Energy-sucking crypto mining, data centers targeted for new regulations

Cryptocurrency mining, an electricity-hogging aspect of the digital currency industry, faces new scrutiny and regulation from Democratic-led states that are phasing out the use of greenhouse gas-emitting energy sources.

While red states such as Texas welcome crypto mining, New York recently enacted a two-year moratorium on new crypto mining operations that seek to repurpose existing fossil fuel plants.

In Washington State and Oregon, Democratic state lawmakers are advancing legislation aimed at ensuring crypto mining operations — and other electricity-intensive industries like data centers — cannot do an end-run around clean energy laws.

“It’s super important that we ensure that energy use in this state is 100% clean and this bill helps us get there,” said state Rep. Beth Doglio (D), the sponsor of the Washington State proposal.

Crypto mining is the process of generating new cryptocurrency by solving complex math problems using high-powered computers. The mining process serves to ensure the accuracy of the blockchain ledger that undergirds a cryptocurrency’s network.

The traditional way of doing this work, known as proof-of-work, requires huge amounts of electricity. A newer approach adopted by the Ethereum blockchain does not.

The move to corral crypto mining, along with other electricity-sucking industries, comes as nearly half of states have adopted plans to transition to carbon-free electricity sources by 2050 or sooner.

Those phased-in plans typically place the burden on utility companies to find alternate sources of energy. But there is growing concern that large-utility customers including digital asset mining operations could undermine the rules by purchasing fossil fuel-based electricity directly from the open market.

“We want to build a clean energy economy that uses a lot of clean electricity,” said Glenn Blackmon, manager of the State Energy Office at the Washington State Department of Commerce. “It’s not a clean energy economy if the electricity is generated using fossil fuels.”

A 2019 Washington State law, the Clean Energy Transformation Act, requires utilities to end their reliance on greenhouse gas-emitting energy sources by 2045 or face penalties. The law also applies to nonresidential customers of investor-owned utilities that purchase electricity directly from the source. But as currently written the law does not apply to nonresidential customers of public utility districts and other customer-owned utilities.

“It’s a loophole in the existing law, one that as far as we can tell nobody has made use of that yet, but we’re hoping to close it before that happens,” Blackmon said.

This year, the Washington Department of Commerce is asking state lawmakers to pass a bill that would extend CETA requirements to nonresidential ratepayers of customer-owned utilities as well.

Blackmon said the impetus for the proposed change in the law was a digital asset mining operation in rural northeast Washington State that took over a former newsprint mill. In that remote corner of the state, electricity comes from a public utility district that Blackmon said cannot meet all the electricity needs of the mining operation.

“There’s nothing in the existing law that would keep them from buying coal power from Montana or natural gas power from another state,” Blackmon said. “So it seemed like it was not adequately covered in the law, this particular circumstance.”

Merkle Standard, the company behind the Washington State mining operation, did not respond to a request for comment. The company says on its website that it has prioritized renewable energy at its sites in Washington and South Carolina.

In Oregon, state Rep. Pam Marsh (D) is a prime sponsor of legislation this year that would require certain crypto mining operations and data centers to meet the state’s schedule for reducing reliance on fossil fuels.

“We’re really focused on data centers and crypto mining because they’re so gargantuan,” Marsh said. “These giant users should be held accountable individually.”

Marsh pointed to recent news reports that Amazon is considering powering its Oregon data centers with natural gas-powered fuel cells.

So far, the data center and crypto mining industries have not weighed in publicly on the Washington and Oregon proposals.

The Washington bill passed out of committee this month after a public hearing that drew no testimony in opposition. Marsh expects her bill to get a hearing later this month.

Crypto industry groups did not immediately respond to a request for comment from Pluribus News. But the industry opposed the New York moratorium when it passed last June.

“In a state that already presents challenges to doing business, enacting this prohibition on new mining operations in New York sends a clear signal that the crypto industry is unwelcome in the state,” the Blockchain Association trade group said in a statement.

The legislative efforts come as the cryptocurrency industry reels from recent high-profile collapses. Bitcoin, the most common digital currency, has struggled to regain its value after a steep drop that began in November 2021.

China is the world’s crypto mining capital, but it also has taken steps to rein in the industry because of concerns about the environmental and energy effects.

Congress is eyeing those effects as well. In December, Sens. Edward Markey (D-Mass.) and Jeff Merkley (D-Ore.) sponsored legislation to require certain crypto mining operations to report their carbon dioxide emissions under the Clean Air Act.

A recent White House report on the climate and energy implications of crypto assets found that the U.S. is host to roughly one-third of global crypto-asset operations, which use about as much electricity as it takes to light all of the homes in the country.

New York, Kentucky, Texas and Georgia are the leading crypto mining states with more than 60% of the recorded activity, according to the Cambridge Bitcoin Electricity Consumption Index.

A decade ago, the Pacific Northwest, with its abundant and cheap hydropower, was also a big draw for the industry. But that “crypto boom” has cooled and much of the action has moved elsewhere. Even so, Blackmon, with Washington’s energy office, said industry demand for large amounts of electricity will only increase in the coming decades.

“We’ve seen really a lot of interest in using a lot more electricity for some novel things, and cryptocurrency is only one of those,” said Blackmon, giving the example of hydrogen production by electrolysis.