LONDON – Tesla boss Elon Musk is a poster child of low-carbon technology. Still, bitcoin’s electric carmaker’s support this week could spur global use of a currency estimated to cause more pollution than a small country every year.
Tesla revealed on Monday that it had bought $ 1.5 billion worth of bitcoin and would soon accept it as payment for cars, sending the price of the cryptocurrency through the roof.
So what’s the problem, you may ask? Bitcoin is virtual, so it’s not like it’s made of paper or plastic, or even metal.
The digital currency is created through powerful computers, an energy-intensive process that currently often relies on fossil fuels, especially coal, the dirtiest of all.
At current rates, such bitcoin “mining” consumes roughly the same amount of energy annually as the Netherlands did in 2019, according to the most recent data available from the University of Cambridge and the International Energy Agency.
According to a 2019 study in scientific journal Joule, bitcoin production is estimated to generate between 22 million and 22.9 million tons of CO2 emissions per year, or between the levels produced by Jordan and Sri Lanka.
The groundbreaking inclusion of the cryptocurrency in Tesla’s investment portfolio could, according to some investors, complicate the company’s zero-emission ethos at a time when ESG – environmental, social and governance considerations – have become a major factor for global investors.
“We are of course very concerned about the carbon dioxide emissions generated by bitcoin mining,” said Ben Dear, CEO of Osmosis Investment Management, a sustainable investor who manages approximately $ 2.2 billion in assets that hold Tesla shares in various wallets.
“We hope that when Tesla’s bitcoin ventures are over, they will focus on measuring and disclosing to their market their full set of environmental factors, and if they continue to buy or even start mining bitcoin, they will have the relevant Include energy consumption data herein.
Tesla did not respond to a request for comment.
Still, it’s not all eco-doom and gloom, and Tesla’s bet on bitcoin comes amid growing efforts in the cryptocurrency industry to lessen the environmental damage from mining. This move could be promoted by billionaire entrepreneur Musk, who this week individually offered $ 100 million for inventions that could take carbon dioxide out of the atmosphere or the oceans.
The entry of major companies into the crypto market could also boost incentives to produce “green bitcoin” using renewable energy, some sustainability experts say. They add that companies can also buy carbon credits to offset this.
But in the shorter term, Tesla’s disclosure of its bitcoin investment, made in a securities filing, could indirectly serve to exacerbate the environmental costs of mining.
Other companies are likely to follow suit by buying in the currency, investors and industry experts say. Increased demand and prizes lead to more miners competing to solve puzzles in the fastest time to win coins, with increasingly powerful computers requiring more energy.
“It’s (bitcoin) not a sustainable investment and it’s difficult to make it sustainable with the kind of system it’s built on,” said Sanna Setterwall, a consultant with sustainability consultancy South Pole.
Can Tesla make bitcoin green?
Estimates of bitcoin’s reliance on fossil fuels versus renewables vary, with detailed data on the bitcoin mining industry’s energy mix difficult to come by.
Projects from Canada to Siberia are seeking ways to move bitcoin mining away from fossil fuels, or at the very least, reduce its carbon footprint and make the currency more palatable to mainstream investors.
SJ Oh, a former bitcoin trader based in Hong Kong and a self-proclaimed “tree hugger,” was aware that his passion for the environment was somewhat at odds with his day job. So a year ago, he co-founded Pow.re, a company that runs green bitcoin mining operations in the Canadian sub-arctic.
Based in Labrador, Pow.re’s machines run on hydropower, with plans to reuse the heat generated by mining for local agriculture, heating and other needs, he said.
“Overwhelmingly, I think the bitcoin industry will make a concerted effort to be environmentally friendly,” said Oh, who believes Musk and his company can come up with better methods.
“Tesla is one of the greenest companies in the world, so I’m sure they can figure it out.”
Other projects aimed at reducing bitcoin’s carbon impact include that of a branch of Russian gas producer Gazprom in Siberia’s Khanty-Mansi region.
There, power generated by flare gas – a byproduct of oil extraction that is usually burned off – is used for cryptocurrency mining. The process leaves a lower carbon footprint than coal, said Gazprom Neft, the unit behind the project.
In theory, blockchain analytics companies say it is possible to track the source of bitcoin, increasing the likelihood of being charged a premium for green bitcoin. Stronger climate change policies by governments around the world can also help.
“It’s not so much bitcoin that is the problem.” said Yves Bennaim, the founder of 2B4CH, a Switzerland-based cryptocurrency think tank.
“People say it’s energy intensive and therefore polluting, but that’s just the nature of the energy we use today. As bitcoin rises, there will be more incentive to invest in renewables.”
Some proponents of bitcoin, meanwhile, note that the existing financial system with its millions of employees and computers in air-conditioned offices also consumes large amounts of energy.
‘The aim is to make a profit’
However, it’s an early day for such green projects, and some ESG experts say bitcoin could have a tough job of gaining massive acceptance by mainstream investors in the near future.
“I still think the major players will refrain from bitcoin for these specific reasons – one is very negative about the climate, given the way it is mined, and the second, the compliance and ethical issues associated with it, said Sasja Beslik, chief. of sustainable business development at Bank J. Safra Sarasin in Zurich.
Some industry players and academics warn that the dominance of Chinese miners and the lack of motivation to trade cheap fossil fuels for more expensive renewables means that there are few quick fixes to the emissions problem.
Chinese miners account for about 70% of bitcoin production, data from the University of Cambridge’s Center for Alternative Finance shows. They usually use renewable energy – mostly hydropower – during the rainy summer months, but fossil fuels – mainly coal – for the rest of the year.
“Every miner’s goal is to make a profit, so they don’t care what kind of energy they use, whether it’s from hydro, wind, solar or burning coal,” said Jack Liao, CEO of China mining company LightningAsic. that government incentives for miners to promote renewable energy can help.
Others are less optimistic that significant changes are on the way.
“Renewable energy production is extremely volatile, it is not ideal as a consistent form of energy,” said Alex De Vries, founder of research platform Digiconomist.
“The problem is that the miners who last the longest are the ones who use cheap fossil fuels simply because it is the cheapest and more stable resource.”