Bitcoin
The ‘sustainable bitcoin’ paradox
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Welcome back. The annual Banking on Climate Chaos report was published today, showing a modest decline in aggregate fossil fuel financing last year by the world’s 60 largest banks – but impressive increases for some of the biggest lenders. Keep reading to find out which ones.
First, we dive into the crypto world. With the rising price level of bitcoin giving new incentives to energy-hungry “miners” – who already use more electricity than many countries – some are trying to argue that this could support the energy transition. Do they deserve a hearing?
What does diversity and inclusion really mean in a modern workforce — and what is the right approach for companies to take on these issues? That’s the focus of our next in-depth Moral Money Forum report, featuring valuable insights from readers. Give your opinion by filling out this brief survey.
renewable energy
Could Bitcoin ever be green?
If the term “sustainable bitcoin” sounds like an oxymoron to you, you’re not alone.
By far the world’s largest cryptocurrency, with a total market value of $1.2 trillion, bitcoin’s fearfully energy-inefficient processing system uses more electricity each year than Ukraine or Pakistan, according to estimates by the Cambridge Center for Alternative Finance. A large portion of this energy comes from plants that burn fossil fuels. And to the extent that bitcoin “miners” consume renewable energy, critics argue, they are merely absorbing clean energy that could be used much more productively elsewhere.
So I was interested to speak last week with Elliot David of Sustainable Bitcoin Protocol at an FT digital assets conference in London.
Founded in 2021, this initiative certifies bitcoin generated by miners (who deploy stacks of computers to process and verify transactions) using energy from renewable sources or from burning residual methane at crude oil extraction sites that would otherwise have been burned or released into the atmosphere.
David, head of climate strategy at SBP, argued that bitcoin miners can galvanize investment in renewable energy, rather than simply absorbing electricity that would have been produced anyway.
When demand for electricity on the grid falls short of potential supply, operators of renewable plants are subject to “constraints” – meaning they have to reduce or stop production because the electricity cannot be used or stored. By signing limited acquisition agreements with bitcoin miners — or simply building their own bitcoin operations — renewable energy companies can secure better economics for plants that might otherwise seem too risky to develop, David argued.
Does this idea have merit? It is worth separating the argument in favor of the SBP initiative from the argument that bitcoin can be green. SBP hopes that as interest in cryptocurrencies broadens, more mainstream investors will place a premium on “cleaner” bitcoin. So far, it has hired miners representing nearly a fifth of global bitcoin processing capacity, SBP says.
If bitcoin transactions happen on a large scale over a long period of time – and with the price hitting a record high of $75,830 in March, this seems likely – then it seems preferable to have them powered by clean energy rather than prolong the lifespan. of fossil fuel plants (as has infamously happened since Montana for upstate new york). To the extent that the SBP can help encourage this, it may be playing a constructive role.
The argument that bitcoin’s energy consumption could be good for the climate and society at large is another matter entirely. Notable advocates for bitcoin’s role in energy systems include Senator Ted Cruz from the bitcoin mining hub of Texas, where the network operator often pays crypto miners to halt operations.
This system offers a quick-response way to adjust demand, which could be useful given the growing share of intermittent renewables in energy production in Texas. But energy storage systems can do much the same thing – keeping energy available for homes and factories.
Furthermore, the benefit to the grid may be offset by the considerable disadvantages for Texan families and businesses, for whom this huge new source of energy consumption has driven up electricity prices during periods of high demand. Wood Mackenzie Analysts estimated last September that “Bitcoin mining already increases electricity costs for non-mining Texans by $1.8 billion per year, or 4.7 percent.”
This effect is unlikely to be limited to Texas. According to a January letter from the head of the US Energy Information Administration, about one in every 45 units of electricity consumed in the US is gobbled up by cryptocurrency mining. Bitcoin is responsible for most of this due to its market dominance and its distributed “proof-of-work” validation system, which consumes much more energy than rivals like Ethereum (Bitcoin advocates say this makes it more safe).
Concerns about the impact on grid operations and consumer prices led the EIA to announce in January a mandatory inquiry of energy use by cryptominers – an effort that has been forced to fallfor now, following a legal challenge from crypto companies.
If the EIA research eventually moves forward, its results will likely raise concerns about bitcoin’s energy and environmental impacts. Despite the specific positive use cases described by SBP, it is difficult to see that these can offset the broader complications caused by the addition of this massive new element to global energy consumption.
Although its growth has been driven primarily by speculation, cryptocurrency has the potential to play socially useful roles — as shown by its incipient acceptance by migrant workers for low-cost shipping. But the costs to energy systems and the climate are real.
“So far, we don’t see such a high level of adoption and scalability that it really justifies the energy use of the bitcoin network,” Larisa Yarovaya, director of the Center for Digital Finance at Southampton Business School, told me. “The question is whether there is enough utility to justify it.”
fossil fuel financing
Banks continue to “increase their exposure to fossil fuels”
If the world were on track to meet the Paris Agreement’s climate goals, we would see a dramatic drop in fossil fuel financing from major global banks. Like today Report on Banks in Climate Chaos makes it clear that this is not happening.
It shows that the world’s 60 largest banks by assets provided $706 billion in financing to fossil fuel companies last year. That’s at least lower than the $779 billion figure in 2022 and the $956 billion peak in 2019. But it is financing a massive new expansion of fossil fuel production, which will likely set the goal of limiting the global warming at 1.5ºC. even more out of reach.
And while many banks are reducing their financial support for oil, gas and coal, others have seen an opportunity to step in and grow. JPMorgan Chase increased its fossil fuel financing by more than 5% to $40.9 billion last year, according to the report, making it comfortably the world’s largest bank financing the sector – a crown it holds since surpassing Citigroup in 2021.
The report found that second-placed Mizuho Financial of Japan also increased its fossil fuel financing last year, as did Wall Street banks Morgan Stanley and Goldman Sachs, and European lenders Barclays, Santander and Deutsche Bank.
It’s worth noting that the creators of this report – a large coalition of nonprofit groups coordinated by the Rainforest Action Network – made a major change to the methodology around corporate financing arrangements. The value of a bank’s financing now includes its contribution to corporate finance deals in which it played a supporting role, and not just those in which it was the lead bookrunner, as in previous years. This year’s report also restated the numbers from previous years in line with the new methodology, so the change is not the reason for the year-on-year increase in the financing values of some banks.
Several banks raised concerns about the report’s findings. Barclays said it does not recognize “the classification or attribution of some transactions” and criticized the authors’ focus on how much revenue their corporate clients earned from fossil fuel-related businesses rather than “the use of transaction proceeds or the company’s actual investment.” company”. activity”.
JPMorgan said it was helping drive “today’s global economy” and that it believed its own data “reflects our activities more comprehensively and accurately than third-party estimates.”
Deutsche Bank said its financed carbon emissions have significantly decreased in the oil, gas and coal mining sectors, and that it has “significantly reduced its involvement in carbon-intensive sectors since 2016”.
Santander said it is “fully committed to supporting the transition to net zero emissions” and that it has set emissions reduction targets for 2030 in sectors including energy production and oil, gas and coal. The other banks mentioned declined to comment.
You will find more details in Attracta Mooney’s report for the FT here.
Smart Reading
While other international banks turned away from Russia’s war economy, Austria’s Raiffeisen Bank is an ugly exceptionwrites Patrick Jenkins.
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