Crypto has an emissions challenge: Here’s what leaders can do about it

Abstract

Reaching a market capitalization of more than $3 trillion last year and today remaining well over the $1 trillion mark, investor interest in cryptocurrency continues to soar. Yet with bitcoin alone estimated to use up to 120.9 terawatt-hours of electricity annually — more than that used by Portugal in a year – so too is interested in crypto’s carbon footprint. The question for governments is how best to help decouple crypto from carbon. This paper argues for a tiered package of incentives and regulations to maximize the use of clean energy and promote energy efficiency in crypto-mining operations. Specifically, policymakers must: (1) support efficiency innovation by incentivizing miners to switch to less energy-intensive designs while addressing issues related to software and hardware upgrades, including better e-waste management, and (2) incentivize clean-energy use while tackling the challenges arising from the intermittency of renewables, grid strain and other the negative side effects of crypto-mining, and the challenges around auditing. While carbon offsets are increasingly popular within the crypto sector, policymakers should be wary as offsets do not address the root causes of carbon pollution. Offsets should only be used as a last resort. Outright bans on crypto mining have unintended consequences. On the other hand, a laissez-faire approach would clearly exacerbate the climate crisis. As crypto attracts more interest, a pragmatic way forward is to balance its risks and opportunities by adopting the right mix of regulations and incentives. In so doing, governments can ensure crypto mining does not undermine international climate goals.