White House investigates crypto’s climate impact

March 30, 2022|Written by David Clarke|Bank of Canada, De Nederlandsche Bank, European Central Bank, Federal Reserve

The White House has opened an investigation into the climate impacts of cryptocurrencies and other digital assets. The review will look both at the environmental harm caused by such technologies, as well as how they might aid emissions reduction.

The exercise is being led by the Office of Science and Technology Policy (OSTP), and is among a number of measures in an executive order signed by President Biden earlier this month. It comes amid rising concern over the colossal carbon footprint of assets such as bitcoin, which produces 402kg of CO2 per transaction, according to De Nederlandsche Bank (DNB). This equates to approximately two-thirds of the monthly emissions of an average Dutch household.

The OSTP is seeking to understand why certain digital assets are so energy intensive, and is soliciting input on the protocols, hardware, resources, economics, and any other factors that may be relevant.

The Biden administration is the latest in a line of governments, central banks and regulators to take action on the issue. The Swedish financial supervisory authority recently called for an EU-wide ban on crypto assets that use energy-intensive ‘mining’ methods. This involves repeatedly running a computer programme to solve an encryption puzzle, which generates new cryptocurrency ‘coins’.

The OSTP review will also look at any potential energy or climate benefits from digital assets, such as opportunities for accounting greenhouse gas emissions or natural assets. A number of private sector initiatives are currently underway to use digital technologies to overhaul carbon trading, although these have been met with controversy over the integrity of the environmental benefits that supposedly underpin them.

Although researchers at the DNB were critical of the size of bitcoin’s carbon footprint, they were careful to stress that not all digital assets would necessarily face the same problem, and that alternative design choices can result in large differences in the ultimate carbon footprint per transaction.

The possibility of creating a greener form of digital money has been cited as an argument in favour of creating central bank-issued digital currencies (CBDCs). The deputy governor of the Bank of Canada said that a Canadian CBDC would benefit from the high degree of public trust in the central bank, meaning it wouldn’t have to rely on “wasteful” methods of mining.

This page was last updated March 30, 2022

Share this article