LONDON (Reuters) – Tesla CEO Elon Musk is a figurehead for low-carbon technology. However, the electric car maker’s support for Bitcoin this week could spike global use of a currency that is estimated to cause more pollution each year than a small country.
FILE PHOTO: Elon Musk, Chairman of SolarCity and CEO of Tesla Motors, speaks at SolarCity’s Inside Energy Summit in Manhattan, New York, October 2, 2015. REUTERS / Rashid Umar Abbasi / FILE PHOTO
Tesla Inc announced Monday that it had bought $ 1.5 billion worth of Bitcoin and would soon be accepting it as payment for cars, with the price of the cryptocurrency being sent through the roof.
So what’s the problem you may be asking yourself? Bitcoin is virtual, so it’s not like it’s made of paper, plastic, or even metal.
The digital currency is created when powerful computers compete against other machines to solve complex mathematical puzzles. This energy-intensive process is currently often based on fossil fuels, especially coal, the dirtiest of them all.
At current rates, such bitcoin mining consumes about the same amount of energy annually as the Netherlands did in 2019, according to the latest available data from Cambridge University and the International Energy Agency.
According to a 2019 study in the journal Joule, Bitcoin production is estimated to cause between 22 and 22.9 million tons of carbon dioxide emissions per year, or between the amounts produced by Jordan and Sri Lanka.
The pioneering addition of cryptocurrency to Tesla’s investment portfolio could, according to some investors, complicate the company’s zero-emission ethos at a time when ESG considerations – environmental, social and governance – have become a major factor for global investors.
“We are obviously very concerned about the amount of carbon dioxide emissions from mining Bitcoin,” said Ben Dear, CEO of Osmosis Investment Management, a sustainable investor with approximately $ 2.2 billion in assets, and Tesla – Holds shares in multiple portfolios.
“We hope that once the Bitcoin ventures are complete, Tesla’s Bitcoin companies will focus on measuring their full range of environmental factors and passing them on to their market. If they continue to buy bitcoin or actually start mining bitcoin, they will include the relevant energy usage data in this disclosure. “
Tesla did not respond to a request for comment.
Even so, it’s not all eco doom and darkness, and Tesla’s bet on Bitcoin comes amid growing attempts in the cryptocurrency industry to mitigate the environmental damage caused by mining. That move could be fueled by billionaire entrepreneur Musk, who this week separately offered $ 100 million for inventions that could pull carbon dioxide from the atmosphere or oceans.
According to some sustainability experts, the entry of large companies into the crypto market could also increase the incentives for the production of “green Bitcoin” with renewable energies. They add that companies could buy carbon credits to offset this as well.
In the short term, Tesla’s disclosure of its Bitcoin investment in a security filing could indirectly help exacerbate mining environmental costs.
Other companies are likely to follow suit by buying into the currency, say investors and industry experts. Higher demand and higher prices result in more miners competing for coin solving in the fastest time to win coins. More and more powerful computers are used that require more energy.
“It is (Bitcoin) not a sustainable investment and it is difficult to make it sustainable with the system on which it is built,” said Sanna Setterwall, consultant at the corporate sustainability consultancy at the South Pole.
Graphics – Hungry for power: Bitcoin’s growing energy consumption
CAN TESLA BITCOIN TURN GREEN?
Estimates of Bitcoin’s reliance on fossil fuels versus renewables vary, with detailed data on the bitcoin mining industry’s energy mix being difficult to come by.
Projects from Canada to Siberia are looking for ways to phase out bitcoin mining from fossil fuels, or at least reduce its carbon footprint and make the currency more palatable to mainstream investors.
SJ Oh, a former Hong Kong-based Bitcoin trader and self-proclaimed “tree keeper”, knew that his passion for the environment was somewhat at odds with his day-to-day work. A year ago he co-founded Pow.re, a company that runs green bitcoin mining companies in the Canadian subarctic.
Pow.re’s machines in Labrador run on hydropower and are designed to use the heat generated by the mining industry for local farming, heating and other purposes.
“For the most part, 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 will find out.”
Other projects to reduce the CO2 impact of Bitcoin are projects by a Russian gas producer Gazprom in the Khanty-Mansi region of Siberia.
There, the electricity generated by flare gas – a by-product of the normally spent oil production – is used for cryptocurrency mining. The process leaves a smaller carbon footprint than coal power, said Gazprom Neft, the unit behind the project.
According to blockchain analytics firms, it is theoretically possible to track the source of bitcoin, which increases the possibility that a premium could be levied on green bitcoin. Stronger climate change policies from governments around the world could also help.
“It’s not that much bitcoin that’s the problem.” said Yves Bennaim, the founder of 2B4CH, a Switzerland-based think tank for cryptocurrency.
“People say it’s energy intensive and therefore harmful to the environment, but that’s just the type of energy we use today. As Bitcoin rises, there will be more incentives to invest in renewable energy sources. “
Some Bitcoin proponents note that the existing financial system, with its millions of employees and computers in air-conditioned offices, also uses large amounts of energy.
“GOAL MAKES PROFIT”
However, it’s early days for green projects like this, and some ESG experts say that Bitcoin could have a tough job anytime soon, gaining mass acceptance by mainstream investors.
“I still think the big players will be foregoing Bitcoin for these particular reasons – one is a very negative climate angle given the way it’s being mined and two, the compliance and ethical issues that come with it,” said Sasja Beslik, Head of Sustainable Business Development at Bank J. Safra Sarasin in Zurich.
Some industry players and scientists warn that the dominance of Chinese miners and the lack of motivation to swap cheap fossil fuels for more expensive renewables means that few quick fixes are found to the emissions problem.
Chinese miners make up about 70% of Bitcoin production, data from the University of Cambridge’s Center for Alternative Finance shows. During the rainy summer months they typically use renewable energy – mostly hydropower – but for the rest of the year they use fossil fuels – mainly coal.
“The goal of every miner is to make a profit, so they don’t care what kind of energy they use if it is generated by water, wind, sun or burning coal,” added Jack Liao, CEO of the Chinese mining company LightningAsic added that government incentives for miners to prefer renewable energies could help.
Others are less optimistic that significant changes are emerging.
“The production of renewable energies is extremely volatile and not ideal as a consistent form of energy,” said Alex De Vries, founder of the Digiconomist research platform.
“The problem is that the longest-lasting miners are using cheap fossil fuel simply because it’s the cheapest and more stable source.”
(This story corrects the 6th paragraph to millions of tons, not tons)
Reporting by Anna Irrera and Tom Wilson in London; Editing by Pravin Char