Can Bitcoin mining be part of the solution to greenhouse emissions instead of being part of the problem?
The energy use and environmental impact of Bitcoin (BTC) mining have come under the scrutiny of various international financial institutions. The International Monetary Fund (IMF) mentions how Bitcoin mining consumes “enormous amounts of computing power and electricity”.
Bitcoin mining is an energy-consuming process as it is a proof-of-work (PoW) Blockchain network that involves providing cryptographic proof to the network that a quantified amount of specific computational effort has been used. The information used to verify this is stored in a block; later, other participants on the network accept them.
Elon Musk, one of the world’s richest men and co-founder and CEO of Tesla, announced in February 2021 that the car manufacturing company would accept Bitcoin as payment for its products and services.
However, in May of that same year, Tesla discontinued support for accepting Bitcoin payments, citing company concerns about the “rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal.” This also led Musk to hail Dogecoin (DOGE) as a better means of payment than Bitcoin due to the high environmental cost of BTC transactions.
Nevertheless, it seems that a new solution is emerging that has the potential to address the narrative that has taken hold in the general consciousness.
Associated natural gas is a by-product of oil extraction, whose costs to take it to a refinery often outweigh the volume, leaving it “stranded” in the well. For this reason, it is often burned in the derrick, earning it the nickname “flare gas”.
On February 17, CNBC reported that oil giant ConocoPhillips is conducting a pilot program in Baken, North Dakota. Instead of burning the associated gas, the company sells it as fuel to third parties who are engaged in Bitcoin mining.
The idea of using associated gas to mine Bitcoin is not new. Already in 2019, Brent Whitehead and Matt Lohstroh launched the company Giga Energy Solutions, which mines Bitcoin with electricity generated from said gas. The firm delivers a shipping container filled with Bitcoin mining equipment to an oil well and then diverts the stranded natural gas to generators that convert the gas into electricity, using it to mine Bitcoin.
Crusoe Energy is another company that uses combustion gas energy to mine Bitcoin. The firm has grown to become one of the biggest players in the space and has received investment from one of the world’s oldest cryptocurrency exchanges, Coinbase, and Winklevoss Capital, a company founded by the Winklevoss twins, the exchange’s founders of Gemini cryptocurrencies.
A report from Crusoe Energy Systems states that using this gas to mine Bitcoin reduces CO2 equivalent emissions by about 63%, as compared to continuously burning the gas.
Cointelegraph interviewed Ethan Vera, CFO and COO of Viridi Funds, a company that offers crypto investments to Bitcoin miners, about the impact of ConocoPhilips’ involvement in innovation. Vera said that, “Although ConocoPhillips is one of the major energy companies that have publicly announced their entry into Bitcoin mining, there are many other energy companies that have already started the process of creating trial mini-sites. If the economics of Bitcoin mining increase and total mining revenues in dollars grow, many of the big energy producers will look to enter the space in a more significant way.”
Energy Impact of Bitcoin Mining Perhaps Overhyped
According to Cambridge University Bitcoin Electricity Consumption Index metrics, the estimated energy demand for the Bitcoin network is 15.57 GW (GigaWatts), which annualizes to 136.48 TerraWatts hour (TWh). . Examination of historical grid power demand data reveals that this demand is continually increasing over the years as the grid grows.
Despite this increase in energy demand, the environmental impact could be overestimated. A CoinShares report published in January of this year attempted to measure the carbon emissions caused by Bitcoin mining. Contrary to popular belief, the report’s results suggest that Bitcoin mining only accounts for 0.08% of global carbon dioxide, or CO2, production. The report found that the network emitted 42 megatons (Mt) (1Mt = 1 million tonnes) of CO2 in 2021 out of the world’s total emissions of 49,360 Mt of CO2.
Sam Tabar, head of security at Bit Digital, a publicly traded Bitcoin mining company, told Cointelegraph the following, “The environmental impact of Bitcoin mining is massively exaggerated by mainstream financial authorities (IMF etc.) because they know they can split a new counterculture movement using bogus environmental arguments. They are trying to gas each other. They enlighten the world with false ecological arguments, and I understand why: They don’t want to lose influence over the levers of power of a system that only works for the elite.”
In this sense, Vera mentioned that calibrating the environmental impact of Bitcoin is a very nuanced issue and that it cannot be explained simply with the metric of the energy consumed. He said that, “In many cases, Bitcoin mining incentivizes the development of renewable energy, which will have a profound impact on long-term energy infrastructure and environmental impact.”
Oil Giants Possibly Leading in Making Bitcoin Green
Considering that using stranded natural gas to mine Bitcoin could reduce net carbon emissions from mining, as well as reduce emissions from flared gas, other major oil companies may soon jump on the opportunity, especially as governments and regulators have been cracking down on gas flaring.
In November 2020, Colorado regulators gave permission to proceed to ban gas flaring to curb methane pollution.
New Mexico state regulators imposed a rule in March 2021 requiring oil operators to phase out gas flaring. The norm dictates that by April 2022, 98% of the gas found in nature must be captured instead of burning it.
However, such decisions are very difficult to pass in a country where both sides of the government are heavily dependent on the lobbyists of the big oil companies. In October 2021, Bloomberg reported that President Biden’s campaign against methane emitters would stop short of banning gas flaring.
A complete ban on gas flaring would be good news for the Bitcoin mining industry, as oil producers would have two options. First, reduce oil production, which would not be economically viable. Alternatively, second, use excess natural gas stranded in place, which is where Bitcoin miners could step in to create synergies with big oil companies like ExxonMobil, British Petroleum (BP), Chevron, or Valero Energy.
Vera stated that, “with high oil prices, most of these producers are turning to utilize stranded gas in place, such as mining for Bitcoin, rather than burning it. We expect the trend to continue in the future as more governments regulate the ability of oil companies to burn off excess gas.
The World Bank also has its own initiative to help reduce gas flaring around the world. The Global Partnership for Gas Flaring Reduction (GGFR) is a multi-donor trust fund comprising governments, oil companies, and multinational corporations that have committed to reducing gas flaring. Bitcoin mining pools and companies could collaborate with this trust fund to promote this initiative.
However, the oil companies could have a two-sided approach to the issue at hand, raising questions about their intentions. For example, in 2020, BP urged Texas regulators to ban the routine flaring of natural gas. In January 2021, however, the Texas Railroad Commission approved 121 of the company’s gas flare requests.
With regulators and governments around the world cracking down on gas flaring, the Bitcoin mining industry has an opportunity to reduce CO2 emissions and methane pollution in the atmosphere. Vera concluded on this synergy, stating that, “Bitcoin miners are a natural partner for all energy producers, including renewables and oil and gas. Bitcoin mining enhances the ability of these companies to manage and use their resources in the most profitable way.”
By Audy Castaneda
