Bitcoin is an Environmental Disaster. Is the Indictment Distorted?
Main Article Content
Keywords
Bitcoin, Cryptocurrency, Elasticity, Greenhouse gas emissions, CO2 emissions
Abstract
The literature is inundated with the claim that Bitcoin pollutes the environment. While the assertion is irrefutable, the unsettled issue is whether the indictment of environmental disaster is disproportionate or distorted. This is an empirical question; this paper evaluates it via two econometric methods. First, accepting carbon dioxide (CO2) emission as a proxy for environmental pollution, the paper quantifies the elasticity of CO2 emission in relation to electricity consumption in Bitcoin production. The results reveal that, while Bitcoin production based on conventional electricity is inelastic, carbon emission responsiveness to fossil fuel is significant. A 1% increase in Bitcoin’s usage of coal-generated electricity leads to a 1.64% surge in CO2 emission. Second, the study applies the error correction model to show that some electricity consumption shocks emanate from global coal prices driven by economic factors beyond Bitcoin’s control. This raises the question of whether Bitcoin should shoulder the entire blame for the 1.64% pollution responsiveness. Therefore, the study makes two important contributions. First, Bitcoin’s pollution impact varies according to timespan and electricity source. Second, the intensity of carbon emission from electricity consumption is aggravated by external market factors beyond Bitcoin’s control. The findings should inform policymakers and enlighten environmental advocates.
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References
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Masanet, E., Shehabi, A., Lei, N., Vranken, H., Koomey, J., & Malmodin, J. (2019). Implausible projections overestimate near-term Bitcoin CO2 emissions. National Climate Change, 9, 653–654. https://doi.org/10.1038/s41558-019-0535-4
Matos, P. (2020). ESG and responsible institutional investing around the world: A critical review. CFA Institute Research Foundation. https://ddoi.org/10.2139/ssrn.3668998
Mora, C., Rollins, R. L., Taladay, K., Kantar, M. B., Chock, M. K., Shimada, M., & Franklin, E. C. (2018). Bitcoin emissions alone could push global warming above 2°C. National Climate Change, 8, 931–933. https://doi.org/10.1038/s41558-018-0321-8
Nordhaus, W. D. (1977). Economic growth and climate: The carbon dioxide problem. American Economic Review, 67(1), 341–346. https://www.jstor.org/stable/1815926
Nordhaus, W. D. (1991). To slow or not to slow: The economics of the greenhouse effect. Economic Journal, 101(407), 920–937. https://doi.org/10.2307/2233864
Nordhaus, W. D. (1992). An optimal transition path for controlling greenhouse gases. Science, 258(5086), 1315-1319. http://www.jstor.org/stable/2880417
O’Dwyer, K. J., & Malone, D. (2014). Bitcoin mining and its energy footprint. 25th IET Irish Signals & Systems Conference and China-Ireland International Conference on Information and Communications Technologies. https://doi.org/10.1049/cp.2014.0699.
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Pástor, L., Stambaugh, R. F., & Taylor, L. A. (2021). Sustainable investing in equilibrium. Journal of Financial Economics, 142(2), 550–571. https://doi.org/10.1016/j.jfineco.2020.12.011
PWC [Price Waterhouse Coopers]. (2022). Report by Price Waterhouse Coopers (PWC). Asset and wealth management revolution 2022: Exponential expectations for ESG. www.pwc.com/gx/en/financial-services/assets/pdf/pwc-awm-revolution-2022.pdf
Subramanian, R., & Chino, T. (2015). The state of cryptocurrencies, their issues and policy interactions. Journal of International Technology and Information Management, 24(3), 24–40. doi.org/10.58729/1941-6679.1045
US Congress Library. (2022). Regulation of Cryptocurrency Around the World—November 2021 update. Global legal research directorate. American Government Report. https://tile.loc.gov/storage-services/service/ll/llglrd/2021687419/2021687419.pdf
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Wendl, M., Doan, M. H., & Sassen, R. (2023). Environmental impact of cryptocurrencies using proof of work and proof of stake consensus algorithms: A systematic review. Journal of Environmental Management, 326, 16530. https://doi.org/10.1016/j.jenvman.2022.116530
Zerbib, O. D. (2019). The effect of pro-environmental preferences on bond prices: Evidence from green bonds. Journal of Banking and Finance, 98, 39–60. https://doi.org/10.1016/j.jbankfin.2018.10.012
Chamanara, S., Ghaffarizadeh, S. A., & Madani, K. (2023). The Environmental Footprint of Bitcoin Mining Across the Globe: Call for Urgent Action. Earth’s Future, 11(10), e2023EF003871. https://doi.org/10.1029/2023EF003871
Chang, C. E., Nelson, W. A., & Doug Witte, H. (2012). Do green mutual funds perform well? Management Research Review, 35(8), 693–708. https://doi.org/10.1108/01409171211247695
Cohen, G., Jalles, J. T., Loungani, P., & Marto, R. (2018). The long-run decoupling of emissions and output: Evidence from the largest emitters. Energy Policy, 118, 58–68. https://doi.org/10.1016/j.enpol.2018.03.028
Coin Metrics. (2023). Coin Metrics Crypto Charts. Coin Metrics Crypto Charts. https://charts.coinmetrics.io/crypto-data
Cribari-Neto, F. (1996). On time series econometrics. The Quarterly Review of Economics and Finance, 36, 37–60. https://doi.org/10.1016/S1062-9769(96)90007-1
De Vries, A. (2019). Renewable Energy Will Not Solve Bitcoin’s Sustainability Problem. Joule, 3(4), 893–898. https://doi.org/10.1016/j.joule.2019.02.007
De Vries, A., & Stoll, C. (2021). Bitcoin’s growing e-waste problem. Resources, Conservation and Recycling, 175,105901. https://doi.org/10.1016/j.resconrec.2021.105901.
Ferré-Sadurní, L., & Ashford, G. (2022). New York enacts a 2-year ban on some crypto-mining operations. www.nytimes.com/2022/11/22/nyregion/crypto-mining-ban-hochul.html
Giglio, S., Kelly, B., & Stroebel, J. (2021). Climate Finance. Annual Review Financial Economics, 13, 15–36. https://doi.org/10.1146/annurev-financial-102620-103311
Goodkind, A. L. J., Jones, B. A., & Berrens, R.P. (2020). Cryptodamages: Monetary value estimates of the air pollution and human health impacts of cryptocurrency mining. Energy Research and Social Science, 59(101281), 1–9. https://doi.org/10.1016/j.erss.2019.101281
Gopane, T. J. (2019). Blockchain technology and smart universities. Proceedings of 4th International Conference on the Internet, Cyber Security and Information Systems 2019, 12, 72–84. https://doi.org/10.29007/rkv5
Gopane, T. J. (2023). Is Bitcoin’s Environmental Risk Inflated? Elasticity and Fossil Fuels. In R. Jallouli, M. A. Bach Tobji, M. Belkhir, A. M. Soares, & B. Casais (Eds), Digital Economy. Emerging Technologies and Business Innovation (pp. 171–184). Springer International Publishing. https://doi.org/10.1007/978-3-031-42788-6_11
Granger, C. W. J. (1969). Investigating Causal Relations by Econometric Models and Cross-spectral Methods. Econometrica, 37(3), 424–438. https://doi.org/10.2307/1912791
Hodrick, R. J., & Prescott, E. C. (1997). Postwar US business cycles: an empirical investigation. Journal of Money, Credit, and Banking, 29(1), 1–16. https://doi.org/10.2307/2953682
International Monetary Fund. (2023). Global price of Coal, Australia [pcoalauusdm]. Retrieved from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/pcoalauusdm, October 28, 2023.
Koomey, J. (2019). Estimating Bitcoin electricity use: A beginner’s guide. Coin Center report. https://coincenter.org/entry/bitcoin-electricity
Koomey, J., Schmidt, Z., Hummel, H., & Weyant, J. (2019). Inside the Black Box: Understanding key drivers of global emission scenarios. Environmental Modelling & Software, 111, 268–281. https://doi.org/10.1016/j.envsoft.2018.08.019
Krause, M. J., & Tolaymat, T. (2018). Quantification of energy and carbon costs for mining cryptocurrencies. National Sustainability, 1(11), 711–718. https://doi.org/10.1038/s41893-018-0152-7
Kshetri, N. (2022). Bitcoin’s adoption as legal tender: A tale of two developing countries. IT Professional, 24(5), 12–15. https://doi.org/10.1109/mitp.2022.3205528
Küfeoğlu, S., & Özkuran, M. (2019). Bitcoin mining: A global review of energy and power demand. Energy Research and Social Science, 58, 101273. https://doi.org/10.1016/j.erss.2019.101273.
Malhotra, G., & Thakur, K. S. (2020). Evolution of green finance: A bibliometric approach. Gedrag and Organisatie Review, 33(2), 583–594.
Martin, K., & Nauman, B. (2021). Bitcoin’s growing energy problem: ‘It’s a dirty currency’. Financial Times Newspaper. https://www.ft.com/content/1aecb2db-8f61-427c-a413-3b929291c8ac
Masanet, E., Shehabi, A., Lei, N., Vranken, H., Koomey, J., & Malmodin, J. (2019). Implausible projections overestimate near-term Bitcoin CO2 emissions. National Climate Change, 9, 653–654. https://doi.org/10.1038/s41558-019-0535-4
Matos, P. (2020). ESG and responsible institutional investing around the world: A critical review. CFA Institute Research Foundation. https://ddoi.org/10.2139/ssrn.3668998
Mora, C., Rollins, R. L., Taladay, K., Kantar, M. B., Chock, M. K., Shimada, M., & Franklin, E. C. (2018). Bitcoin emissions alone could push global warming above 2°C. National Climate Change, 8, 931–933. https://doi.org/10.1038/s41558-018-0321-8
Nordhaus, W. D. (1977). Economic growth and climate: The carbon dioxide problem. American Economic Review, 67(1), 341–346. https://www.jstor.org/stable/1815926
Nordhaus, W. D. (1991). To slow or not to slow: The economics of the greenhouse effect. Economic Journal, 101(407), 920–937. https://doi.org/10.2307/2233864
Nordhaus, W. D. (1992). An optimal transition path for controlling greenhouse gases. Science, 258(5086), 1315-1319. http://www.jstor.org/stable/2880417
O’Dwyer, K. J., & Malone, D. (2014). Bitcoin mining and its energy footprint. 25th IET Irish Signals & Systems Conference and China-Ireland International Conference on Information and Communications Technologies. https://doi.org/10.1049/cp.2014.0699.
Oğhan, V. (2022). Environmental policies for green cryptocurrency mining. In Handbook of Research on Challenges in Public Economics in the Era of Globalization (pp. 217–227). IGI Global. https://doi.org/10.4018/978-1-7998-9083-6.ch013
Pástor, L., Stambaugh, R. F., & Taylor, L. A. (2021). Sustainable investing in equilibrium. Journal of Financial Economics, 142(2), 550–571. https://doi.org/10.1016/j.jfineco.2020.12.011
PWC [Price Waterhouse Coopers]. (2022). Report by Price Waterhouse Coopers (PWC). Asset and wealth management revolution 2022: Exponential expectations for ESG. www.pwc.com/gx/en/financial-services/assets/pdf/pwc-awm-revolution-2022.pdf
Subramanian, R., & Chino, T. (2015). The state of cryptocurrencies, their issues and policy interactions. Journal of International Technology and Information Management, 24(3), 24–40. doi.org/10.58729/1941-6679.1045
US Congress Library. (2022). Regulation of Cryptocurrency Around the World—November 2021 update. Global legal research directorate. American Government Report. https://tile.loc.gov/storage-services/service/ll/llglrd/2021687419/2021687419.pdf
Wang, Y., Lucey, B., Vigne, S. A., & Yarovaya, L. (2022). An index of cryptocurrency environmental attention (ICEA). China Finance Review International, 12(3), 378–414. https://doi.org/10.1108/cfri-09-2021-0191
Wendl, M., Doan, M. H., & Sassen, R. (2023). Environmental impact of cryptocurrencies using proof of work and proof of stake consensus algorithms: A systematic review. Journal of Environmental Management, 326, 16530. https://doi.org/10.1016/j.jenvman.2022.116530
Zerbib, O. D. (2019). The effect of pro-environmental preferences on bond prices: Evidence from green bonds. Journal of Banking and Finance, 98, 39–60. https://doi.org/10.1016/j.jbankfin.2018.10.012
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Published
Mar 27, 2024
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How to Cite
Gopane, T. J. (2024). Bitcoin is an Environmental Disaster. Is the Indictment Distorted?. Journal of Telecommunications and the Digital Economy, 12(1), 595–611. https://doi.org/10.18080/jtde.v12n1.888
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Special Issue: Emerging Technologies and Innovation for Digital Economy and Transformation
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