Panel sends 2 crypto mining bills to full House

Two bills meant to strengthen regulations on cryptocurrency mining in Arkansas easily cleared a House committee on Tuesday at the state Capitol.

The House City, County and Local Affairs committee voted to approve Senate Bill 78 and Senate Bill 79 after more than two hours of discussion and questions from lawmakers about the contents of the bills. Senate Bills 78 and 79 are sponsored by Republican Sens. Joshua Bryant of Rogers and Missy Irvin of Mountain View, respecively

While the proposed legislation passed with near-unanimous approval, some lawmakers expressed concerns over sections of both bills, including their ability to address issues around noise generated by crypto mining facilities, the consequences around restrictions of foreign investment in crypto mining operations and who receives awards from actions taken against businesses found to violate these rules.

Both bills will go before the full House of Representatives during Wednesday’s floor session. If approved, the proposed legislation will go to Gov. Sarah Huckabee Sanders’ desk and would become effective immediately upon her signature because of their emergency clauses.

Senate Bill 78 would require that crypto mining operations “apply noise-reduction techniques,” such as using liquid cooling and “fully enclosing the envelope.” The latter technique involves enfolding the space where noise from a crypto mining business is directly produced around all sides, including above and below the equipment that produces the sound.

According to the bill, a crypto mining facility may use a passively cooled, premanufactured container without enclosing the space in a complete envelope if the business locates or relocates to a site that is at least 2,000 feet from the nearest residential or commercial use structure, or an area zoned for industrial use or “an otherwise approved use.”

A person who owns land within 2,000 of the nearest property line of a crypto mining business may file a lawsuit in circuit court to enforce the noise-reduction techniques listed in the proposed legislation.

Bryant has said his bill attempts to “clarify local control and make sure that local control does have the authority to regulate within their jurisdictions.” It also clarifies that people “acting in their individual capacities” have the right to crypto mining within their home, which the senator labeled a hobby.

Senate Bill 79 would require crypto mining businesses to get a permit from the Oil and Gas Commission to operate. Irvin has said the bill “provides a state presence of regulatory oversight” to crypto mining operations.

The proposed legislation

aims to amend portions of Act 851 of 2023, known as the Arkansas Data Centers Act. Act 851 hindered the ability of cities and counties to regulate crypto mines. While the law easily passed last year, many lawmakers have since called for greater regulation of such facilities after noisy crypto mining operations sprouted up around the state.

Among those is Bryant, who sponsored Act 851.

Speaking alongside House sponsor Rep. Rick McClure, R-Malvern, Bryant said Act 851 was meant to address the crypto mining industry’s worries over seeing other states and localities starting to “creatively ban these facilities based on a misunderstanding” of what such sites did.

Industry advocates asked that Arkansas not “capriciously” push them out of business after following the state’s laws, Bryant said. He said he believed the request was reasonable, but that it later became clear Act 851 did not adequately provide local governments with the resources necessary to address crypto mines that have become nuisances because of noise or other concerns.

Senate Bill 78 strikes “any language of Act 851 that deals with the inability for a county to change its ordinances or add ordinances that affect the nuisances of crypto mines,” he said.

According to Bryant, the bill approaches crypto mining regulation in a similar manner to how lawmakers addressed race tracks in the 1990s. At that time, legislators passed statewide regulations on race tracks because individual counties didn’t know how to deal with the use of land that creates nuisances for residents.

Irvin, meanwhile, described Senate Bill 79 as a “constituent-driven bill.” She said the intention of the bill is not to be overly burdensome, but to provide a measured approach to establishing state-level regulation of the industry.

The bill’s House sponsor, Rep. Jeremiah Moore, R-Clarendon, said Senate Bill 79 provides a necessary complement to the other bill by establishing additional controls at a higher level of government.

“My county of 7,000 people should not be forced to go through the courts to make sure that companies and businesses comply with state law,” he said.

PROHIBITED FOREIGN PARTIES

Lawmakers directed several questions at language in both bills that prevent certain “prohibited foreign parties,” such as China and other entities subject to the International Traffic in Arms Regulations, from owning crypto mines in Arkansas. Under both bills, a prohibited foreign party-controlled business includes one in which the party possesses an “ownership interest of greater than zero percent.”

As of October, Chinese investors operated at least three mines in Arkansas, according to the New York Times.

Because of the bills’ emergency clauses, both would become effective immediately upon Sanders’ signature. Crypto mining businesses in operation before the bills become law would have 90 days to comply once the legislation goes into effect. Any prohibited foreign party-controlled business operating a crypto mine in Arkansas before the bills become law would have one year to divest all interest in that enterprise.

Civil penalties and damages received by the attorney general’s office under the section on foreign party-controlled businesses would be equally split between the state Oil and Gas Commission fund and the attorney general’s office, according to the bills.

Rep. Frances Cavenaugh, R-Walnut Ridge, asked why none of the money would go back to local governments or entities “that have to take the brunt” of issues caused by crypto mining.

Bryant answered the Arkansas Department of Energy and Environment, as well as Attorney General Tim Griffin’s office, would be the figures to investigate and enforce compliance with the rules.

“I think our intent is to send a clear message that those that fall under foreign ownership will be forced to divest, and if they don’t, damages will apply,” Bryant said.

Rep. Andrew Collins, D-Little Rock, criticized what he described as a chilling effect the bills could have on foreign investments and immigration. Rep. Ashley Hudson, D-Little Rock, similarly questioned the effects of the restrictions on local parties.

When asked by Hudson whether a party operating in Arkansas would be forced to divest if its country becomes a prohibited foreign party at a later date, Bryant said he believed so but that he did “not know the answer to that today.”

Hudson asked if the rule might create a constitutional issue under the Equal Protection Clause, to which Bryant said he believed the attorney general would be willing to weigh in on the issue.

Faced with similar questions from Collins over the prohibited foreign parties rules, Irvin said she trusts the list of those subject to the International Traffic in Arms Regulations.

“There’s a reason why they’re on that list,” she said.

Rep. Mindy McAlindon, R-Centerton, asked why Senate Bill 78 doesn’t specify an acceptable noise level for crypto mining operations, relying instead on language that describes an acceptable level as one “that is acceptable to a reasonable person under similar standards.”

Bryant cited sudden changes in noise levels caused by such factors as temperature or wind direction, and that any language placed in the bill that specified a decibel level would result in governments “continuously pursuing something that isn’t pursuable.” Instead, they were advised to use the “reasonable” standard, he said.

“We’re going to let the industry, through their own material basically and the judgment of the courts, determine what is a reasonable nuisance,” Bryant said.

The committee did not provide members of the public an opportunity to speak for or against the bills before lawmakers approved the bills. Collins said after the meeting he believed he was the only committee member to vote against the proposed legislation.

Two members of the Committee to Protect Arkansas County who attended the meeting said they were in favor of the bills.

“I think everybody’s moving in the same direction, trying to do what’s in the best interest of Arkansas and the citizens to protect our rights,” said Jerry Lee Bogard, a landowner who initially signed up to speak on the proposed legislation.

“None of us two years ago anticipated getting involved in this process, but here we are, and I think we’re working toward a constructive solution,” Bogard added.

Tami Hornbeck of DeWitt said it was “heartening to realize that we now have a legislative body that’s way more aware of the issues and concerns that we have for our communities, and they were willing to tackle those, and we appreciate them coming together during the fiscal session to do that.”