Earlier this month, Elon Musk arrived offered $ 100 million to fund a competition to find new ways to remove carbon dioxide from the air or water.
To win some of the money on offer, competitors must “create and demonstrate a solution that can extract carbon dioxide directly from the atmosphere or the oceans and trap it permanently in an environmentally sound manner”.
The move helped polish Musk’s green reputation, which no doubt appealed to all those buyers of his Tesla electric cars who are proud to do their part for the environment. But before swallowing this green image, both they and Tesla’s shareholders would be wise to take a closer look at how the company is actually spending their money.
Last week, Tesla announced that it had invested $ 1.5 billion of its reserves in bitcoin and announced plans to accept payments in the cryptocurrency for its electric cars, albeit “initially on a limited basis.”
Cue lots of cheers from bitcoin mavens and another surging in value to over $ 48,000 – up two-thirds so far this year. There was also talk of Tesla selling more cars by taking advantage of the pool of wealthy bitcoin speculators who like the company’s chief to pronounce their currency.
There is only one problem: it is difficult to reconcile this newfound enthusiasm for crypto with environmental awareness. Because bitcoin isn’t ecologically neutral – it’s carbon-tastic idiocy. And Musk’s cheerleading makes it even worse.
Critics deride bitcoin as useless, saying it lacks income and utility. Still, this gambler’s toy has serious environmental consequences. “Mining” bitcoin – the process by which the supply of coins is increased – requires large-scale electricity to run the affected computers. According to Dutch economist Alex de Vries, worldwide it consumes about 78 terawatt hours (TWh) per year, which is equivalent to the consumption of Chile, a country of 20 million. Every bitcoin transaction uses the same amount of power as 436,000 through the Visa payment system.
This is also not a particularly clean force. As de Vries points out, bitcoin miners are not interested in intermittent renewable energy. Having to run their machines 24 hours a day, 7 days a week, many companies operate in places with cheap coal-fired electricity, such as Iran, Xinjiang Province in China and Kazakhstan. In one instance, a US bitcoin mining group even struck a deal last fall to save a shut-down coal-fired station in Montana.
This fixation of fossil fuels creates a huge carbon footprint. According to a 2019 paper, the bitcoin network was estimated to have a carbon intensity of 480-500 g CO2 per kilowatt hour (KWh) of electricity. A comparable figure for the UK grid would be around 250g CO2 / KWh.
Tesla’s intervention is likely to worsen those numbers. Higher bitcoin prices encourage more miners to connect to the network. Cambridge University’s Judge Business School tracks bitcoin’s energy consumption. In recent days, this has risen to a level that corresponds to an annual consumption of 121 TWh – or roughly the size of the entire Dutch economy.
Of course, bitcoin isn’t the only digital service that is chewing through electricity like crazy. Silicon Valley is also a huge user. According to data from the IEA, the world’s data centers devoured about 200 TWh in 2019.
It is true that the US technology giants are now trying to curb the associated emissions by purchasing more renewable energy. But as big techs pick up more of the available green power, others will be pushed back on the dirtier things.
Musk’s allegiance to bitcoin is highly questionable. It’s hard to see how Tesla stocks can stay in a green portfolio while the company invests in bitcoin. But at the moment it has an “A” ESG rating from the index compiler MSCI.
More generally, the rise of cryptocurrencies illustrates the difficulty of reaching net zero when technology companies have such incentives to develop new energy-hungry applications (think Zoom or Netflix, for example). Silicon Valley hopes to resolve this contradiction with untested technical solutions, such as direct air intake. (Musk has even suggested sending humans to Mars as some sort of terrestrial insurance policy.) The real solution may be a bit more terrestrial. Governments may be taxing external costs to curb galloping demand.