Bitcoin is an Environmental Disaster. Is the Indictment Distorted?

Abstract

The literature is inundated with the claim that Bitcoin pollutes the environment. While the assertion is irrefutable, the unsettled issue is whether the indictment of environmental disaster is disproportionate or distorted. This is an empirical question; this paper evaluates it via two econometric methods. First, accepting carbon dioxide (CO2) emission as a proxy for environmental pollution, the paper quantifies the elasticity of CO2 emission in relation to electricity consumption in Bitcoin production. The results reveal that, while Bitcoin production based on conventional electricity is inelastic, carbon emission responsiveness to fossil fuel is significant. A 1% increase in Bitcoin’s usage of coal-generated electricity leads to a 1.64% surge in CO2 emission. Second, the study applies the error correction model to show that some electricity consumption shocks emanate from global coal prices driven by economic factors beyond Bitcoin’s control. This raises the question of whether Bitcoin should shoulder the entire blame for the 1.64% pollution responsiveness. Therefore, the study makes two important contributions. First, Bitcoin’s pollution impact varies according to timespan and electricity source. Second, the intensity of carbon emission from electricity consumption is aggravated by external market factors beyond Bitcoin’s control. The findings should inform policymakers and enlighten environmental advocates.