The White House Office of Science and Technology Policy (OSTP) has published a report examining the challenges and opportunities for crypto-assets during the transition to a net-zero emissions economy in the United States.
The report, a response to President Joe Biden’s March 9, 2022 Executive Order, explores energy usage and environmental impacts of digital assets; regulations and policies to support the responsible development of digital assets; and the unexplored potential of blockchain technology and distributed ledger technologies (DLT) to support climate monitoring and mitigation.
Crypto-asset operations have significant energy and environmental impacts
To address a growing and uncertain energy demand from increased use of crypto-assets, the report encourages the federal government to support the responsible development of the industry to minimize impacts on local communities, dramatically reduce energy intensity, and power its operations with clean energy.
The report notes that crypto-asset operations, including mining and consensus mechanisms, are charactered by significant electricity usage. Total global electricity usage for such operations is estimated at between 120 and 240 billion kilowatt-hours per year, which is equivalent to 0.4 pecent to 0.9 percent of annual global electricity usage. The United States is estimated to host about a third of the world’s crypto-asset operations, ranging about 0.9 percent to 1.7 percent of total US electricity usage.
In addition, the increased electricity demand from crypto-asset mining has increased local consumers’ power prices. Discarded computers, circuit boards, cables, and other electronic waste from crypto-asset mining also contribute to electronic waste, which poses another systemic environmental challenge for the industry.
A regulatory and policy framework
To encourage the development of digital assets in the transition to a net-zero emissions economy, the report recommends the involvement of the Environmental Protection Agency (EPA), the Department of Energy (DOE), and other federal agencies to provide technical assistance and collaborate with states and affected communities. This will facilitate the adoption of environmental performance standards for the responsible design, development, and use of crypto-asset technologies.
As with other environmental social and governance (ESG) disclosure standards, including the SEC’s proposed rules on climate-related disclosures, the report encourages crypto-asset industry associations, such as mining firms and equipment manufacturers, to publicly report crypto-asset mining locations, annual electricity usage, GHG emissions using existing protocols, and electronic waste recycling performance.
The report also documents local and state action to regulate energy consumption by crypto asset mining. For instance, the Public Utility District of Grant County, Washington adopted a rate class for crypto-asset miners to recover incremental costs to meet electricity demand from mining. In 2018, the New York Municipal Power Authority created a new tariff for high-volume data processing for crypto-assets. There are also proposed global regulations to address environmental impacts of the crypto operations and blockchain technology. The European Commission’s pending Markets in Crypto-Assets legislation will likely require disclosure of environmental and climate impact information and introduce mandatory minimum sustainability standards for consensus mechanisms.
Responsible development of digital assets would support consensus mechanisms that minimize energy usage and environmental impacts while maximizing benefits to consumers. The crypto industry has not reached an agreement on best practices for consensus mechanisms to validate transactions. Notably, on September 15, 2022, the Ethereum network switched from using proof of work (PoW) consensus mechanism, an energy-intensive technology, to proof of stake (PoS), a more sustainable system which is expected to reduce Ethereum’s energy consumption by more than 99 percent. Since Ethereum is the largest network for NFTs, this merge will have direct environmental implications for the NFT industry.
The potential of blockchain and other distributed ledger technologies
In parallel with its strategies for addressing challenges like these, the report also brings into focus the unexplored potential of blockchain and other distributed ledger technologies (DLT) to support the development of environmental and energy markets, including carbon markets, distributed energy resource coordination, and general supply chain management. The report recommends that the US government facilitate innovation that addresses market challenges, aligns with environmental and equity objectives, and appropriately ensures customer and investor protection and market integrity.
Learn more about the implications of the report for your business by contacting any of the authors. For direct access to the seven reports which have released to date, please click the links below. DLA Piper is developing analyses of the additional reports and will release the analyses as they become available.
- Crypto-Assets: Implications for Consumers, Investors, and Businesses issued by the Department of the Treasury
- Responsible Advancement of U.S. Competitiveness in Digital Assets issued by the Department of Commerce
- Climate and Energy Implications of Crypto-Assets in the United States issued by the White House Office of Science and Technology
- How To Strengthen International Law Enforcement Cooperation For Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets issued by the Department of Justice
- The Future of Money and Payments issued by the Department of the Treasury
- Action Plan to Address Illicit Financing Risks of Digital Assets issued by the Department of the Treasury
- The Role of Law Enforcement in Detecting, Investigating, And Prosecuting Criminal Activity Related to Digital Assets issued by the Department of Justice