BLOG POST

States are subsidizing cryptocurrency. That’s a bad idea.

,

If you’re a Kentucky developer looking for tax breaks on an alternative energy project, you’re in luck. All kinds of projects are eligible for subsidies in Kentucky, from synthetic gas to biomass to solar energy. This year, though, a new law added a different type of project: cryptocurrency facilities. The law is clear about why: its stated goal is for Kentucky “to become a national leader in emerging industries which use substantial amounts of energy.” 

Cryptocurrencies like Bitcoin and Ether fit that bill. Unlike fiat currency or precious metals, cryptocurrency is digital, decentralized money, made valuable by the fact that there is an artificially scarce number of “coins” available. The only way to make, or “mine,” coins is to use massive amounts of energy to power computers running an extremely complicated guess-and-check program. As of March 2021 it takes 100 septillion (that’s 26 zeros) guesses to mine one Bitcoin. Crypto mining is a competition that produces nothing except for ones and zeroes; whoever uses the most energy and processing power usually wins.

Does it really make sense for an alternative energy law to also function as a “use more energy” law? States have used economic development subsidies to support everything from horse breeders to vineyards, but subsidizing fuel consumption as an intrinsic good breaks new ground. But Kentucky, a top-five coal producer, has decided it’s worthwhile to try and revive its shuttered, dirty coal plants. The goal is to draw power-hungry virtual miners to keep these particularly inefficient plants (and the coal mines that fuel them) running, with no thought paid to the extra air pollution and greenhouse gas emissions this will create. In fact, another new law even exempts the electricity used in commercial cryptocurrency mining from sales tax

Wyoming, the nation’s largest coal producer, is working from the same playbook, passing 13 new laws by the end of 2019 to attract crypto miners. Some are technical clarifications intended to promote confidence in a new technology and avoid legal confusion. Another provides a shortcut for electric utilities to avoid the ratemaking process and negotiate directly with customers (like crypto miners) that will use large amounts of electricity. Most troubling, though, is a measure intended – according to its advocates – to “help Wyoming’s struggling coal industry.”

This law simultaneously subsidizes coal mining and crypto mining. It aims to extend the life of the state’s aging coal-fired power plants by hindering their planned early retirement, instead pushing their owners to try to sell them to third-party buyers (like crypto miners) with huge energy demands. These new owners would plug their operations directly into the giant coal plant, while potentially avoiding the usual transmission expenses and network costs.

Other states and cities are also looking to promote cryptocurrencies in flashier, if less direct, ways. In November, Miami mayor Francis Suarez tweeted that he would take his next paycheck in Bitcoin, to which New York City mayor-elect Eric Adams replied that he would take his next three paychecks in Bitcoin, setting up a chaotic foray into paying public salaries in nonlegal tender. Adams also said that he wants city schools to teach kids about crypto technology.  

The United States is now the largest Bitcoin miner in the world. Some argue it’s good for crypto mining to happen here, where power plants at least have some environmental controls. But others point to the mountains of electronic waste created by machines that need to be replaced every two years, or its astronomical power consumption (Bitcoin uses more power every year than Argentina, for example.) In the words of a former Texas energy regulator, “the problem is it’s consuming real resources, doing a function that has no value.”

Cryptocurrency enthusiasts would take issue with that assessment, arguing that the technology allows for digital privacy and freedom. But when that freedom affects the freedom of others to breathe clean air or live in a stable climate, it’s appropriate to ask whether the tradeoff is worth it. It’s one thing to burn fossil fuels to meet some real human need. But it’s an entirely different thing to burn them to inflate the value of your cryptic investment vehicle.  

The U.S. already pays enough billions in direct and indirect subsidies to the fossil fuel industry, sacrificing public health, public lands and air quality to keep fuel prices low. Now, fossil fuel power plants from Montana to New York to Pennsylvania that were shut down or were scarcely used are being reopened to power Bitcoin mining. States that add direct subsidies for crypto mining promote energy consumption for the sake of more energy consumption, risking a fossil-fuel-fired race to the bottom. Very few benefit, and we all pay the price.

Photo credit Crypto360 via Creative Commons, CC BY 2.0

Share This Page