I. Introduction
The past decade has seen an eruption of value in crypto currencies, with Bitcoin at the forefront, trading at a price of over $60,000 per coin at its peak in November 2021. With this eruption in value has come a similarly drastic increase in the electricity demand required to manage the secured transactions for these cryptocurrencies, with Bitcoin also a leader in the amount of electricity needed to support its transactions. Despite its growing popularity, Bitcoin’s electricity consumption continues to be one of its top criticisms due to environmental concerns over the cryptocurrency’s reliance on inexpensive and unclean energy sources (e.g., coal). During the summer of 2021, China banned Bitcoin mining, citing environmental concerns as one of its reasons and creating a displacement of what was once seventy-five percent of Bitcoin’s mining capacity. In the wake of China’s ban, miners quickly relocated to the United States, with the country emerging as the top location for Bitcoin mining operations in the world.
This transition to the United States brings with it some climate and electricity consumption concerns, as the United States’ abundance of inexpensive fossil fuels poses an attractive energy option for Bitcoin miners relocating to the region. While banning Bitcoin mining in the United States—or regulating it to the degree that effectively bans mining—might prevent mining operations from interfering with United States internal climate goals, Bitcoin’s history of resiliency makes it likely that miners would simply relocate elsewhere, possibly to countries with less clean energy than the United States and, in turn, still threaten global climate goals that the United States has pledged to support.
Fortunately, with its steady growth of renewable power sources and abundance of opportunities for clean, inexpensive electricity, the United States is uniquely positioned to transition Bitcoin’s electricity use towards renewable energy. Although the solution this article proposes will not solve Bitcoin’s high-electricity-consuming tendencies, it likely will help mitigate the negative externalities of Bitcoin mining and lay a roadmap for policymakers to incentivize miners towards supporting, rather than hindering, United States electricity goals. Furthermore, there is also the potential that cryptocurrencies like Bitcoin could replace or modify traditional banking and financial institutions, and, despite Bitcoin’s high energy consumption, recent reports have suggested that the cryptocurrency’s energy consumption is significantly less than the banking and gold industries, suggesting that if Bitcoin replaced traditional financial institutions, it may lead to less overall electricity consumption.
This article explores Bitcoin mining’s transition to the United States and answers three important questions: First, why does Bitcoin mining’s transition to the United States pose a threat to United States climate and electricity goals? Second, in what ways can Bitcoin mining synergize with renewable energy development to support, rather than hinder, these goals? And third, how can policymakers incentivize Bitcoin miners towards this mutually beneficial outcome, rather than a reliance on fossil fuels?
This article aims to answer these questions in three parts: First, this article will explain why Bitcoin mining uses so much electricity, how it funds and locates its facilities, and the threat that Bitcoin mining operations pose to United States climate and electricity goals if policymakers do not intervene. Second, this article will explore how Bitcoin mining operations can work in mutual benefit with renewable energy development and, in particular, wind energy, mitigating Bitcoin’s threat to climate and electricity goals. Third, this article will propose the implementation of Decentralized Datacenter Overlay Zones as an actionable solution for incentivizing Bitcoin mining towards a mutually beneficial, clean energy transition to the United States.
II. A Bit of a Problem for the United States
A form of cryptocurrency, Bitcoin was designed as “an alternative payment system that would operate free of central control but otherwise be used just like traditional currencies.” By implementing block chain technology that is verified through a decentralized network of “miners,” Bitcoin aims to ensure the integrity of its digital currency and its transactions through a proofing mechanism conducted by these miners. While Bitcoin was initially met with skepticism and primarily viewed as a tool to avoid government involvement in criminal black market dealings, the cryptocurrency has rapidly grown in value and prominence. Over the past eleven years, Bitcoin has grown from a price per coin of $0.08 in July 2010 to commanding a price of $68,205 on November 8, 2021. It has evolved from attracting criminals to attracting large institutional investors like BlackRock and Fidelity and from being viewed as purely speculative to being listed on the New York Stock Exchange as a futures exchange-traded fund.
While this article does not provide an analysis of Bitcoin’s impressive growth trajectory or ability to overcome setbacks, recognizing Bitcoin’s resiliency is an important factor for understanding how it poses a threat to United States climate and electricity goals, as the cryptocurrency is not likely to go away any time soon and may operate at a price that is not necessarily reflected in its cost. This section lays the initial framework for this understanding by first explaining why Bitcoin uses so much electricity. Next, this section will explore the economics of Bitcoin mining, the political and economic factors pushing Bitcoin mining operations to the United States, and why this transition threatens United States climate and electricity goals.
A. Bitcoin’s Insatiable Appetite for Electricity
Over the past decade, Bitcoin’s electricity consumption has grown to more than 121.36 terawatt-hours (TWh) per year—more than half of a percent of the entire world’s electricity use. This level of electricity consumption is more than the consumption of “Argentina (121 TWh), the Netherlands (108.8 TWh), and the United Arab Emirates (113.20 TWh),” and is so much that “the processes involved in a single Bitcoin transaction could provide electricity to a British home for a month.” Bitcoin’s high electricity consumption is ingrained in its own design and can be largely attributed to the process that it requires to verify transactions and incentive mechanisms that it provides to miners. In fact, “Bitcoin’s own website claims that ‘Bitcoin Mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady over time, producing a controlled finite monetary supply.’”
The electricity-intensive process that Bitcoin uses to verify transactions is the proof-of-work consensus mechanism, which requires a decentralized network of computers (miners) to complete math problems until one computer correctly guesses a sixty-four-digit hexadecimal number (hash). Once this number is discovered by one miner, it is then easily verified by the other miners, confirming a set of Bitcoin transactions in the process and awarding a set number of new Bitcoin currency and transaction fees to the first miner that guessed the correct hash. While mining Bitcoin was once a process that could be accomplished by a home computer, Bitcoin’s mining algorithm increases the difficulty of this guess work as more miners enter the network, ensuring approximately one hash is solved every ten minutes.
This increase in difficulty has led to only high-electricity-consuming, advanced mining computers being able to solve a hash, and, due to Bitcoin’s winner-takes-all incentive mechanism, the more computers utilized (and more electricity expended), the more likely a miner will be rewarded. By requiring large amounts of energy to verify a single transaction, Bitcoin prevents any single miner from double-spending a coin. By making it economically unfeasible that any single miner could ever control fifty-one percent or more of the computing power required to verify transactions, Bitcoin mitigates the risk that any single miner could reproduce the digital information in a coin and deceptively spend the same Bitcoin twice, thus preventing “double-spending.” Although less electricity intensive proofing mechanisms exist in other cryptocurrencies, due to Bitcoin’s decentralized nature, changing it would require “the cooperation of nearly all its users,” and therefore it is unlikely that Bitcoin will change to a less energy intensive proofing mechanism.
Bitcoin’s anti-inflationary nature further adds to its price per coin and thus incentive for mining. When Bitcoin was first created, “miners would earn 50 bitcoins” for every successful hash guessed. This payout for mining is the only way “to release new cryptocurrency into circulation” and is halved every four years, meaning that, as of “May 11, 2020, just 6.25 new [Bitcoin] are created” with every hash correctly guessed. While this halving may result in a lower mining yield, halving has consistently correlated with massive increases in price per coin. Despite lower yield for miners, higher Bitcoin price from decreased market supply leads to higher transaction fees, with miners now earning a single Bitcoin in transaction fees alone. As the value of Bitcoin rises, the profitability of mining increases, and “it is expected that [electricity] consumption will continue to rise as the price rises.”
B. Bitcoin Economics
Understanding the economics of Bitcoin is not only necessary to understand why the cryptocurrency uses so much electricity but is also necessary to understand how to correctly incentivize miners towards renewables via the Decentralized Datacenter Overlay Zones that this article proposes below. While transaction fees and the reward of newly minted Bitcoin are the financial incentives for mining, electricity cost, facility costs, and mining hardware costs are the primary expenditures associated with Bitcoin mining. This article will focus on the first two expenditures, electricity cost and facility costs, as they provide policymakers with the best opportunity to incentivize miners towards renewables.
Electricity cost is the “key driver” in Bitcoin mining operations, and studies have reported that an electricity price average of approximately $0.05 per kilowatt hour is necessary to remain profitable in mining operations. With the average electricity price across all sectors in the United States being $0.1165 per kilowatt hour in August 2021, Bitcoin miners would be unprofitable without special deals or incentives to operate. As explored below, revived coal mines and flared natural gas are enticing options for profitable electricity rates for miners in the United States; however, low-cost renewables like wind energy could also provide profitable electricity rates for miners.
“[C]limate, cost of electricity, distance to a power station, and lastly, whether or not there are opportunities to partner with the local government” are all important factors in determining the ideal location for a Bitcoin mining facility. After China banned Bitcoin mining, finding hosting facilities has become the biggest struggle for miners because of the time and difficulty it takes to build the “massive co-location data center[s]” required for mining. Facility costs can include “overheads for the maintenance of the mining farm, such as infrastructure costs and cooling facilities,” but also includes the cost of permitting and siting a mining facility. A major cost for any datacenter is building permits and taxes, and difficulties in obtaining local permits can be severe enough to cause mining operations to go bankrupt from inability to build or expand.
As explored below, the economics of Bitcoin pose a potential threat to United States climate and electricity goals when drawn towards inexpensive fossil fuel sources for power, but also can pose a solution when utilized to bolster renewable energy development. The decentralized nature of Bitcoin mining operations affords policymakers and utilities the opportunity to offer lower electricity prices for demand response that would not be available with other high-electricity-consuming operations. The financial burden of siting mining facilities also can be leveraged by policymakers to incentivize building facilities in areas that mitigate negative externalities while also collocating near clean energy sources. This article will explore these solutions in depth below and propose Decentralized Datacenter Overlay Zones as a means for policymakers to accomplish these mutually beneficial goals.
C. A Potentially Problematic Transition to the United States
Bitcoin’s progressively increasing electricity consumption from its skyrocketing price per coin has resulted in political backlash in former mining centers, making the United States the successor home for Bitcoin mining. In September 2021, “Chinese regulators declared that all crypto transactions and services were banned in the country.” After accounting for 75% of all Bitcoin computing power in 2019, by Summer 2021 China’s Bitcoin power consumption had fallen to zero. The United States has quickly grown its share of mining power in China’s stead and “now accounts for the largest share of mining, some 35.4% of the global hash rate as of the end of August [2021].” Miners are flocking to the United States for its “geographic, political, and jurisdictional stability[,]” along with its abundance of inexpensive electricity powered by renewables and fossil fuels.
Though this migration to the United States poses opportunity for new industry and the economic growth and revenue that comes with it, Bitcoin mining also brings numerous environmental risks due to its high electricity consumption. Because electricity is one of the only costs involved in mining for Bitcoin, operations are typically drawn to inexpensive sources of power, which can lead miners to rely on inexpensive fossil fuels, like coal and natural gas, to power operations when renewables cannot meet demand. This reliance on fossil fuels has been poorly received by many past supporters, with Tesla halting cryptocurrency payments for its electric vehicles in May of 2021 due to environmental concerns, despite purchasing $1.5 billion in Bitcoin earlier that year. During its crackdown on Bitcoin, China also stated environmental concerns as one of its reasons for implementing its ban, as the country saw demand for coal energy rise in areas where mining activity was concentrated.
As Bitcoin mining transitions to the United States, inexpensive electricity suitors have already begun to threaten the country’s climate goals. In states like Pennsylvania, New York, and Montana, struggling coal power plants have been revitalized by digital mining companies like Stronghold Digital Mining. Stronghold’s current coal power plant acquisition in Pennsylvania powers 1,800 cryptocurrency mining computers, and the company “plans to operate 57,000 miners by the end of 2022” by buying two additional coal waste power plants in the region. In the wake of China’s ban, the United States’ oil and gas executives have also begun to take a direct interest in Bitcoin mining, having staged a meeting with “200 oil and gas execs and bitcoin miners” in August 2021. Discussions at this meeting included utilizing Bitcoin mining to consume otherwise flared gas, as Bitcoin is a readily available consumer that does not require the construction of long pipelines. Though Bitcoin mining could be seen as a solution for otherwise wasted natural gas, a mitigator of greenhouse gas emissions from flaring, and a way to make flared gas profitable, the cryptocurrency partnering with oil and gas companies raises concerns given the carbon emissions that fossil fuels release when compared to renewables.
1. Federal and State Climate and Electricity Goals at Risk. A primary concern with Bitcoin’s transition to the United States is the likelihood of its interference with the country’s federal and state climate and electricity goals to reduce greenhouse gas emissions, transition to renewable energy sources, and conserve electricity. While it is possible for Bitcoin to aid in these goals, given miners’ current disposition towards cheap and readily available fossil fuels, it will likely be necessary for policymakers to incentivize miners towards renewable energy sources to protect climate goals. This section explores the different federal and state climate and electricity objectives threatened by the transition of Bitcoin mining operations to the United States.
By rejoining the Paris Agreement on his first day in office, President Biden signaled that the United States was refocused on its goal of “reaching net zero emissions economy-wide by no later than 2050.” Aimed at accomplishing this objective, in his first 100 days in office, President Biden announced “a new target for the United States to achieve a 50–52 percent reduction from 2005 levels in economy-wide net greenhouse gas pollution in 2030.” Though concrete federal mandates for reduced carbon emissions are lacking, the Biden administration’s perhaps most concrete action towards achieving its pledges for reduced emissions is the $1.2 trillion Infrastructure Investment and Jobs Act that was signed into law on November 15, 2021. This Act demonstrates the federal government’s commitment to lowering carbon emissions by allocating funding to numerous renewable energy projects, including “$500 million for five clean energy demonstration projects” and “$6 billion in funding for battery storage.”
Separate from the federal government’s carbon emissions policy, the objectives of the long-standing Energy Policy and Conservation Act of 1975, as amended, are also threatened by Bitcoin’s electricity appetite. As stated in 42 U.S.C. § 6201, part of this Act’s purpose is the conservation of energy supplies and improvement of energy efficiency. Congressional actions under this Act include the Corporate Average Fuel Economy standards that aim to conserve energy resources specifically through the automobile industry. Welcoming Bitcoin’s high-energy-consuming operations in the United States not only threatens carbon emissions goals, but also saps the nation of the very resources that it has long been trying to conserve.
At the state level, Renewable Portfolio Standards (RPS) often govern renewable objectives, with thirty states having implemented an RPS or other renewable/clean energy requirement. RPS policies vary by state, with some states mandating utilities derive a certain amount of electricity from renewable or clean energy sources, whereas other states’ RPS policies are simply suggestive. Most states’ requirements are listed in terms of a percentage of total energy produced, with states like New York requiring that “the statewide electrical demand system will be zero emissions” by the year 2040. These states will face challenges integrating Bitcoin mining operations into their RPS policies as they absorb growing mining operations. For example, New York’s 2040 objectives conflict with fossil fuel powerplants recently restarted in upstate New York to fuel Bitcoin mining operations.
In addition to RPSs, some states also have Energy Storage Target Solution (ESTS) goals. California, Oregon, New Jersey, New York, Nevada, and Virginia all have ESTS mandates or goals. Energy storage can provide numerous benefits to state electric grids, including electricity supply and grid operations. In particular, states view energy storage goals as “necessary complements to state clean energy and environmental policies” by ensuring grid reliability. As explained more below, Bitcoin’s insatiable appetite for electricity paired with its decentralized nature makes it capable of ramping up and down electricity demand to assist with these goals by allowing for intermittent electricity sources to be added to the grid that might not directly correlate with peak demand.
2. Localized Issues with Bitcoin Mining Operations. Beyond conflicts with state and federal policy objectives and climate standards, Bitcoin mining operations also have the potential to pose problems for the communities within which they reside. Many localities have local comprehensive climate plans with objectives similar to state RPS, like percentage reduction in greenhouse gas emissions and percentage requirements for renewable electricity, and, as with state governments, Bitcoin mining’s reliance on fossil fuels would interfere with these goals. Beyond the effects that mining can have on climate and electricity goals, however, localities must also deal with the localized negative externalities of mining facilities.
Missoula County, Montana, presents an excellent study of these negative externalities of Bitcoin mining, as the county has faced numerous issues over the past few years from mining operations, resulting in county action that has already begun to restrict further crypto mining development in the county. The county cited high energy consumption, noise pollution, and electronic waste from crypto mining operations as factors leading to its establishment of a Cryptocurrency Mining Zoning Overlay District that this article will discuss in more detail below. The county referred to the amount of energy consumed by mining operations as “grotesque,” with crypto mining operations “at one point us[ing] as much energy as one-third of all households in Missoula County at any given moment.” This massive demand on the electrical grid led to concerns over possible fires caused by overtaxed transformers, and, with proposed mining projects adding up to “1,000 megawatts of new electric load to the state,” concerns over an “unprecedented increase in electrical load” grew as well.
The transition of Bitcoin mining operations to the United States poses a real threat to state and federal climate and electricity goals and to localities and their electrical grids. With Bitcoin’s increased popularity and resiliency, it is unlikely that the cryptocurrency will lose its relevance or financial backing any time soon, and its lucrative price per coin only lends further incentive for investors to grow mining operations. Bitcoin’s electricity consumption is massive and only continues to increase, and its decentralized nature leaves little hope that the currency will change its high-electricity-consuming proofing algorithm on its own. While Bitcoin as a decentralized entity has no incentive to police itself, the United States policymakers could intervene before it is too late. While Bitcoin miners may currently be trending toward fossil fuels to power their operations, below this article discusses how policymakers can regulate and incentivize mining operations to utilize renewables that assist—rather than hinder—state and federal goals and mitigate negative externalities in localities.
III. Bitcoin Mining’s Synergy with Renewable Energy
Bitcoin’s insatiable appetite for electricity gives it the ability to “consume excess energy resources” while producing a profitable service and generating tax revenue. This ability, though concerning in the context of fossil fuels, has the potential to accelerate the development of clean electricity sources by providing a consumer capable of constant high-electricity demand. Between helping to solve the chicken-egg problem for new renewable energy project development and ensuring profitability for non-dispatchable clean electricity sources, Bitcoin mining’s constant high-electricity demand has the potential to benefit the development of clean energy sources. This section first describes how Bitcoin mining could help renewable project development by acting as an anchor tenant for remote renewable projects, allowing projects to be built before transmission lines to high-population areas are constructed. Second, this section explores why Bitcoin is particularly suited to synergize with wind energy projects at this time and how collocating these two industries could incentivize further wind development by making wind projects more profitable.
A. A Solution to the Chicken-Egg Dilemma
The chicken-egg dilemma for renewable energy project development refers to the funding conundrum between constructing renewable energy projects and building transmission lines to connect those projects to the grid. In this dilemma, renewable energy developers avoid committing funds to project development over concerns of how long it would take to build transmission lines and bring projects to profitability, whereas transmission line developers are often unable to construct lines to project sites until funds are committed. Although “low-hanging fruit” areas do exist where optimal conditions for utility-scale renewable energy development are collocated near transmission lines, many of those areas are already developed, and, for states to reach their RPS goals, significant renewable energy development must occur in remote areas where transmission lines do not currently exist.
Figure 1 below demonstrates the breadth of the transmission line problem in the United States for renewable energy development. Within the figure, “[t]he Type I areas are those in which renewable resources could be cost effectively developed using existing technologies, but are not being developed due to transmission constraints.” Due to the time required for “land acquisition, permitting, and construction” for transmission lines, the chicken-egg dilemma leaves a substantial portion of the United States’ wind, solar, and geothermal underdeveloped.
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Figure 1 (U.S. Conditional Constraint Areas)
By bringing the consumer to renewable projects, however, Bitcoin’s locational flexibility, coupled with its high-electricity demand, makes it an optimal “anchor tenant” for renewable energy project development. Unlike other high-electricity-consuming operations of similar size and scope, Bitcoin mining requires relatively low personnel given its reliance on autonomous high-powered computers to conduct mining and can operate in rural locations so long as there is inexpensive electricity and internet connectivity. By collocating Bitcoin mining operations with renewable sites, renewables project developers can ensure a degree of profitability for their projects while waiting for transmission lines to be built to high population centers and can provide Bitcoin miners with competitive electricity prices in return. Once transmission lines have been constructed and can connect projects to the grid, Bitcoin miners could either relocate to new project destinations or, as described in detail below, remain in their current location as an “energy buyer of last resort,” continuing their mutually beneficial relationship by consuming excess electricity when demand is otherwise low and ramping down operations in electricity emergencies or during peak hours.
B. Wind’s Optimal Synergy with Bitcoin Mining
While expanding the development of any renewable energy source would assist the United States in achieving its climate and electricity goals, this section explores why wind energy is in an ideal position for a mutually beneficial relationship with Bitcoin mining operations. This synergy between Bitcoin mining and wind energy presents itself on multiple fronts. First, wind is abundant at times of the day that do not normally correlate with peak electricity use, meaning that wind often provides a surplus of electricity for which Bitcoin miners could pay reduced rates. Second, wind farms are often located in rural areas that make it difficult to transmit electricity to large population centers and other consumers. In contrast, Bitcoin miners are generally free from issues when consuming energy in rural areas, and moving Bitcoin away from local areas could mitigate the negative externalities from mining centers. Third, wind energy lacks the regulatory or technological hinderances that currently constrain other clean energy sources from scaling with demand, and Bitcoin’s constant demand can allow for profitable scaling of wind, while its decentralized nature enables it to flux demand if necessary for energy emergencies.
Unlike some renewable energy sources like geothermal and hydropower that are dispatchable, wind and solar are intermittent, meaning that their “electrical energy is not continuously available due to external factors that cannot be controlled.” In the case of solar, intermittency revolves around the availability of sunlight to shine onto solar arrays, which correlates much more closely with peak grid demand than wind. Wind correlates with consumer demand less than solar because wind often blows strongest at night when most electricity consumers are asleep, resulting in the potential for negative wind prices and grid overload. These overload problems are particularly prevalent given wind’s “extremely low marginal cost.” Colocation of Bitcoin mining facilities with wind farms can solve this problem by providing constant demand for the electricity produced by wind farms. This relationship could mitigate grid overload problems by providing wind farms with a consumer capable of insatiable electricity consumption and providing Bitcoin miners with inexpensive electricity during non-peak times to lower their average electricity costs below the $0.05 threshold for profitability. This availability of a customer like Bitcoin would, in turn, make wind farms more profitable, incentivizing more wind generation to be created for use during peak demand periods where utilities would otherwise often resort to utilizing fossil fuel powered “peaker” plants to keep power flowing to the grid.
The often-rural location of wind farms also creates a transmission-loss disadvantage to the clean energy source that could be mitigated by the colocation of mining facilities. As explained above, United States wind resources are often located far from high-electricity-consuming population centers and transmission lines. Where the colocation of Bitcoin mining operations with wind farms can improve the likelihood of transmission lines being built, this colocation can also provide wind farms with a transmission-efficient energy consumer even after a wind farm gains connection to the grid. “When electric current travels across a power line from point A to point B, some current is inevitably lost,” and the U.S. Energy Information Administration estimates that transmission loss “equaled about 5% of the electricity transmitted and distributed in the United States from 2015 through 2019.” With wind farms often located in particularly rural areas, it reasonably follows that their loss from transmission is greater than the national average. However, the colocation of mining facilities with wind farms could mitigate transmission losses from long distance transmission lines.
Wind’s impressive growth over the past decade has proved its resilience to regulatory difficulties and propensity to outweigh negative externalities. While clean energy sources like hydropower and nuclear have remained fairly stagnant in their growth in recent years due to regulatory and legal challenges with citing new facilities, wind has grown astronomically. In fact, “[m]ore wind energy was installed in 2020 than any other energy source, accounting for 42% of new U.S. capacity.” Despite negative externalities like potential for bird and bat mortality in violation of the Endangered Species Act and lawsuits for nuisance or other statutory claims from turbine noise and aesthetic interference, “[t]otal annual U.S. electricity generation from wind energy increased from about 6 billion kilowatt hours (kWh) in 2000 to about 338 billion kWh in 2020.” This resiliency and propensity to grow support wind energy’s ideal pairing with Bitcoin mining centers, as it increases the likelihood that Bitcoin’s colocation with wind energy will incentivize its further development, rather than simply reducing the amount of clean electricity available to other consumers.
Bitcoin’s place as a constant high-demand consumer of wind power can increase its profitability and allow for further wind expansion. This expansion will not only lead states and the federal government closer to their climate and RPS goals but also has the potential to improve grid reliability and push states closer to meeting their ESTS goals as well. Despite being far from the conventional idea of energy storage, Bitcoin’s ability to consume all excess electricity makes it an “energy buyer of last resort,” allowing for the grid to add more renewable energy knowing that there will be a consumer even during non-peak hours. This model of absorbing excess electricity, while having the ability to act as an emergency demand-response source, has already started to be implemented in Texas, with hopes that new wind and solar projects enabled by this synergy will “ensure that there’s enough power for extreme events like ice storms and summer heat waves.” Texas proves the mutual profitability of this arrangement, as current demand response contracts with the Texas grid have afforded one 150-megawatt crypto mining center an average power cost of “below 2 cents per kwh,” well below the $0.05 per kilowatt hour requirement for Bitcoin mining profitability.
IV. Decentralized Datacenter Overlay Zones
Identifying that a mutually beneficial relationship between wind energy and Bitcoin mining can—and in some instances already does—exist is only the first step of this article’s analysis. The next step is identifying how policymakers can incentivize Bitcoin miners to adopt this cooperative relationship with renewable energy sources like wind farms, rather than the alternative of pairing with less clean energy sources. Given Bitcoin’s decentralized nature, typical environmental, social, and governance (ESG) pressures from shareholders or other related actors would likely be futile—as evidenced by Bitcoin’s relatively quick recovery from Tesla’s backlash regarding environmental concerns. Where a company may try to attract environmentally conscious investors by lowering its carbon footprint and powering its facilities through renewable energy, Bitcoin’s decentralized nature makes it impossible to mandate what types of electricity miners use, and Bitcoin’s incentive structure for miners relies solely on how much electricity is used, not what type. Furthermore, outright heavy regulation or banning of Bitcoin mining in the United States would likely do nothing more than push miners to other countries with significantly less clean energy potential, resulting in continued climate impact contrary to Paris Agreement objectives. This article’s solution of creating Decentralized Datacenter Overlay Zones (DDOZs) to incentivize Bitcoin mining to utilize clean energy sources—particularly wind—addresses Bitcoin’s unique position as a decentralized entity, while ensuring that United States climate and electricity goals are advanced.
A. An Overview of Overlay Zones
Under the Tenth Amendment to the United States Constitution, police powers are reserved to the states, and it is under these police powers that states are granted the authority to enable local governments to enact zoning laws, so long as these ordinances are not “clearly arbitrary and unreasonable, having no substantial relation to public health, safety, morals, or general welfare.” In the most general sense, localities use zoning laws to “divide land within the municipality into zones, or districts, and prescribe the land uses and the intensity of development allowed within each district.” A type of zoning law, an overlay zone is “a regulatory tool that creates a special zoning district, placed over existing base zone(s), which identifies special provisions in addition to those in the underlying base zones.” Commonly used to protect a locality’s natural resources and special features, overlay zones also can be an effective tool at incentivizing or deterring development of specific industries, depending on implementation. Overlay zones allow localities to determine areas that would be particularly advantageous for certain industry development and to “expedite and streamline the permitting process” for development in those areas. Over the past decade, overlay zones have proved to be incredibly effective tools for incentivizing the development of renewables; however, as briefly described below in the context of Missoula County’s Bitcoin mining overlay, these laws also can suppress industry growth. If implemented correctly, overlay zones have great potential to incentivize Bitcoin mining towards a clean energy solution, mitigating the potential negative impacts of Bitcoin mining’s high electricity consumption, while also fostering further clean electricity development and increased grid reliability.
Klickitat County’s Energy Overlay Zone ordinance provides an excellent example of how successful overlay zones can incentivize development. Klickitat’s overlay zone was established with the purpose of providing “areas suitable for the establishment of energy resource operations”—particularly wind and solar development—and provided special permitting to expedite development. Klickitat’s ordinance proved to better attract renewable energy development than anticipated, resulting in seventeen operational or permitted wind projects in four years, versus the county’s initial projection of four new wind projects in twenty years.
On the other hand, Missoula County’s February 2021 Cryptocurrency Mining Zoning Regulations took an exclusionary zoning approach that has discouraged further Bitcoin mining in the area. Missoula’s regulations establish multiple special conditions for cryptocurrency mining operations, such as requiring mining facilities to “develop or purchase sufficient new renewable energy to offset 100 percent of electricity consumed,” limiting in which zoning districts mining facilities can be located, requiring review as a “conditional use” or “special exception,” and requiring waste verification and handling by “a [Montana Department of Environmental Quality] licensed electronic waste recycling firm.” These restrictions quickly led to the bankruptcy of one mining operation in Missoula County and will likely make it economically unfeasible for new mining operations to plant roots in Missoula.
B. Considerations for the Implementation of DDOZs
The Decentralized Datacenter Overlay Zones (DDOZs) that this article proposes will require a balance between the growth-oriented incentivization of Klickitat County’s Energy Overlay Zone and the over-restrictiveness of Missoula County’s Cryptocurrency Mining Zoning Regulations. DDOZs must be attractive enough to make mining economically feasible—if not more profitable than carbon producing alternatives—while still moving the needle towards federal and state climate and electricity goals and mitigating negative externalities in localities. Like Klickitat County’s overlay zone, these DDOZs will expedite permitting for high-electricity-consuming decentralized datacenters (i.e., Bitcoin mining facilities), while requiring their commitment to using a minimum threshold of renewable energy to meet their electricity needs. This article identifies three specific categories of requirements that all DDOZs should contain—location, renewables, and demand response capability—and provides recommendations for policymakers to consider when drafting and implementing these ordinances.
1. Location. A primary concern for both renewable projects and mining facilities, the location of DDOZs will be critical for ensuring that these overlay zones incentivize development that is mutually beneficial and in line with federal and state climate and electricity goals. Before creating Energy Overlay Zones, Klickitat County surveyed its territory via a broader Environmental Impact Statement. Like Klickitat, policymakers will need to survey their respective localities’ land to determine optimal locations to place their DDOZs. Variables like proximity to existing renewables (such as wind farms) and areas ripe for renewable development, proximity to cleaner dispatchable electricity sources, and proximity away from population centers or other high-electricity-consuming industries should all be considered.
As discussed above in the context of wind and other renewable project development, transmitting renewable energy to consumers is a primary area of concern for renewable development profitability. Building large-scale transmission lines is an “onerous” process, requiring numerous permits, that suppresses current development. Locating Bitcoin mining facilities near renewables like wind farms provides a high-demand consumer while minimizing transmission infrastructure requirements. Furthermore, siting Bitcoin mining centers near renewables increases the likelihood that miners will utilize clean energy over fossil fuels.
That said, policymakers also may want to consider which dispatchable power sources are near DDOZs as well. Though it is possible for Bitcoin mining to be profitable strictly from the use of intermittent renewables like wind, policymakers may want to avoid limiting miners to only one intermittent source of renewable electricity, as this may not be lucrative enough to incentivize mining relocation. Instead, policymakers also should consider the location of dispatchable power sources to supplement intermittency, all while being cognitive of the balance between the availability, affordability, and carbon output of these sources. Identifying remote areas where intermittent renewables like wind and solar are collocated near dispatchable renewables like hydropower and geothermal would be ideal.
Proximity away from population centers is also an important consideration to minimize negative externalities while maximizing Bitcoin’s ability to add profitability to wind farms as a high-demand consumer. Wind farms that are located near population centers and high-demand industry would need Bitcoin less to increase their profitability, as they already have a steady supply of consumers. Furthermore, colocation with population centers increases the number of people affected by externalities like noise or electronic waste. Bitcoin is unique in its almost sole reliance on electricity, with little need for personnel and marginal need for Internet connectivity, and policymakers should leverage Bitcoin’s independence from the typical locational demands of other industries when deciding where to place DDOZs.
2. Renewable Requirements. A requirement to consume a certain percentage of renewables is necessary to ensure that Bitcoin datacenters do not take advantage of a DDOZ’s ease of permitting to then rely solely on fossil fuels. DDOZ renewable requirements should, at a minimum, define what counts as a renewable or clean electricity source, as well as state what percentage of the permitted facility’s electricity consumption must come from renewables or clean electricity sources. On the one hand, because one of the desired outcomes of DDOZs is to incentivize progress toward state RPS, a locality could use the same defined renewable or clean energy sources included in their state’s RPS. On the other hand, policymakers may want to make their qualifying renewable list more exclusive to encourage the development of certain types of renewables.
Choosing the mandated percentage of renewable electricity requires policymakers to balance state and federal climate goals and Bitcoin mining economics. Policymakers need to ensure that they do not overly restrict Bitcoin mining operations as Missoula County did with their 100 percent renewable requirement, while also disincentivizing Bitcoin data centers from revitalizing fossil fuel powerplants as in upstate New York. Policymakers will need to consider their state’s RPSs in addition to federal climate goals, the sources that have the most potential for renewable development in their own localities, and what requirements are feasible given these considerations.
Rather than placing the responsibility on Bitcoin miners directly to ensure that their facilities are sourcing their electricity from a certain percentage of renewable or clean sources, state policymakers could instead require that utilities directly deal with Bitcoin miners to ensure adequate progress towards climate goals. One of Wyoming’s recently enacted crypto friendly laws provides an example of how policymakers could structure their renewable requirements. Under Wyoming House Bill Number 0113, “[a]n electric utility may directly negotiate with any customer having a projected electric usage greater than five megawatts for services provided under a tariff approved by the Public Service Commission” so long as the arrangement “provides benefits to other customers without imposing any additional direct or indirect costs upon them now or in the future.” In a similar manner, state policymakers could empower utilities to coordinate directly with Bitcoin miners and either require the utility to meet a certain quota of renewable consumption in their negotiations or simply mandate that the utility continue to meet state RPS targets regardless of its dealings with Bitcoin miners.
3. Demand Response Capability. Policymakers should require that mining datacenters have the capability to lower demand for set periods of time to qualify for a permit to locate in a DDOZ. Bitcoin mining’s distinctive capability to act as an “energy buyer of last resort” enables it to support state electricity reliability and ESTS goals. As suggested by the DDOZ acronym, high-electricity-consuming, decentralized datacenters, like Bitcoin, provide an invaluable benefit that other data centers cannot. Due to its decentralized nature, when one miner stops operating, Bitcoin automatically revises its hashing algorithm to ensure that one hash is correctly guessed every ten minutes, and mining continues seamlessly, making Bitcoin not dependent on any one miner or even any large group of miners. Typical datacenters, on the other hand, require incredible amounts of reliability due to the constant demand of clients, whose systems or servers are relying on the datacenter for 24/7 operation, thus requiring constant electricity to power their operations. Bitcoin mining facilities could, therefore, enable grid operators to welcome more renewable electricity because mining facilities will absorb excess power during low periods—preventing grid overload and ensuring profitability for renewable projects—and then be capable of quickly lowering throughput during peak demand periods or electricity emergencies.
In jurisdictions that allow for time-of-use pricing or other demand response ratemaking, utilities could financially incentivize Bitcoin mining facilities to fluctuate their electricity consumption as price of power fluctuates. For Bitcoin data centers that are already collocated near inexpensive wind power, this would incentivize them to consume maximum power during non-demand periods but to avoid using power when more expensive fossil-fuel-powered peaker plants are operating.
By modifying operations to benefit from time-of-use pricing or demand response programs like those that have already been employed in Texas, Bitcoin’s decentralized nature allows its mining facilities to support electricity reliability and ESTS goals. As with the other recommendations in this article, the key concern for policymakers when implementing DDOZs is to ensure that requirements placed on Bitcoin mining centers allow for profitability and financially incentivize mining operations for the mutual benefit of all parties. Policymakers should consider a careful balance between leveraging Bitcoin’s ability to assist demand response in times of emergency and requiring Bitcoin mining operations to be shut down during peak hours. Negotiations between utilities and miners would likely find the correct balance, and therefore policymakers should require mining operations to power down during emergencies to qualify for a DDOZ but be careful not to take bargaining power away from mining facilities during these negotiations by mandating too much.
V. Conclusion
Bitcoin mining’s transition to the United States poses a threat to climate and electricity goals that cannot be mitigated by conventional means like an overarching ban or ESG pressures. Although some articles have proposed solutions to mitigate the damage caused by Bitcoin mining’s electricity consumption by regulating Bitcoin mining computers or amending the tax code to consider electricity consumption and environmental impact, this article proposes Decentralized Datacenter Overlay Zones (DDOZs) as a potential win-win solution for Bitcoin mining and United States climate and electricity goals. By understanding Bitcoin mining’s unique position as a decentralized, high-electricity-consuming datacenter, policymakers can synergize Bitcoin mining with renewable energy development to leverage Bitcoin miners to help, rather than hinder, United States climate and electricity goals.
Where Bitcoin mining requires ample electricity at a low price, renewable energy project development requires a customer that can purchase electricity in remote areas and, in cases like wind energy, pay for electricity when demand is otherwise low. This not only has the potential to incentivize further renewable energy development in furtherance of state and federal clean electricity goals but also has the ability to increase grid stability by providing utilities and grid operators with a consumer capable of flexing power consumption with grid demand. Furthermore, by acting as an “electricity consumer of last resort,” Bitcoin mining also can operate as a type of electricity storage mechanism, aiding state ESTSs and helping prevent future electricity emergencies.
Bitcoin’s insatiable appetite for electricity is undoubtedly concerning and, given its resiliency, rapid rise in price per coin, and growing popularity, this concern does not appear to be going away anytime soon. With Bitcoin mining now prominently entrenched on United States soil, however, policymakers now have the opportunity to influence mining operations towards a mutually beneficial outcome. By implementing DDOZs with the locational, renewable, and demand response considerations explained above, policymakers can ensure that Bitcoin mining supports, rather than threatens, United States climate and electricity goals or, at a minimum, ensure that the threat from Bitcoin mining’s electricity consumption is mitigated.
