Bitcoin is on the verge of going mainstream, with some companies — and even countries — recognizing the cryptocurrency as legal tender. The market cap of Bitcoin now surpasses both Facebook and Tesla, and it also recently became the 13th largest currency in the world. At the same time, the dizzying highs (and occasional lows) in Bitcoin’s value have made it an attractive vehicle for speculators looking to cash in on the attention, even if they don’t actually buy into the philosophical case for crypto. In the real world, however, the surging investment in virtual currency is inflicting real world impacts — perhaps nowhere more acutely than Pennsylvania.
As Bitcoin mining operations scour the globe for readily available electricity, previously dead or dying fossil fuel plants are being resuscitated and repurposed to power single-purpose supercomputers. It’s an unintended, if predictable, consequence of Bitcoin’s fundamental processes that require ever-more electricity consumption, and it is exacerbated by handouts to the industry hidden in the state budget by coal-friendly legislators. The result is a tremendous amount of unnecessary carbon pollution.
To better understand the impacts of Bitcoin mining — and what can be done about it — it’s worth exploring some of the underlying dynamics in greater detail.
Electricity consumption acts as a sort of gold standard for cryptocurrency
Rather than relying on a bank or other centralized institution to mediate financial transactions, Bitcoin and other cryptocurrencies promise to cut out the middleman. But without that middleman, cryptocurrencies need another way to verify transactions– to make sure that I really have the money I tell you I have, and to make sure that I really send it to you when I say I’m going to. The “blockchain” was created to serve this purpose — it’s a public, digital ledger of all Bitcoin transactions, with transactions encapsulated in “blocks” linked to all previous transactions involving those exact Bitcoins in a “chain.”
Ensuring the validity of those blocks is a decentralized process. If it were not, I could just “update” the public ledger myself to say that I have all the Bitcoin I want. It’s also an intensive process in terms of computing power because each Block of transactions must be accompanied by the correct code, called a ‘hash,’ in order to be added to the ledger. Finding the correct hash essentially amounts to solving enormously complicated math problems, and therefore requires tremendous computer processing power. This validation process that underpins the blockchain is known as “Proof of Work” because, as the name implies, it requires a huge amount of computer work — performed by expensive, specialized computers — to prove that a transaction is legitimate. In essence, the institutional middleman that provides legitimacy to currency transactions is replaced by complex computer work. The work is decentralized — anyone can do it who has the computers — but those computers require a lot of electricity.
To incentivize Bitcoin users to lend their computing power to this decentralized, intensive verification system, they are rewarded with newly-created Bitcoin for each successful verification. Thus, Bitcoin “mining” is something of a misnomer: the “miner” isn’t searching for new Bitcoin so much as performing a service — the service of providing a verification system for the currency — and getting paid for it. Currently, the reward for successfully validating a block of transactions is 6.25 Bitcoin, or around $394,000 at today’s exchange rate. At an average pace of 10 minutes of verification time per block, the allure of quick wealth keeps “miners” invested. Together, the global annualized income from Bitcoin mining is almost $22 billion.
Performing the verification service requires a spectacular amount of energy — both to run large numbers of specialized supercomputers and then to keep those large numbers of specialized supercomputers from overheating. As a result, unless computers become wildly more energy efficient than they are now, Proof of Work functionally yokes the creation of new Bitcoin to a certain amount of electricity consumption – a sort of unintentional equivalent of a new “gold standard” for the cryptocurrency. Worse, because the Proof of Work algorithm increases the complexity of the math problem for each subsequent block of transactions, the electricity consumption for each newly minted Bitcoin necessarily increases as well. Electricity consumption from bitcoin will inevitably grow over time.
Making comparisons to Bitcoin’s energy consumption is now something of a subgenre. The New Yorker notes it’s equivalent to “the annual domestic electricity consumption of the entire nation of Sweden.” TechCrunch suggests that the implied carbon dioxide emissions of Bitcoin’s electricity use is comparable to a “small, developing nation like Sri Lanka or Jordan.” The Digiconomist offers multiple frames of reference, observing that Bitcoin’s energy use is “close to the amount of energy all data centers consumed globally,” and “comparable to the carbon footprint of metropolitan London.” The Cambridge Bitcoin Electricity Consumption Index, which most closely tracks up-to-the-minute trends in the Bitcoin network and has an entire page devoted to creating (and qualifying) comparisons like these, but no matter how you slice it, the electricity consumption of Bitcoin is a staggering.
If anything, these comparisons undersell mining’s mind-bending energy use. After all, Bitcoin is not a small, developing nation with diverse needs for electricity spread across millions of people. Bitcoin mining is a single-purpose enterprise; and, it’s one increasingly concentrated in the hands of just a few people. According to the National Bureau of Economic Research, “the top 10% of miners control 90% of the Bitcoin mining capacity, and just 0.1% (about 50 miners) control 50% of mining capacity.” While bitcoin mining is decentralized and theoretically open to all-comes, in practice it requires expensive supercomputers that are hardly accessible in any kind of equitable way. In other words, the industry is consuming huge amount of energy to make a tiny number of participants extremely wealthy.
Bitcoin raises the dead
Given their insatiable thirst for energy, it comes as no surprise that Bitcoin miners are constantly searching for cheap, reliable electricity. Abundant and affordable hydropower in the Columbia River Basin — itself the result of massive public investment over the past 75 years — attracted a surge in Bitcoin mining operations in the Pacific Northwest, primarily in Chelan, Douglas, and Grant Counties in central Washington State. During one spike in 2017, Grant County’s electric utility received more than 2,000 Megawatts worth of new hook-up requests, which was more than three times what was then needed to power the entire county. In response to this risky concentration of energy consumption in one highly transient industry, public utilities in the Mid-Columbia Basin counties instituted thresholds that trigger adjusted rate schedules for cryptocurrency mining operations. These policies appear to have stabilized cryptocurrency mining operations in the area, effectively putting a cap on the percentage of the electricity supply that cryptocurrency mining may consume. The power sector dynamics in Pennsylvania are different for a variety of reasons, but the Northwest’s experience may offer a cautionary tale for other geographies.
Different dynamics are playing out in different places as bitcoin miners move operations in search of the cheapest electricity they can find in large quantities. In some cases that mean buying power from cheap-to-operate hydropower dams, while in other places it may mean buying entire coal waste-burning plants to cash in on government subsidies. But in all places, local regulation plays a key role in the siting of Bitcoin mining. Nowhere is this dynamic clearer than in China, which until recently hosted between two-thirds and three-quarters of the world’s Bitcoin mining. That is, until China’s National Development and Reform Commission placed Bitcoin mining on its list of “phased-out” industries in May of 2021. Coupled with a prohibition on cryptocurrency trading and financing from the People’s Bank of China, this designation effectively banned Bitcoin mining in China and precipitated a near-complete exodus of miners migrating to more welcoming jurisdictions. While some headed across the border to neighboring Kazakhstan and Russia, most flocked to areas of the United States with more relaxed regulatory environments. Texas, in particular, has seen an influx in Bitcoin mining activity.
More recently, some Bitcoin mining operations are turning towards full vertical integration in order to control costs and ensure access to a steady supply of cheap electricity. In theory, Bitcoin miners could build or buy solar or wind energy facilities to power their operations. But miners hunting for quick sales at bargain basement prices are often turning to stranded fossil fuel assets.
Built in 1993, in Venango County, about an hour’s drive north of Pittsburgh, the Scrubgrass power plant burned low-grade waste coal to generate electricity for the local grid on a guaranteed power purchase agreement. When that agreement expired in 2013, however, the plant struggled in a competitive power market, in part because of the emergence of abundant cheap natural gas. By 2017, Scrubgrass was likely destined for closure– until it pivoted to Bitcoin.
Now, thanks in part to an infusion of over $105 million in private capital, the plant is wholly owned and operated by Stronghold Digital Mining. Thousands of Bitcoin mining computers are packed into shipping containers located next to the Scrubgrass plant, where, by Stronghold’s own estimation, 600,000 tons of waste coal is burned every year to generate the electricity needed to power the computers. Burning all that coal generates 371,000 tons of carbon pollution annually, equivalent to 80,000 cars. It can also be dangerous: one Scrubgrass employee fell to his death in 2019 while attempting to clean up material that had spilled off a conveyor belt.
Scrubgrass is just the start. Stronghold has executed a purchase agreement to acquire a second waste coal plant in Pennsylvania, the Panther Creek Energy Facility, and aspires to buy a third. Like Scrubgrass, Panther Creek was increasingly unable to compete on the open electricity market– operating at less than one tenth of its capacity prior to its acquisition by Stronghold.
A similar story is playing out in other regions across the country. A formerly mothballed coal plant in the Finger Lakes region of upstate New York was converted to run on natural gas and reopened to power a large-scale Bitcoin mining operation. In 2020, the plant emitted nearly a quarter million tons of carbon pollution, and residents have expressed concern that the plant’s current permit — which allows the facility to discharge 135 million gallons of water at temperatures as high as 108 degrees Fahrenheit every day — makes the lake “feel like you’re in a hot tub.” In Montana, a coal plant “at risk of shutting down for lack of customers” entered into a joint venture with Marathon Digital Holdings, a Bitcoin mining company, enabling the plant to return to full capacity in order to power thousands of mining computers. In Kentucky, Blockware Mining is constructing a new Bitcoin facility right next door to Big Rivers Electric Corporation. Big Rivers owns and operates four coal-fired power plants, though two are currently idled. It’s another question whether they will stay idled once Blockware Mining comes online and begins demanding more than 10% of the Corporation’s current generation capacity. And in West Virginia, the Grant Town power plant recently announced plans to continue burning coal waste, most of which is supplied by a company owned by Senator Joe Manchin.
Even in instances where Bitcoin mining is capitalizing on still-operating energy facilities, the net result is hardly climate positive. Multiple startups offer mobile mining rigs that divert “excess” natural gas from oil production (which would otherwise be flared off as waste) in the service of Bitcoin mining. Large, existing fossil fuel entities — including giants like Saudi Aramco, Gazprom, and ExxonMobil — are moving into this space too, harnessing what was previously a byproduct to capture more wealth in the form of Bitcoin.
Profits for miners, pollution for Pennsylvania
Pennsylvania has become something of a hub for dead and dying coal plants to revive as engines for Bitcoin mining. That’s because the potential crypto mining profits in Pennsylvania are made possible by several mutually reinforcing subsidies to the industry. Rob Altenburg, Senior Director for Energy and Climate at PennFuture, outlines four major subsidies — all borne by Pennsylvania taxpayers — that enable Bitcoin mining to be a uniquely profitable enterprise in the state.
The first is capacity overprocurement, in which the regional power distribution utility PJM pays in advance for more electricity than it actually anticipates needing in order to account for outages and other uncertainties. Traditionally, utilities are extremely conservative in both their forecasts and reserve margins: they expect electricity demand to be far higher than it ends up being, and on top of that, advance auctions commit utilities to far more reserve capacity than they need. In practice, this works as a giveaway to old, inefficient fossil fuel plants that might otherwise shut down, expanding the margin at which it is profitable to continue operating.
The second is Alternative Energy Portfolio Standard (AEPS) credits. If the idea that burning low-grade waste coal could be considered “alternative energy” seems a little strange, well, that’s because it is. Coal is notoriously dirty, but waste coal is even worse. Comprised of leftover tailings deemed too impure to burn in traditional facilities, waste coal generates more than 50% more carbon pollution per megawatt-hour than traditional coal. And that’s to say nothing of the other carcinogenic and smog-causing air pollutants, or high mercury content.
As it happens, Pennsylvania has an unusual amount of coal refuse lying around. Ostensibly, burning waste coal is a strategy to “remediate” the estimated 450 million tons of the stuff piled up in western Pennsylvania where it contaminates surrounding land and water with toxic runoff (and occasionally catches on fire). In actuality, the practice just transforms a problem for land and water pollution to a problem for air and climate pollution. Nevertheless, one Pennsylvania legislator (who has raked in thousands of dollars’ worth of donations from fossil fuel companies) was happy to modify the language of the AEPS credit to force utilities to purchase certain “tiers” of energy in-state in 2020: a move that effectively amounted to a “giveaway to polluting waste-coal, which could lead to more burning of the coal refuse.”
The AEPS credits are a major reason why Pennsylvania is home to a lot more coal waste-burning plants than other states. But there are other handouts to (and carve-outs for) waste coal, showcasing just how desperate legislators and regulators are to turn this highly visible pollution problem into an invisible one. Pennsylvania already offers a Coal Refuse Reclamation (CRR) tax credit, rewarding plants for each ton of waste coal burned. State legislators quite literally doubled down on the CPR tax credit in 2020 raising the cap from $10 million to $20 million. At the same time, the state has reserved almost 13 million allowances for waste coal facilities subject to the Regional Greenhouse Gas Initiative (RGGI)– enough to allow waste coal plants to double their 2019 pollution for free.
Notably, pairing Bitcoin facilities with waste coal electricity adds another source of “mining” pollution to the state: the mining supercomputers themselves. As PennFuture observes, Bitcoin mining rigs have “a very limited useful life—in some cases as short as 18 months—before new hardware renders it obsolete.” Once that happens, Pennsylvania will have to deal with tons of highly specialized electronics waste too.
Opportunities for course correction
So, what’s to be done? At the state and regional level, untangling the crypto mess would take a concerted effort by policymakers.
Fixing the capacity overprocurement problem would constrain the profit margins for failing fossil fuel plants, and doing so would put money in the pockets of local residents. Almost by accident, PJM recently managed to save ratepayers billions of dollars when legal delays allowed for better demand forecasts. Likewise, Pennsylvania legislators could eliminate giveaways to waste coal plants, starting with the three discussed above (AEPS credit, CPR credit, and free RGGI allowances). For example, Improving PJM’s chronically exaggerated power load forecasts would reduce payments for excess capacity, which would help drive older, uneconomic power plants into retirement, rendering them unavailable for exploitation by Bitcoin miners.
And when it comes to managing the problem of waste coal piles, the public would be better served by pursuing proper disposal and remediation efforts. New federal spending on mine reclamation included in the recent infrastructure bill may help remediate some of these sites. At the same time, regulators could more stringently apply air pollution controls to operating plants, and it would be better to simply stop burning coal waste altogether.
To address the Bitcoin dynamic in particular, Pennsylvania legislators could join their counterparts in New York in considering a prohibition on the use of fossil fuels to mine for Bitcoin. (Though as the example of the Columbia River Basin shows, even mining Bitcoin with renewable energy can be problematic.) Where mining operations are not vertically integrated with power plants, revised rate schedules could help limit the risk of overallocating electricity at the expense of other ratepayers (though this may not be a major risk in the PJM market where power generating costs tend to be relatively high). More broadly, policymakers could look to strategies to push cryptocurrencies away from Proof of Work entirely, such as novel concepts like Proof of Stake. Some cryptocurrencies, such as Ethereum, are working to shift towards less energy intensive mechanisms to verify transactions and maintain their blockchains, though making that shift proving more difficult than anticipated.
In a way, the crypto mining problem in Pennsylvania is a modern twist on an age-old story: get-rich-quick schemes always have a catch. What remains to be seen is whether policymakers will intervene or whether Pennsylvania residents will be the ones left holding the bag.