Waking up to crypto’s threat to energy security

IN an interesting and probably long-overdue development in the United States last week, the Energy Information Administration (EIA) announced that it would start collecting energy usage data from approximately 130 “identified commercial cryptocurrency miners” operating in the US following the manifestation of a number of worrying signs about the energyintensive nature of the business and its impact on the electric power industry and consumers. Since that impact is uniformly bad, the implication of this is that new regulations are probably on the horizon.

Philippine governments have generally not been particularly attentive to policy developments in other countries that concern things that could become problems here, whether in energy or any other area, but the current government should pay attention to this. The cryptocurrency business tends to go where conditions are favorable, and without realizing it, the powers that be are steadily working toward making conditions favorable here.

Digital currencies such as bitcoin are produced — or “mined” — by massive data centers that essentially solve complex equations to add new tokens to an online network known as a blockchain. Although the entire concept of cryptocurrency is comprehensively one of the stupidest things ever created by Man, it has steadily increased in popularity and, as a consequence, required ever-greater amounts of electricity. The US is currently the center of crypto mining, thanks to relatively accessible and inexpensive electricity in much of the country and, more importantly, virtually no regulation of the business.

China used to be the crypto mining hotspot, but to its credit, the Chinese government decided a few years ago that the best way to deal with the sort of problems the US is now experiencing was to simply ban it. If the US decides to make life more difficult for the mining businesses, they will pull up the stakes and look elsewhere, and there is a very good chance that elsewhere will be here. In fact, it may already be happening; in the past six or eight months, I’ve encountered two different entrepreneurs scouting for data center locations in the Philippines, one in Clark and one in Mindanao.

What is attracting them is, first of all, the complete absence of any regulation, or even apparent understanding on the part of the government as to what might need to be regulated and how. In spite of first bringing it up several years ago, the Bangko Sentral ng Pilipinas’ policy on cryptocurrency is vague at best, and the only real attention paid to the business has been on the market side by the Securities and Exchange Commission, which has cracked down on some crypto businesses skirting securities laws.

As far as the mining side of the business, the country’s generous-toa-fault accommodation of outside investors, particularly tech investors, in economic zones is attractive, as is the loudly advertised intentions of the current government to liberalize foreign investment opportunities even further. It is true that electricity rates are uncompetitive, but this is actually a problem that is improving rapidly, particularly for business customers. The fact that a couple of likely cryptomining concerns have already been sniffing around indicates that energy costs are not necessarily a deal-breaker, at least for some. If regulation stiffens in the US and it comes down to a choice between an environment where it has become more difficult to do business, or one where it is very easy to do business but just costs a bit more, chances are the crypto miners are going to be beating a path to the Philippines’ door.

That may actually seem like a good opportunity to some people here, but they should curb their enthusiasm. In a report released along with its announcement of the new energyreporting requirements, the EIA found that crypto mining worldwide used as much electricity as the entire country of Australia in 2023, which amounted to about 1 percent of total global electricity demand. In the US, just 137 mining facilities — and there are a lot more than that in the country — were responsible for 2.3 percent of the nation’s total electricity demand, about the same as the state of West Virginia.

“As cryptocurrency mining has increased in the United States, concerns have grown about the energy-intensive nature of the business and its effects on the US electric power industry,” the EIA said. “Concerns expressed to EIA include strains to the electricity grid during periods of peak demand, the potential for higher electricity prices, as well as effects on energy-related carbon dioxide emissions.” Estimates of how much carbon dioxide emissions are attributable to crypto mining vary between 25 million and 50 million metric tons, which the EIA noted was the same amount as the annual diesel emissions of the entire US railroad industry.

The expansion of crypto operations has significantly raised the cost of electricity in states where they are concentrated, mainly New York, Texas and Georgia. In Plattsburgh, New York, which allowed the launch of a crypto mining facility in an abandoned power plant in 2018 despite fierce resistance from many local residents, monthly electric bills for consumers shot up by $100 to $200, according to the town’s mayor, prompting the local government to temporarily ban the company’s operations; the dispute is now tied up in court. In Texas, which already contends with a fragile electricity grid due to the state feeling it’s special and not wanting to be connected to the bigger national grid, the global energy consultancy firm Wood Mackenzie said crypto mining demand had driven up power rates by 4.7 percent, or an additional $1.8 billion a year, for business and household consumers.

Wood Mackenzie has been highly critical of the crypto companies, as a company executive explained in an interview with Inside Climate News. Unlike big tech companies such as

Google and Amazon, which have developed their own renewable energy systems to cut their power costs and reduce reliance on the grid, crypto miners are not only not doing this, but they are also scavenging renewable energy from everyone else by seeking out locations near to solar or wind farms. “Every unit of clean energy consumed from the local wind or solar farm is simply diverted from another customer,” the official said. “The net effect is that overall power demand on the grid goes up, which must be met by the increased dispatch of expensive and high-emission fossil generation.”

Like the regrettable POGO business, every indication is that if the Philippines just lets crypto mining happen without moving to strictly control it (or ideally, just ban it altogether) beforehand, it is going to be dragged into having to do so later after a great deal of damage has already been done. About the only way that the country could safely entertain the idea of welcoming crypto mining here would be to require every proposed data center to include its own power supply or an investment in generation capacity elsewhere in the country greater than or equal to the amount of power it would use.