Crypto-assets are a threat to the climate transition – energy-intensive mining should be banned

The most common method for producing crypto-assets requires enormous amounts of electricity and generates large CO2 emissions. Crypto-asset producers are keen to use more renewable energy, and they are increasing their presence in the Nordic region. Sweden needs the renewable energy targeted by crypto-asset producers for the climate transition of our essential services, and increased use by miners threatens our ability to meet the Paris Agreement. Energy-intensive mining of crypto-assets should therefore be prohibited. This is the conclusion of the director generals of both the Swedish Financial Supervisory Authority and the Swedish Environmental Protection Agency.

The social benefit of crypto-assets is questionable. The Swedish Financial Supervisory Authority, like other international organisations such as the International Monetary Fund and the US Federal Reserve Board, considers that there are aspects of crypto-assets that are problematic. The consumer risks are significant, and crypto-assets are commonly used for criminal purposes such as money laundering, terrorist financing and ransomware payments. Crypto-assets also have a significant negative impact on the climate as mining leads to both large emissions of greenhouse gases and threatens the climate transition that needs to happen urgently. This is alarming, and crypto-assets therefore need to be regulated.

The University of Cambridge and Digiconomist estimate that the two largest crypto-assets, Bitcoin and Ethereum, together use around twice as much electricity in one year as the whole of Sweden. Crypto-production's high energy consumption is due to its mining process, which is called proof of work. Anyone who wants to mine assets competes to solve an encryption puzzle, and the winner receives new crypto-assets as a reward. The only way to solve the puzzle is by repeatedly running computer programs that guess the right answer. When a large number of crypto-producers' computers work simultaneously, the demand for electricity soars.

As the value of crypto-assets such as Bitcoin rises, more producers are incentivised to join the competition. This automatically increases the difficulty of the encryption puzzle. This in turn means that individual miners will require more electricity to solve the puzzle, and will therefore increase overall electricity consumption and carbon emissions. We see clearly that the more expensive Bitcoin becomes, the more emissions it generates.

Digiconomist estimates that crypto-assets at their current market value lead to release of up to 120 million tonnes of CO2 in the atmosphere per year. To get a better sense of this number, we can compare it with emissions from long-distance flights. Using the aviation industry's own data from ICAO Carbon Emissions Calculator and adding the high elevation effect shows that the emissions from the two largest crypto-assets' today is equal 100 million round-trip flights between Sweden and Thailand.

The reason for the industry's large carbon footprint is that the majority of crypto-production takes place in countries with low energy prices and a high share of fossil-dependent electricity production. Since the value of Bitcoin has increased so much, this has also extended the life of old fossil-based energy producers.

Due to the increased focus on CO2 emissions and in light of China's recent Bitcoin prohibition, a greater number of crypto-producers are exploring the possibility of using renewable energy for mining. Crypto-producers are therefore turning their attention to the Nordic region, where prices are low, taxes for mining-related activities are favourable, and there is good access to renewable energy. We are already seeing crypto-producers establish themselves in northern Sweden. Between April and August this year, electricity consumption for Bitcoin mining in Sweden increased by several hundred per cent and now amounts to 1 TWh annually. That is equal to the electricity of 200,000 Swedish households.

If we were to allow extensive mining of crypto-assets in Sweden, there is a risk that the renewable energy available to us will be insufficient to cover the required climate transition that we need to make. This energy is urgently required for the development of fossil-free steel, large-scale battery manufacturing and the electrification of our transport sector. Based on estimates from Cambridge University, it is currently possible to drive a mid-size electric car 1.8 million kilometres using the same energy it takes to mine one single bitcoin. This is the equivalent of forty-four laps around the globe. 900 bitcoins are mined every day. This is not a reasonable use of our renewable energy.

Our conclusion is that policy measures are required to address the harms caused by the proof of work mining method. It is important that both Sweden and the EU can use our renewable energy where it provides the greatest benefit for society as a whole.

There are several different policy options available. For instance, Sweden and other countries could introduce a tax on the energy-intensive production of bitcoin. Another option is to communicate more widely around the climate problems related to crypto-assets, in the hope that this will lead to both producers and investors demanding a shift to mining methods that require less energy. Given the rapid growth and demand for crypto-assets, neither of these options are likely to address the environmental harm we see from this mining method today. The emissions need to stop here and now, and renewable energy needs to be used for the climate transition of essential services.

We therefore call for:

  1. The EU to consider an EU-level ban on the energy-intensive mining method proof of work. There are other methods for mining crypto-assets, that could also be used for Bitcoin and Ethereum, that are estimated to reduce energy consumption by 99.95% with maintained functionality.
  2. Sweden to meanwhile introduce measures that halt the continued establishment of crypto-mining production using energy-intensive methods.
  3. That companies who trade and invest in crypto-assets, that were mined using the proof of work method, cannot be allowed to describe or market themselves or their activities as sustainable.

There is a risk that these measures will lead to crypto-producers relocating to other countries, potentially resulting in overall higher emissions of carbon. But it is important that Sweden and the EU lead the way and set an example in order to maximize our chances of meeting the Paris Agreement. We should also strongly encourage other countries and regions to follow suit.

A ban on the proof of work mining method within the EU could be an important first step in a global move towards a greater use of more energy-efficient crypto mining methods. It would also mean that our renewable energy is used as efficiently as possible in order to support the transition towards climate neutrality.

Erik Thedéen, Director General at the Swedish Financial Supervisory Authority
Björn Risinger, Director General at the Swedish Environmental Protection Agency