The Greenidge Generation Station in Torrey, New York, catalyzed a recent New York State bill that creates a two-year moratorium on behind-the-meter proof-of-work cryptocurrency mining. Assembly Bill A7389C / S6486D, with the purpose to establish a moratorium on cryptocurrency mining operations that use proof-of-work authentication methods to validate blockchain transactions, passed both the New York Assembly on April 26, 2022, and the New York State Senate on June 2, 2022. The bill is currently waiting to be signed or vetoed by Governor Kathy Hochul (D).
Atlas Holdings LLC purchased the Greenidge plant in 2014 and the facility completed the conversion from a thermal coal plant to a natural gas plant in 2016. Three years later, on July 18, 2019, the Climate Leadership and Community Protection Act (Climate Act or CLCPA) was signed into law. New York State’s Climate Act is among the most ambitious climate laws in the world and requires New York to reduce economy-wide greenhouse gas emissions by 40 percent from 1990 levels by 2030 and no less than 85 percent by 2050 from 1990 levels.
The law creates a Climate Action Council charged with developing a scoping plan of recommendations to meet these targets and place New York on a path toward carbon neutrality. The Climate Act grants authority to the Department of Environment Conservation (DEC) to deny air permits to Greenidge for failing to meet greenhouse gas emission reduction requirements. The Orange County Supreme Court upheld this authority in a June 8, 2022 ruling against Danskammer Energy, “the plain language of the statute must be interpreted to grant the DEC the requisite authority to deny a permit …”
In 2020, Greenidge began proof-of-work cryptocurrency mining using a portion of its power capacity, which increased its greenhouse gas emissions. The natural gas plant applied for air permit renewals in late 2021 and the DEC is still reviewing the application. The DEC has already stated that Greenidge does not meet CLCPA standards and so far shows no evidence that Greenidge can. Assembly Bill A7389C’s moratorium on cryptocurrency mining operations does not provide any new powers to the state that do not already exist in the CLCPA to deny cryptocurrency mining with fossil fuel power generators. The moratorium does not apply to existing natural gas co-located mining operations like Greenidge. Even if the moratorium becomes law, it will still be the original powers under the CLCPA that decide Greenidge’s fate.
Considering the existing powers under the Climate Act and the limited scope and messaging of A7389C / S6486D, we offer the following recommendations and next steps as a policy prescription for New York State.
First, we believe that Governor Hochul passing the proof-of-work cryptocurrency moratorium bill would not have the positive benefits that proponents believe it will. The legislation does not reduce greenhouse gas emissions from existing behind-the-meter cryptocurrency operations and only prevents future emissions from new or expanding plants. Yet, the complaints about behind-the-meter proof-of-work cryptocurrency mining that led to the passage of the moratorium bill are about existing emissions and environmental concerns. Therefore, the future-looking moratorium does not address the complaints about existing emissions. The bill does not grant additional powers that do not already exist under CLCPA. In addition, given the benefits of proof-of-work mining, such as stabilizing the electrical grid and incentivizing the buildout of renewable power, the bill sends a inhospitable message to the proof-of-work cryptocurrency mining industry that it is not welcome in the state.
Considering the current struggle to expand transmission quickly to match the speed with which new renewable power projects are developing and the resulting negative effects on investment return and revenue, this moratorium could slow New York’s decarbonization timeline. Proof-of-work cryptocurrency mining, in particular bitcoin mining, is uniquely positioned to provide the necessary monetization to meet these revenue gaps and extend a lifeline to struggling renewable power plants. Governor Hochul should veto the legislation and instead support other bills that are comprehensive and that direct mining toward its most beneficial services to the energy transition.
Second, we believe the passage of the “New York State Cryptocurrency and Blockchain Study Act” (Study Act), which will create a task force that will study both the financial and environmental effects of cryptocurrencies in New York, will have minimum negative impacts in the short term while allowing for better policy to be made in the future. The Study Act would maintain the mandate under the moratorium bill to conduct an environmental study of proof-of-work cryptocurrency mining. As the bill states, part of the study will investigate the ‘energy consumption necessary for coin mining operations’ and ‘the environmental impact of coin mining operations’.
Finally, we recommend that state legislatures develop new legislation that incentivizes the use of proof-of-work cryptocurrency mining – in particular, bitcoin mining – to build out renewable and nuclear energy, and to stabilize the New York electrical grid as it brings on more renewable power. We recommend that policymakers treat cryptocurrency mining as a special case of data centers and use data center best practices as a foundation for new policies. Data centers and industrial proof-of-work cryptocurrency mining are both energy-intensive, use similar cooling techniques, and require thousands of computers to operate.
Something for the NY Assembly, State, and Governor to keep in mind – for future consideration and a comment in general on the benefits of proof-of-work mining – proof-of-work mining can alleviate issues that discourage investment in wind and solar farms such as transmission congestion, negative pricing, curtailment, and more. Cryptocurrency mining can also participate in demand response as a controllable load resource. For example, in 2020, Electric Reliability Council of Texas (ERCOT) reported for the first time that it had a meaningful amount of load that could provide this type of ancillary service. As more wind and solar come online, the electrical grid in New York and elsewhere will require similar load balancing services.
In June, the New York State Assembly and State Senate passed legislation establishing a two-year moratorium on new proof-of-work cryptocurrency mining that operates on any amount of “behind-the-meter” fossil fuel power generation. Behind-the-meter refers to a load that gets power directly from a power generator, rather than from the electrical grid. State representatives and environmental organizations argued that such operations threaten the CLCPA decarbonization goals. In reality, the moratorium bill does not reduce existing carbon emissions from behind-the-meter cryptocurrency mining and could lead to carbon leakage, a violation of the CLCPA.
Events at the Greenidge Generation Station, in Torrey, New York, catalyzed the moratorium legislation. Originally a coal plant, the station shut down in 2011 and was later converted to a natural gas generator in 2016. In 2017, Dresden mayor Bill Hall told reporters he “couldn’t be happier” about the facility, which was set to “sell capacity, energy, and ancillary services” to the New York electrical grid, known as the New York Independent System Operator (NYISO).
That same year, three local environmental organizations and the Sierra Club filed a lawsuit challenging Greenidge’s operating air permits. According to Fingerlakes1.com, “The suit asks for the permits to be annulled and new environmental reviews conducted.” The court denied the environmental groups’ requests, and Greenidge remained operational.
The plant began mining bitcoin in 2020, prompting the Sierra Club to file another lawsuit against Greenidge and the generator's hometown, Torrey. The organization claimed that Greenidge had violated several laws and that its use of lake water to cool its mining operation would raise the lake temperature and lower the fish count in Seneca Lake. The next year, Greenidge made headlines when major news outlets claimed that “a bitcoin mining operation is ruining one of the Finger Lakes.” Other headlines claimed that bitcoin mining made Seneca Lake's 4,200 billion gallons (15.9 cubic km) of water “feel like a hot tub.”
The power plant reportedly uses 134 million gallons to cool its operations or roughly 0.00319% of the lake’s volume of water. In 2017, Greenidge was approved to use up to 159,897,00 gallons of lake water as part of its electricity production needs. It is not unusual for data centers to use water to cool operations - data centers use about 6.75 million gallons per 1 MW of power. Greenidge’s water use is in line with industry standards. Nonetheless, proof-of-work cryptocurrency miners have developed more environmentally friendly, water-conserving, and energy-efficient alternatives such as immersion cooling, which uses coolants that are not water-based.
A year earlier, Fingerlakes1.com reported a steady decade-long decline in lake trout caught in Seneca Lake, which is consistent with the accelerating effects of climate change. Increasing surface lake temperature due to climate change could explain why the Lake feels “like a hot tub.” Without a definitive water quality study, other causes, such as previous industrial use or residential run-off, cannot be ruled out. For example, run-off from lake-front property septic tanks and storm drains caused increased algae blooms and reduced oxygen levels in Georgia’s Lake Lanier. These effects reduce fish stock, too.
Based on a late 2020 letter from the Committee to Preserve the Finger Lakes, Greenidge was operating at 18-20% capacity in 2017 and 2018, and at 8% capacity in 2019. In 2021, Bitcoin.com reported that 19 MW of Greenidge’s 106 MW total capacity is dedicated to bitcoin mining, accounting for roughly 5.6% of capacity. In their May 2022 quarterly report, Greenidge reported that it runs 19,400 bitcoin mining computers with approximately 78% of these housed at the New York site. Given that number of computers, a back-of-the-envelope calculation estimates the total power consumption to be closer to 44-50 MW, or around 50% of total capacity. For comparison, NYISO included approximately 41 GW of natural gas and oil-fired thermal generation, which is an order of magnitude more than Greenidge.
In their 2021 SEC filing, Greenidge reported that they sometimes curtail their mining capacity to relieve high levels of demand on the electrical grid. Today, as in previous years, the remaining amount of Greenidge’s capacity is sold to NYISO’s electricity market.
The battle over Greenidge is less about proof-of-work cryptocurrency mining and more about the future of natural gas generation in New York. In 2021, New York State denied Title V air permits for two new natural gas plants. Title V refers to the Federal Clean Air Act. In addition, NRG Energy, which owns one of the two plants that were denied permits, stated that their other natural gas plant would retire within 18 months, due to requirements under the 2019 Climate Act. There is a clear precedent for these natural gas plants to be decommissioned under existing law, and given the recent review of Greenidge’s air permits, the plant is struggling to prove it meets the new climate standards.
The CLCPA gives the DEC the power to deny air permits to natural gas plants that do not meet the CLPCA’s air quality requirements. It is likely that the DEC will deny Greenidge’s air permit, given that the Department stated that it believes that Greenidge is violating the Climate Act. The Department’s decision on the plant was delayed until June 30, 2022. Governor Hochul’s primary election was on June 28, 2022, and critics suggest the DEC’s review is being politicized. In June, Hochul reported that she received campaign donations from the cryptocurrency mining industry. Gov. Hochul also said she would delay a decision on the moratorium legislation because some unions support jobs at the cryptocurrency mining facilities.
Environmentalists argued that, without new legislation, there were potentially dozens of fossil fuel plants that could become mining operations, although there is no known evidence of plans to do so. EarthJustice listed two example plants in a 2021 letter, but these are data centers that would be built at the site of decommissioned coal plants, where the centers would utilize existing transmission lines and run using power from the electrical grid. One of them, located adjacent to a former coal plant in Barker, New York, is reportedly using electricity from a region with 90% hydropower in its energy mix. The moratorium bill does not prohibit cryptocurrency mining with power from the electrical grid.
Given the CLCPA and the DEC’s recent history of denying air permits to natural gas plants, the DECs statements on Greenidge violating the CLCPA, as well as the Orange County Supreme Court’s June 8, 2022 ruling against Danskammer Energy, it is unlikely that future expansions of power usage for behind-the-meter proof-of-work cryptocurrency mining will be approved whether the moratorium bill is signed or not.
In early June, the New York legislature passed NY State Senate Bill S6486D, which would enact a 2-year moratorium on all new fossil fuel behind-the-meter cryptocurrency mining. The same bill passed in the Assembly on April 26, 2022. The bill modifies the existing New York Environmental Conservation Law, adding an article on proof-of-work cryptocurrency mining.
In the bill, legislators wrote that cryptocurrency mining operations involve, “proof-of-work authentication methods to validate blockchain transactions.” When writing regulations for any industry, policymakers need to understand the technical foundations of its operations. In A7389C / S6586D, the bill authors unintentionally ill-defined proof-of-work operations.
Proof-of-work cryptocurrency mining does not validate blockchain transactions. The computers that are involved in proof-of-work mining include transactions in a new block. Blocks do not need to contain transactions for a mining computer to include them in the blockchain. When multiple chains are competing with each other, the one with the most work is considered the valid one. Full nodes (a computer that runs the bitcoin software), which do not compete for blocks, validate transactions, and newly created blocks. A full node in the cryptocurrency’s network can run on a low-powered computer such as a Raspberry Pi and is not energy-intensive. Incorrect definitions could create a legal gray area, which would then undermine the enforcement of regulation.
Section 19-0331-1 of the bill defines the moratorium as a two-year ban on the issuance of new air permits for proof-of-work cryptocurrency mining that uses “a carbon-based fuel and that provides, in whole or in part, behind-the-meter electric energy.” In other words, fossil fuel-based electricity generators cannot dedicate any portion of the electricity they generate to cryptocurrency mining. At the same time, this moratorium does not prevent cryptocurrency mining from using the electrical grid’s energy mix.
New York’s electrical grid has a behind-the-meter program called, Behind-The-Meter: Net Generation (BTM:NG) that allows power generators to co-locate with a host load and sell their excess power to the electrical grid. This is useful when the state experiences high electric demand days during the Summer. The legislation targets net generators like Greenidge but does not exclude other BTM:NG fossil-fuel generators, which are generally backup diesel generators and contribute to significant air pollution, as noted in a 2015 study of BTM generators in NYISO.
The bill also creates a two-year moratorium on approving applications or issuing air permits for existing behind-the-meter operations that plan to expand their energy consumption and which use electricity from power generators that use carbon-based fuels. Based on section 19-0331-2, the legislation does not prevent existing co-located cryptocurrency operations from utilizing fossil fuel-derived electricity, and as a result, does not reduce the carbon emissions or potential environmental risks that motivated the development and passage of this bill. The moratorium instead puts pressure on behind-the-meter proof-of-work cryptocurrency mining operations to expand operations out of state or to move onto the electrical grid.
Allowing existing operations to continue will not reduce carbon emissions from natural gas plants. In the case of Greenidge, the moratorium does not stop the plant from using lake water to cool its mining operation. In short, the moratorium is insufficient to address the original complaints around behind-the-meter cryptocurrency mining with carbon-fuel power generators.
Section 3 of the bill outlines an environmental impact study of cryptocurrency mining. The study will quantify the mining operations in the state, including their location, environmental impact, energy consumption, and the energy mix of the electricity they use. It will also include environmental impact studies such as water quality and ecological impact. A study of cryptocurrency mining in New York would be useful not just to the residents of the state, but also to the scientific community. However, it makes more sense to do a full impact study of all data centers in the state, as they operate at similar levels of energy consumption and can also operate behind-the-meter. Policymakers should count cryptocurrency mining as a special type of data center and include it as part of this industry.
In the previous section of this brief, we noted that in 2021, the Department of Environmental Conservation denied air permits to two new natural gas plants and that other existing natural gas plants are expected to be denied air permits because they could not meet the decarbonization standards outlined in the CLCPA. The DEC Commissioner Basil Seggos said that the 437 MW Astoria Replacement Project and the 536 MW Danskammer Energy Center project did not “demonstrate compliance with the requirements of the Climate Leadership and Community Protection Act”.
Natural Gas Intel reported that Seggos believed that the natural gas power plants “would be inconsistent or would interfere with the statewide greenhouse gas emissions limits.” He also said that the power companies “failed to demonstrate the need or justification” for these plants on top of the inconsistency with state limits.
The CLCPA requires the state of New York to make a 40-percent reduction in greenhouse gas emission levels by 2030 compared to 1990 levels. It further requires an additional 85-percent reduction by 2050.
Given that the DEC used the CLCPA standards as a reason to deny Title V air permits for natural gas plants without the need for additional legislation targeting specific technologies, we find the decision to legislate a specific moratorium on cryptocurrency mining using behind-the-meter carbon-based fuel-powered generators – generally natural gas plants – to be unnecessary.
Increasing fossil fuel consumption at existing natural gas plants would increase greenhouse gas emissions. Owners of power generators who wish to expand operations to include cryptocurrency mining would have to demonstrate greenhouse gas mitigation measures. Under CLCPA, sources in the electric generation sector are not allowed to apply for exemption from compliance with greenhouse gas emission limits.
Greenridge, the power generation plant that inspired the cryptocurrency moratorium, was granted Title IV and V air permits in 2016 and applied for air permit renewal in 2021. The Department of Environmental Conservation extended their permits while the power generator’s application was under review. On Greenidge’s entry on the DEC’s website, the DEC noted that they received over 4,000 public comments. The DEC also noted, “At this time the applicant has not demonstrated compliance with the requirements of the Climate Leadership and Community Protection Act, including requirements regarding greenhouse gas emissions.” Greenidge is currently attempting to provide evidence of sufficient greenhouse gas emission mitigation efforts.
The Department clarified its position, saying, “There are substantial greenhouse gas (GHG) emissions associated with the project. Based on information currently available, the applicant has not demonstrated that the project is consistent with the attainment of statewide GHG emission limits established in the Climate Act, nor has the applicant provided a detailed justification notwithstanding this inconsistency or proposed sufficient alternatives or GHG mitigation measures.”
In the Astoria natural gas project, the DEC received more than 6,600 public comments, and the Danskammer project received over 4,500 public comments. In the Astoria project, in particular, there was, as in the case of Greenidge, political and activist pressure to deny the permits.
Given that it is already possible and almost certain that Greenidge’s air permits will be denied, and that other behind-the-meter fossil fuel-based cryptocurrency mining will follow the same fate, we see the moratorium legislation to be unnecessary. The moratorium bill’s focus on cryptocurrency mining risks pushing existing companies out of the state and into other states that welcome these companies but do not have strong decarbonization laws. New York cryptocurrency mining is reportedly nearly 80 percent powered using sustainable energy sources.
The CLCPA requires that actions that reduce emissions in-state must not lead to increases in emissions outside of the state, otherwise known as emissions leakage. While the moratorium does not lead to reductions in existing emissions from behind-the-meter cryptocurrency mining, it does send a message to the New York cryptocurrency industry that they are not welcome. As a result, behind-the-meter cryptocurrency mining operations that could be sustainably powered in New York may end up in states that are friendlier to the industry but that have mainly fossil fuel-based energy sources, creating major leakage concerns. Additionally, states that welcome proof-of-work cryptocurrency mining and also promote sustainable energy usage will benefit from new green energy-backed jobs and additional tax revenue.
Lastly, the New York State Assembly and State Senate passed legislation in 2018 that was intended to create a task force to study the effects of cryptocurrency and blockchain technology. This was the Digital Currency Study Bill, A8783B/S9013. Due to the COVID-19 pandemic, the time limit to establish this task force expired on December 15, 2020, without the task force convening its study. However, new legislation, A9275, was introduced and passed in the Senate on June 3, 2022, and is currently waiting for a vote in the assembly. There is an overlap between the environmental study defined in the moratorium legislation and the responsibilities of the task force. While the study outlined in the moratorium legislation is fruitful and should be conducted, S6486D does not provide a broad study of blockchain technology in general. In addition to studying the effects of cryptocurrency and blockchain technology from a financial and economic perspective, the task force in A9275/S08343 is also tasked with studying the environmental impacts of cryptocurrency mining and includes the commissioner of the Department of Environmental Conservation as a member.
Since the moratorium fails to achieve meaningful greenhouse gas emission reductions, and the powers under the CLCPA are enough to deny air permits to carbon-based power generators that want to expand energy production to meet the energy demands of cryptocurrency mining, we believe that bill A9275/S08343 is a superior policy alternative.
Cryptocurrency mining should be characterized and treated as a special case in the data center industry. Like other data centers, cryptocurrency mining is energy-intensive. According to the Office of Energy Efficiency and Renewable Energy, data centers consume 10 to 50 times more energy per floor space than a typical commercial office building or about 2% of total US electricity consumption. The Cambridge Bitcoin Energy Consumption Index estimates as of June 17, 2022, that 37.8% of the bitcoin network is located in the United States, accounting for around 1% of total US electricity use. Similarly, approximately 43.5% of the world’s data centers are in the United States.
Like cryptocurrency mining, data centers’ energy consumption is projected to grow as our appetite for data and the complexity of artificial intelligence increases. We recommend that policymakers do not treat cryptocurrency mining as a separate industry, but rather as a special case of the already existing data center industry. This way, policymakers have a regulatory foundation to build on when regulating proof-of-work cryptocurrency mining.
Mining operations have additional unique properties that other data centers do not. In describing these properties, we will refer to the bitcoin network, the most well-known and popular proof-of-work cryptocurrency. When a bitcoin mining computer wins the block competition, it receives a monetary reward. In the bitcoin network, the reward is a combination of newly minted bitcoin and transaction fees. The mining software is programmed to adjust the difficulty of finding a new block so that a new block is added to the blockchain approximately every 10 minutes. The success of finding a block does not depend on past effort.
If a computer generates a block but disconnects from the network before it can be validated, the network is not disturbed because another computer that was competing in the block competition will take its place. As a result, bitcoin mining computers can connect and disconnect without negative effects on the network. Most importantly, the flexibility of the block-finding competition means that bitcoin mining operations can power up and down very quickly.
To mine bitcoin, mining operations need to meet these basic requirements:
Bitcoin mining can happen anywhere in the world that meets requirements 2 and 3, assuming that the mining operators have already acquired the computers and can easily transport them. This means that bitcoin mining is a geographically agnostic type of data center that is also a highly flexible energy-intensive load.
Bitcoin mining’s unique properties make it a suitable tool for the current energy transition and effort to reduce greenhouse gas emissions. While it is true that proof-of-work cryptocurrency mining has operated off-the-meter at natural gas and coal plants, it is not true that these are the only off-the-meter energy generating facilities where cryptocurrency mining can integrate. By exploiting its unique properties, policymakers have an opportunity to incentivize cryptocurrency mining to seek out clean energy arrangements. They can do this for both behind-the-meter and front-of-the-meter mining operations.
The Greenidge natural gas plant near Seneca Lake is an example of co-locating proof-of-work cryptocurrency mining with an existing power generator. Cryptocurrency mining has co-located with a coal remediation plant and for a short period with a coal plant located on an indigenous reservation in Hardin, Montana. The Hardin mining facility is no longer in operation due to public pressure on the cryptocurrency mining company to reduce greenhouse gas emissions.
We are now beginning to see cryptocurrency mining co-locate with renewable energy facilities. Companies like Soluna, Aspen Creek Digital, Lancium, and others are applying practices from the existing data center industry and developing new ones that are unique to cryptocurrency proof-of-work mining. Bitcoin mining, in particular, plays a prominent role in these projects.
Variable renewable energy projects suffer from demand mismatch and congestion challenges. Wind and solar face this problem because each generator can provide electricity to the grid only when the wind is blowing or the sun is shining. The generator cannot turn a dial to increase solar or wind production throughout the day like conventional fossil fuel or nuclear plants can. When there is too much power on the electrical grid and not enough demand, renewable energy power generators are forced to sell their electricity at very low or even negative prices.
Sometimes renewable power generators cannot sell their power and have to curtail or waste it, because there’s too much power available for the electrical grid to safely handle. Wasting and curtailing energy leads to a loss in revenue, which makes paying back investors difficult. When renewable energy power plants cannot send their full capacity to the electrical grid, they are not able to collect the maximum tax credits available for providing renewable energy. Sometimes, there is electrical grid transmission congestion, which happens when there is too much power on one portion of an electrical grid but it cannot be transported to another portion of the grid where there is less power available. All these problems disincentivize the development of renewable energy power generators.
Policymakers can alleviate this problem by incentivizing renewable power generators to co-locate or vertically integrate bitcoin mining operations on-site through energy tax credits to both power generators and bitcoin mining operations. The power generator can either sell all of its excess energy to a third-party bitcoin mining company, or it can integrate bitcoin mining into its company’s energy operations, sending its power to the mining computers when demand is low or congestion is high on the electrical grid.
Renewable energy additionality is also important for building out solar and wind farms. Cryptocurrency miners can help bring on more of these projects with special power purchase agreements (PPAs) that are tailored to minimize the risks of proof-of-work cryptocurrency mining. Policymakers should tailor legislation that makes these types of PPAs more readily available to the industry. These PPAs could include a requirement that a percentage of the power generated must be sent to the electrical grid.
Another way to incentivize cryptocurrency mining with renewable power would be for states to purchase bitcoin at a premium from mining companies that support existing or bring on new renewable power plants.
Behind-the-meter bitcoin mining can improve flexibility for renewable and nuclear power generators. In 2020, NYISO published a report that “stressed the importance of having a ‘large quantity of installed dispatchable energy resources needed in a small number of hours’ in order to hit emissions targets while maintaining grid reliability.” Bitcoin mining can ramp up or ramp down its power within minutes or seconds, depending on the need of the power generator or grid operator.
A power generator that cannot provide flexibility on the supply side can deliver power to an on-site bitcoin mining operation when the electrical grid does not need additional dispatchable power. When NYISO or other grids need this power to come online to maintain grid stability, the power generators can reduce power to the bitcoin mining operation and send it to the grid. Battery storage operates similarly, but batteries can only store a certain amount of power. Bitcoin mining can consume that power and produce a monetary return for an indefinite period of time in comparison. In most cases, battery storage and bitcoin mining can play complementary roles in supporting power generators and the electrical grid.
In addition to bitcoin mining providing benefits to renewable power generators, behind-the-meter bitcoin mining can also benefit the grid. NYISO has a behind-the-meter program called, Behind-The-Meter: Net Generation (BTM:NG), which would allow a renewable power generator to co-locate with a bitcoin mining load and provide power resources when needed.
Policymakers can also incentivize the decommissioning of existing fossil fuel plants using proof-of-work cryptocurrency mining. Part of the additional revenue that struggling natural gas plants receive from co-locating a mining facility could be allocated toward a planned decommission. The decommission could lead to plants converting to something else that would benefit the local community. Or some of the revenue could be used to fund the closure of leaking oil or gas wells, or toward coal remediation. The funds could also go toward converting the site to an electrical grid-based data center. While Beowulf’s Somerset center was controversial, some community members said that the town “desperately” needed the tax revenue. In this way, the CLCPA’s focus on a just transition could be met.
Demand response programs already exist in New York and other parts of the country. Demand response is when loads can control their energy consumption in response to signals from grid operators. This can happen either through real-time price signals or through other forms of communication from the grid operators to the loads. We know from speaking with members of the bitcoin mining industry that at least a few of the existing New York bitcoin mining operations participate in demand response.
Bitcoin mining operations can participate as controllable load resources. Companies like Lancium and HODL Ranch participate in Texas’ ERCOT grid as controllable load resources. Lancium in particular has demonstrated the ability to not only quickly ramp down demand but also quickly ramp up demand, providing services similar to a conventional power generator. Before 2020, no meaningful amount of load could provide these kinds of ancillary services. So far, it appears that only bitcoin mining operations like Lancium’s can achieve this level of flexibility.
As more renewable energy power generation comes onto the electrical grid, grid operators will need to turn to demand-side controllable loads to balance the grid. Policymakers should welcome bitcoin mining and other data center operations that can provide highly flexible load resources as they are already demonstrating that they can meet the needs of the new electrical grid. Legislation that incentivizes participation in demand response would attract climate-conscious cryptocurrency mining companies and increase tax revenue, all while contributing to the stability of an electrical grid with a high percentage of renewable energy power generators.
Additionally, for both behind-the-meter and front-of-meter proof-of-work cryptocurrency mining, policymakers could go beyond tax incentives to encourage these types of sustainable cryptocurrency mining. States could encourage their banking regulators to offer guidance on acceptance of cryptocurrency miners for bank accounts and services. In the case of bitcoin mining, allowing mining companies to use bitcoin as collateral for loans would make it easier for them to meet operational expenses without having to sell the bitcoin they earned from mining. States could also subsidize cryptocurrency mining that derives a certain percentage of its power from renewable energy sources.
Given the benefits of proof-of-work cryptocurrency mining and bitcoin mining, in particular, policymakers should incentivize bitcoin mining with renewable energy both behind and in front of the meter. Tax credits and payment for participation in demand response programs will encourage the mining industry to become beneficial participants in the state’s energy market and the electrical grid. Other incentives the state could implement include subsidizing companies with a higher percentage of electricity derived from renewable sources, allowing miners to use bitcoin as loan collateral, and finally, purchasing bitcoin at a premium from operations that sustain existing or bring on new renewable power generators. Additionally, profit-sharing with a fossil fuel plant that has a co-located cryptocurrency mining operation could be used to fund the plant’s replacement and a just transition.
Policymakers should utilize the strength of the CLCPA and DEC to evaluate and deny air permits to fossil fuel generators that plan to increase power generation for co-located loads such as but not limited to cryptocurrency mining unless they can demonstrate that the additional revenue from these hosted loads will be used within a certain amount of time to decommission the plant and replace it with renewable or sustainable power generation. Finally, we believe that bill A9275/S08343, which will create a task force to comprehensively study the effects of cryptocurrency on New York’s economy and environment, will have minimum negative impacts in the short term while allowing for better policy to be made in the future.
S6486D, the proof-of-work cryptocurrency mining moratorium, does not reduce existing greenhouse gas emissions from behind-the-meter proof-of-work cryptocurrency mining. This bill also sends a message to cryptocurrency mining companies that these types of data centers are not welcome in New York. As a result, this legislation could push cryptocurrency miners into states that provide tax incentives but also have high amounts of fossil fuel energy resources. Kentucky is one such state that is providing tax breaks for cryptocurrency mining operations but does not have a decarbonization law like CLCPA. Therefore, it is possible that S648D would lead to leakage and also harm the energy transition within the state. We recommend comprehensive legislation that emphasizes the power of the DEC under the CLCPA coupled with incentives for renewable and sustainable cryptocurrency mining. This approach will welcome operations that wish to participate in the decarbonization of the energy sector and in turn, incentivize the decarbonization of the cryptocurrency mining industry.
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