets, their stocks dropped drastically. O’Leary believes this is because the United States Securities and Exchange Commission (SEC), may soon plan to audit carbon credits. O’Leary expressed his concern, stating:
“Carbon offsets are unauditable. So indexers like me dumped those shares — we had to sell. The only way institutions will now invest in Bitcoin mining is for those companies to claim there is no carbon involved at all.”
Bitcoin mining and data centers
In order to ensure zero carbon mining, O’Leary explained that Bitcoin miners should build in parallel with data centers. This would then allow mining companies to efficiently use excess energy omitted from data centers to mine Bitcoin, resulting in “zero carbon displacement,” a process that produces zero carbon emissions.
Bitcoin mining company Bitzero began implementing such a model two years ago in Norway. Akbar Shamji, CEO and founder of Bitzero, told Cointelegraph that the company initially built an infrastructure partnership with Norway’s local government two years ago that prompted the region to release unused hydroelectric power generation for Bitcoin mining:
“This was the perfect opportunity for us to test this idea. At the same time, big data companies started to use renewable energy sources in places like Norway, but this wasn’t profitable for the region. We’ve built a long-term, low-cost 100% zero carbon displacement power source to have an edge over the market. We hit revenue when we mined our first Bitcoin in December 2021.”
Being aware of the massive demand for data storage today, Shamji further explained that electricity generated from data centers should be properly harnessed. “We call this the ‘Norway model.’ Electricity generation is there but it remains stuck at high voltage. So, we executed the electrical step down from high voltage to low acquiring transformers and substation, allowing us to drive containers full of ASIC miners efficiently,” he remarked.
In other words, Bitzero draws power directly from surplus capacity at local hydro plants, resulting in zero carbon displacement. At the same time, Shamji explained that Bitzero is delivering fixed data centers made of sustainable and local materials that consist of heat capture technology.
“In the case of Bitcoin mining, when electricity passes through these computers, the PoW algorithm doesn’t take much energy to generate. If this wasn’t implemented, the heat generated from these computers would go back into the air and be lost entirely,” he said. Although a zero carbon displacement model is yet to be widely adopted, Shamji said that Bitzero typically mines 129 Bitcoin per month, using 40 megawatts of power. He added that this will eventually grow to 110 megawatts.
The crypto mining company Argo Blockchain also plans to open a data center in West Texas to conduct mining operations. While Argo isn’t taking a zero carbon displacement approach, Peter Wall, CEO of Argo, told Cointelegraph that the company aims to become carbon neutral:
“There’s an enormous amount of renewable power in West Texas, and Argo’s mission is to mine Bitcoin in the most eco-friendly way possible. We chose Dickens County in particular because there is a substation that is adjacent to the property we chose to build Helios, which is our new flagship mining facility.”
Like Shamji, Wall is aware that clean power running through the substation located in Dickens County, Texas, is stranded and is not being utilized. “There is not a lot of local demand or local load to use that power, so we felt that this was a strong opportunity to help stabilize the grid,” he remarked.
Interestingly enough, energy and gas companies are also setting up shop in areas where energy is emitted. For example, Alex Tapscott, author and co-founder of the Toronto-based Blockchain Research Institute, told Cointelegraph that energy producer ExxonMobil has been quietly mining Bitcoin in North Dakota’s Bakken region for a year as part of a plan to curb emissions from flared gas.
North Dakota gas flare. Source: Joshua Doubek
“The pilot project has been enough of a success that the company plans to roll it out on a much wider basis. ConocoPhillips is reportedly working on a similar project,” said Tapscott. In addition, the energy company Grid Share recently announced plans to open a Bitcoin mining data center next to a hydroelectric dam on New Zealand’s south island to support 100% renewable energy in the region.
According to Tapscott, these initiatives may be surprising to many individuals who believe that Bitcoin mining is carbon-intensive. He explained that models such as these can be helpful for reducing carbon footprints:
“A typical Bakken well produces oil but also natural gas which is burned off or flared into the atmosphere. This is a significant source of carbon entering the atmosphere. Instead of flaring the gas, Exxon has partnered with Denver-based Crusoe Energy to capture gas and divert it to generators where it mines Bitcoin.”
Tapscott added that Crusoe found Bitcoin mining to reduce the world’s carbon footprint by as much as 63%. “Gas that had no way to get to market and would have been burned straight into the atmosphere instead gets a useful purpose as the fuel for minting new Bitcoin.”
Zero carbon emissions
While green Bitcoin mining has always been a “buzzword,” some would argue that these initiatives, along with zero carbon displacement, have become critical for mining operators that wish to stay in business.
For instance, lawmakers are seeking to pass legislation to ban non-green crypto mining operations entirely. This was recently exhibited by the State of New York, as lawmakers aim to restrict Bitcoin mining operations with a proposed bill currently making its way through the state capitol in Albany.
Meanwhile, the government of Kazakhstan recently proposed requirements for cryptocurrency mining operators to report the electricity consumption and “technical specifications” for connection to the power grid before operating.
Although initiatives like the Crypto Climate Accord aim to achieve net-zero emissions from electricity consumption from the companies involved by 2025, this also raises concerns in terms of how this may be achieved. Tapscott pointed out:
“This is a laudable goal, so long as it does not force Bitcoin to be something it’s not. To wit, some have suggested changing Bitcoin’s underlying code so that it uses the less energy-intensive proof-of-stake consensus mechanism. This would be a mistake. Proof-of-work is a feature that gives the network resiliency and strength.”
From an investors perspective, O’Leary added that he will only invest in Bitcoin mining firms and data centers that can prove to be a sustainable source of energy moving forward:
“Private capital must be compliant with environmental, social and governance factors. ESG was once a marketing term, but now it’s a real thing. I can’t be subject to an SEC audit, and can’t find an auditor who will sign these statements anyway. The crypto industry is at an interesting inflection point.”
To O’Leary’s point, Bitcoin miners are, indeed, facing an inflection point, yet regulatory clarity remains questionable. Bill Tapscott, CEO of CarbonX — a fintech carbon trading company — told Cointelegraph that the SEC’s proposed disclosures are similar to those that many companies already provide based on broadly accepted disclosure frameworks, such as the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol. He elaborated:
“Disclosure creates a baseline from which a government or regulator’s next move is to introduce a carbon tax or an emissions cap and trade system, such as the ARB’s California Quebec Market or RGGI. Carbon credits are part of these programs and have been ‘audited’ for years.”
Given this, Tapscott explained that mining operators will need to report their emissions, which will likely be high if energy originates from fossil fuels even flare gases, or low if these are from green sources like hydroelectric. “Yet, these companies can de-risk future carbon costs by investing long in carbon credits,” he said.