The new report titled “The Unintended Carbon Consequences of Bitcoin Mining Bans: A Paradox in Environmental Policy,” published by Juan Ignacio Ibañez and colleagues from Exponential Science and University College London, explores the complex and often counterproductive impacts of Bitcoin mining bans on global carbon emissions. 

The report argues that such bans, while intended to curb emissions by limiting high-energy proof-of-work (PoW) mining, may inadvertently escalate global emissions due to “carbon leakage” — a phenomenon where restrictions in one region lead to increased emissions in others. Let’s dive into the core findings and implications of this comprehensive study.

The Premise of Carbon Leakage

The report examines Bitcoin mining’s energy demands and its unique decentralized nature, which allows miners to relocate operations based on favorable regulatory and energy conditions. In jurisdictions where energy is derived from renewable or lower-carbon sources, Bitcoin mining’s carbon footprint is significantly lower. For example, countries like Canada and Norway use substantial hydroelectric and nuclear power, meaning that Bitcoin mining conducted within these borders is relatively low-emission compared to regions like Kazakhstan or Russia, which rely heavily on fossil fuels.

The crux of the problem arises when mining bans in low-emission countries drive miners to relocate to high-emission regions. This shift leads to an overall increase in carbon emissions, directly counteracting the environmental intentions of these bans. The study terms this a “carbon leakage effect,” drawing parallels to industries like manufacturing, where stringent regulations in one region push production to less regulated, higher-emission areas.

Source: Exponential Science and University College London

China’s Bitcoin Mining Ban: A Case Study

China’s 2021 ban on Bitcoin mining serves as a key example in the report. Once the world’s hub for crypto mining, China drove miners out due to energy concerns and worries about cryptocurrency’s economic impacts. However, the ban did not lead to an expected decline in global mining; instead, miners relocated to places like Kazakhstan, where electricity is cheaper and regulations are more lenient, but where the carbon intensity of energy sources is far higher. This relocation led to an approximately 7.4% increase in energy consumption over the first nine months post-ban and turned Kazakhstan into the world’s second-largest Bitcoin mining hub. The outcome? More power outages, increased strain on infrastructure, and a notable rise in global emissions — precisely what the policy aimed to prevent.

Calculating the Paradox: Carbon Intensity and Hash Rate Redistribution

A core component of the study involves calculating the environmental footprint of relocating Bitcoin mining activities by tracking “hash rate” — the measure of computing power within the Bitcoin network. The research team used a two-step method, beginning with a mapping of the global hash rate and identifying jurisdictions’ energy profiles to estimate the pre-ban and post-ban carbon footprints of Bitcoin mining activities.

One key finding from these calculations is that relocating mining to regions dependent on fossil fuels can increase network emissions drastically. For example, a ban in Canada, which derives a large portion of its energy from clean sources, could increase global emissions by as much as 5.6%, or 2.5 million tonnes of CO2 per year. Other low-carbon energy countries, such as Paraguay and Norway, would experience similar effects, with bans leading to potential increases of 1.9 million tonnes and 576,000 tonnes, respectively, according to the “point-of-generation” (POG) emissions metrics.

In contrast, banning mining in fossil fuel-reliant countries like Kazakhstan or Malaysia would indeed reduce emissions, as mining would likely shift to jurisdictions with a cleaner energy mix. For instance, a mining ban in Kazakhstan could reduce emissions by 7.6%, or 3.4 million tonnes of CO2 annually.

Policy Implications and Recommendations

The findings in the report challenge the one-size-fits-all approach to crypto mining regulation, which assumes that restrictions or outright bans will uniformly benefit the environment. Instead, the authors suggest that such bans may require a more nuanced policy response that considers the carbon intensity of regional energy sources and the globalized, mobile nature of the Bitcoin mining industry.

The report proposes several policy recommendations to address the unintended consequences of mining bans:

Incentivize Renewable Energy Use: Instead of outright bans, governments could incentivize miners to adopt renewable energy sources by offering tax credits, grants, or other benefits. By doing so, policymakers could promote sustainable practices within the crypto industry, allowing mining operations to continue while minimizing their environmental impact. Encourage Mining in Low-Carbon Regions: A more effective approach might involve attracting Bitcoin mining operations to regions with clean energy sources through targeted incentives. This could help meet global energy demands for mining while reducing the overall carbon footprint. Focus on Carbon Accounting and Leakage Prevention: The report also points to a broader lesson in carbon policy: regulating emissions based solely on geography can lead to policy externalities like carbon leakage, where emissions reductions in one area cause increases elsewhere. Carbon accounting that considers consumption-based emissions rather than production-based can provide a more accurate measure of global impact. Support Research into Sustainable Mining Practices: The report highlights that some miners are beginning to use off-grid and negative-emission energy sources, such as flared or vented methane, which would otherwise be released into the atmosphere. Policymakers could support the development of such technologies by funding research and establishing guidelines for sustainable mining practices.

Rethinking Bitcoin Mining Bans

“The Unintended Carbon Consequences of Bitcoin Mining Bans” underscores a critical paradox in environmental policy: well-intentioned bans on crypto mining can have adverse effects, potentially increasing rather than decreasing global carbon emissions. The study’s findings serve as a cautionary tale, illustrating how simplistic approaches to complex issues like crypto mining can lead to unintended environmental consequences. The authors make a compelling case for more sophisticated regulatory strategies that align with global emissions reduction goals and adapt to the decentralized, flexible nature of cryptocurrency mining.

This report suggests that policymakers should take a science-driven approach to cryptocurrency regulation, one that balances economic and environmental considerations while embracing innovative solutions to manage carbon leakage. For Bitcoin and other cryptocurrencies to coexist with environmental goals, policies must account for the global nature of crypto mining and incentivize practices that minimize its carbon footprint.