A recent report from the White House on the environmental implications of cryptocurrency might give ESG-minded investors who use Bitcoin much to think about.
While there isn’t anything physical about digital assets themselves, their use comes with major consequences related to climate change. In the US, for example, as much as 1.7% of all electricity is consumed by cryptocurrency operations, on par with that used by the entirety of the nation’s residential lighting or home computers, according to the report.
Globally, the energy used to power the most common crypto operations results in about 140 metric tons of carbon dioxide emitted annually, roughly 0.3% of all greenhouse gas emissions. In the US alone, as much as 50 metric tons of carbon dioxide are emitted annually in connection with digital assets. That represents as much as 0.8% of all US greenhouse gas emissions, or about the same stemming from all the diesel fuel used by the railroad industry, according to the White House report.
Cryptocurrency mining also generates an enormous amount of technology waste, with discarded electronics containing cobalt, indium, gold and other metals ending up in landfills. The waste associated with Bitcoin mining alone was an estimated 35,000 tons annually as of June 2022, or about the same as all electronic garbage produced by the Netherlands, the report noted.
“Without standards and enforcement of proper disposal methods, electronic waste can cause air and water pollution, expose workers to toxic substances and damage public health,” the report stated.
Who is using Bitcoin
Despite the clear environmental consequences tied to digital assets, people who hold shares of ESG-themed funds are more than three times more likely than others to also invest in cryptocurrencies, according to a report earlier this year from Betterment. Among people with sustainable funds, 80% also had cryptocurrency investments. But for those not holding sustainable funds, only 22% said they invested in digital assets, the report found.
That discrepancy is notable, as ESG-minded investors were also much more likely to say they were aware of the climate-change implications of crypto. Almost all, 96%, of ESG investors said they knew about the environmental problems, compared with 50% of non-ESG investors, according to Betterment.
In the US funds market, cryptocurrency is very young as a theme. Some ETF providers have launched products that provide exposure to Bitcoin and other digital assets through futures contracts.
What’s behind all that waste
In a paper earlier this year, Morgan Stanley addressed the conundrum of ESG-minded investors also holding cryptocurrencies.
“Every $1 of Bitcoin mined is materially more carbon intensive than every $1 of gold mined,” Jessica Alsford, the company’s global head of sustainability research, said in the report. The firm estimated the carbon intensity of Bitcoin to be 14m times higher than those of Visa credit card transactions.
Behind all the carbon is the energy-intensive “proof of work” required to validate most cryptocurrency transactions.
However, that could soon be changing. In a matter of days, one of the most widely used cryptocurrencies, Ethereum, is switching to a less energy intensive “proof of stake” framework, called Merge, which some project will cut electricity consumption by more than 99%.
Proof of stake chooses random validators for transactions, while proof of work relies on a blockchain network to validate them.
What will happen next
The report from the White House Office of Science and Technology Policy followed an executive order in March from president Joe Biden to examine the environmental impacts tied to digital assets.
“Crypto-assets can require considerable amounts of electricity usage, which can result in greenhouse gas emissions, as well as additional pollution, noise and other local impacts to communities living near mining facilities,” an announcement of the report noted. “Depending on the energy intensity of the technology and the sources of electricity used, the rapid growth of crypto-assets could potentially hinder broader efforts to achieve US climate commitments to reach net-zero carbon pollution.”
The report includes recommendations to further study the impacts of cryptocurrency. But it also outlines a future for performance standards and ways to help reduce the negative effects of crypto.
That will likely involve the Environmental Protection Agency, Department of Energy and other groups collaborating with states, the crypto industry and communities to develop environmental performance standards.
“These should include standards for very low energy intensities, low water usage, low noise generation, clean energy usage by operators and standards that strengthen over time for additional carbon-free generation to match or exceed the additional electricity load of these facilities,” the White House noted.