Recent Cryptocurrency Developments: Energy and Environmental Implications

Recent Cryptocurrency Developments: Energy and Environmental Implications

December 15, 2022
Recent Cryptocurrency Developments: Energy and
Environmental Implications
Cryptocurrency mining (“cryptomining”) is the process of
The energy intensity of cryptomining rises and falls with
creating additional units of cryptocurrency—a type of
profitability. In 2022, the prices of various cryptocurrencies
digital asset—and validating cryptocurrency transactions on
dropped substantially, which impacted mining profitability
a blockchain ledger. According to some estimates,
and, subsequently, total energy consumption. The exact
cryptomining consumes around 1% of annual global
impact is difficult to measure due to the lack of public data
electricity usage and exceeds the total electricity usage of
from cryptomining companies. However, the Cambridge
some nations. This has raised concerns and prompted
Bitcoin Electricity Consumption Index has noted that
initiatives to address the environmental impact of resulting
expected mining profitability and expected price trajectory
greenhouse gas (GHG) emissions. Congress has expressed
are two driving factors of Bitcoin’s energy consumption.
interest in the environmental impact of cryptomining, as
When the cost of electricity and maintenance exceeds the
well as recent developments within the cryptocurrency
profit from cryptomining, miners potentially may power
industry and potential regulatory approaches to addressing
down existing equipment, stop buying and using new
related policy issues. For more information, see CRS
mining equipment, or sell off cryptocurrency reserves,
Report R45863, Bitcoin, Blockchain, and the Energy
which may in turn affect prices and profitability. However,
Sector, by Corrie E. Clark and Heather L. Greenley.
low prices do not guarantee permanent decreased energy
consumption. Historically, the value of cryptocurrencies has
Cryptocurrency Industry Developments
been volatile, so low prices could rise in the future, which
As cryptocurrencies have gained popularity, industry has
could lead to an increase in energy consumption.
taken some actions to address their increasing energy
consumption, reliance on fossil fuels, and resulting GHG
Policy Developments
emissions.
Among other actions by Congress, in 2022, the House
Committee on Energy and Commerce held a hearing on the
Many popular cryptocurrencies use an energy-intensive
energy impact of cryptocurrencies. Further, several
transaction validation process called Proof of Work (PoW),
Members of Congress have written letters to federal
which requires substantial amounts of energy to operate and
agencies, such as the U.S. Environmental Protection
thermally regulate the devices computing the required
Agency (EPA), to ensure mining facilities are not violating
calculations. On September 15, 2022, in a highly publicized
the Clean Air Act or Clean Water Act.
event called the “Merge,” the Ethereum blockchain shifted
from PoW to a less energy-intensive Proof of Stake (PoS)
In March 2022, President Biden signed Executive Order
validation process. While there are other blockchain
(E.O.) 14067 on the responsible development of digital
networks that use PoS, the Merge is significant because the
assets. In response to E.O. 14067, the White House Office
Ether cryptocurrency is the second largest cryptocurrency
of Science and Technology Policy (OSTP) released a
by market capitalization and the largest cryptocurrency to
report, “Climate and Energy Implications of Crypto-Assets
transition from PoW to PoS. Ethereum predicted the Merge
in the United States.” The report examines how digital
would cut its energy consumption by 99.5%, which has
assets affect energy consumption, the scale of consumption
been supported by some outside estimates. According to
relative to other energy uses, the opportunities of
news outlets, the Merge prompted some Ethereum miners
blockchain technologies to support climate monitoring or
to either cease operation or switch mining to other PoW
mitigation, and potential policy options to minimize or
blockchain networks since their equipment could no longer
mitigate the climate, energy, and environmental effects of
be used on PoS networks. These changes reduced the
cryptomining. The report is part of the first whole-of-
overall energy consumption of the Ethereum blockchain,
government approach to address cryptocurrency risks and
but may have increased the consumption of other networks
benefits, according to the Administration. It also provides
as miners migrated.
recommendations for agencies and Congress, such as
legislation to limit or eliminate energy-intensive transaction
Other private-sector efforts have focused on switching to
validation processes.
renewable energy sources to reduce reliance on fossil fuels.
The Crypto Climate Accord is an alliance of industry
The international regulatory landscape also has changed in
members who have committed to net-zero emissions by
recent years. In 2021, the Chinese government banned all
2030 for all their crypto-related operations. Critics contend
cryptocurrency transactions, which caused an exodus of
that cryptomining’s energy consumption, a “feature” of the
cryptocurrency miners to other countries, including the
PoW system, could continue to grow and draw renewable
United States. Reportedly, a portion of Chinese miners have
electricity generation away from other sectors and negate
continued their operations illegally, but the ban impacted
their potential beneficial impact on GHG emissions.
the overall global distribution of cryptomining and,
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Recent Cryptocurrency Developments: Energy and Environmental Implications
consequently, total energy consumption and fuel mix. Some
agency authorities, including the following examples. S.
research indicates that fossil fuel use for cryptomining has
4356 would direct FERC in consultation with the
increased since the ban, possibly because of lost access to
Commodity Futures Trading Commission (CFTC) and
Chinese hydropower and miner migration to countries with
Securities and Exchange Commission (SEC) to analyze the
a higher reliance on coal and natural gas sources for power.
energy consumption of digital asset transactions and the
As cryptomining has increased in the United States, the
effects of energy consumption. Other proposals would
U.S. share of cryptomining energy consumption has
require the CFTC to examine energy consumption (H.R.
increased. According to the OSTP report, cryptomining
8730, H.R. 8950, and S. 4760).
currently accounts for 2% of total annual U.S. electricity
consumption, which is comparable to the annual
Oversight of Blockchain Networks
consumption of all other data centers in the United States.
Congress may consider whether to maintain, expand, limit,
or eliminate the use of certain energy-consumptive
Energy and Climate Implications
blockchain validation processes, or whether to encourage
Observers estimate cryptomining’s electricity consumption
cryptocurrency networks to switch to less energy-intensive
grew rapidly from 2017 to 2022. However, it is unclear how
processes. Measures to regulate validation processes may
developments in recent months have impacted total energy
have unintended consequences in other spheres, such as
consumption of various cryptocurrency networks. Some
financial oversight. For example, on the day of the Merge,
estimates have shown recent signs of decreased
SEC Chairman Gary Gensler noted that Ethereum’s new,
cryptomining power demand and energy consumption,
less energy-intensive transaction validation process, which
while others have not. The full impact of recent changes
requires miners to maintain a financial stake in Ethereum,
may be delayed. There are many different factors that
could qualify the cryptocurrency as a security, a particular
influence total cryptomining energy consumption and
investment of money that is regulated by the SEC.
subsequent GHG emissions, some of which may have
additive or counteractive effects. For example, if companies
State Frameworks
shift their energy consumption to electricity produced from
Congress may consider options to facilitate state and local
renewable energy sources, the global GHG emissions
efforts to manage regional effects of growth in
associated with cryptomining could decrease. However, an
cryptomining, or whether a comprehensive federal
increase in the price or expected value of certain
framework is needed. Some state legislatures, such as New
cryptocurrencies may attract more miners and thereby
York, have enacted legislation to limit the energy and
increase overall cryptocurrency energy consumption.
environmental impacts of cryptomining. The New York
legislation (Ch. 628) established a two-year moratorium on
Considerations for Congress
all PoW cryptomining that uses carbon-based fuel, such as
Agency Authorities
oil, coal, or natural gas. Other states have attracted
cryptomining facilities to their states through general data
Congress may consider the role of agencies over certain
center-based state and local tax benefits. Still other states—
aspects of cryptomining, including energy usage, noise
such as Kentucky—have enacted legislation (Acts Ch. 122
pollution, water consumption, grid reliability, heat
and 141) to provide sales and use tax incentives and create
production, and electronic waste of mining equipment.
renewable energy incentive programs specific to
Some questions include the extent to which agencies have
cryptomining.
appropriate authority, the manner in which agencies are
exercising any authority, and whether agencies might
Industry-Led Efforts
benefit from any additional authority or direction that
Congress may assess existing industry initiatives to address
Congress might wish to provide. Examples of agencies and
energy and environmental impacts of cryptomining.
potential areas of focus could include the following:
Congress may weigh the possible effects of any further

policy action on private-sector innovation and
Department of Energy (DOE). Energy efficiency
cryptocurrency development. Some cryptomining
standards (voluntary or mandatory) for cryptomining
operations are relatively mobile, so additional regulation
operations (or data centers) or mining equipment.
may lead some mining companies to move their operations
 Energy Information Administration (EIA). Data
abroad. Additionally, the SEC’s proposed climate-related
collection to analyze cryptomining energy consumption,
disclosure rules for public companies (17 C.F.R. §§210,
including mining energy usage, fuel mix, and power
229, 232, 239, and 249) would require all public
agreements.
companies, including public cryptomining companies, to

report their direct GHG emissions, among other things. If
Environmental Protection Agency (EPA). Data
adopted, these reporting requirements could render obsolete
collection or environmental performance standards
some industry-led transparency efforts by publicly traded
(voluntary or mandatory) for cryptomining facilities.
cryptomining companies.
 Federal Energy Regulatory Commission (FERC).
Analysis of potential risks or benefits of blockchain
Kristen E. Busch, Analyst in Science and Technology
technologies to grid operations and the consideration of
Policy
the growth of domestic cryptomining operations in
Corrie E. Clark, Specialist in Energy Policy
existing grid reliability standards.
IF12286
Some Members of the 117th Congress introduced several
bills to address cryptocurrency energy consumption and
https://crsreports.congress.gov

Recent Cryptocurrency Developments: Energy and Environmental Implications

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