Biden wants cryptomining to pay utility bills

The US Department of the Interior (DOI) is pushing to crack down on companies that use oil rigs on federal land to conduct cryptocurrency mining, saying those companies must pay royalties on the gas they use.

In an advisory statement late last month, DOI officials alleged that a number of operators with oil and gas claims on federal lands in Colorado were diverting that gas to power electric generators for cryptomining operations without paying royalties to the federal government.

It’s been a win-win for cryptocurrency companies and oil drillers, but the Biden administration wants to shake up the arrangement to ensure the federal government receives its rightful royalties, although it admits it will be difficult to administer.

In recent years, cryptocurrency miners and oil drillers have increasingly begun working together to reduce waste and pollution from oil and gas fields by harnessing waste from gas flaring—for example, burning gas from a rig for safety reasons—or other otherwise useless products into energy to power the generators used to create cryptocurrency.

At the start of the Biden administration, some of the world’s largest oil drillers, including ConocoPhillips and Exxon, sought to diversify their portfolios with cryptocurrency mining, while a number of firms in the oil fields of Wyoming and Texas rushed to enter into agreements with drillers to exploit.

For both parties, such an agreement was usually a win-win. Oil drillers would receive a fee from the crypto miners and reduce waste from their operations, while the cryptocurrency miners would receive a reliable source of energy they needed to continue mining cryptocurrency and making money. And they would help save the planet in the process.

“On the one hand, cryptomining requires a huge amount of electricity, which is not environmentally friendly. On the other hand, natural gas is often discovered when drilling for petroleum resources, but due to a lack of resources or the availability of pipelines, huge amounts of natural gas will be vented into the atmosphere or burned [called flaring]”, says an article from 2021 about the practice.

“Today, however, this is normally wasted gas [called stranded natural gas] used to create cheap electricity for mining server containers stationed near drilling rigs, which are used to create cryptocurrencies. This results in reduced C02 emissions, lower costs for drillers and greater royalties going to landowners.”

However, according to DOI inspectors, much of the off-gas that some operators used to earn that money was not paid for through federal mineral taxes, an important source of revenue for oil-producing states with large tracts of federally owned land.

In short, some companies padded their bottom lines without compensating governments for the energy they used to mine the cryptocurrency, a practice critics argued is helping to make a planet-damaging industry more profitable than ever.

“Bitcoin is reviving fossil fuels in even more insidious ways,” wrote Jessica McKenzie, associate editor at the Bulletin of the Atomic Scientists, in a piece criticizing the practice last summer. “In some places, miners burn the dirtiest of dirty fuels — waste coal — to mine bitcoin, and they don’t just have the government’s blessing: They get subsidies for it.”

And on federal land, there was very little the government could do about it.

“Due to the newness of cryptomining operations, DOI currently does not have consistent guidance addressing mineral revenue collection as well as permitted land use and environmental impacts specifically related to cryptomining operations affecting lands and minerals under federal jurisdiction,” the DOI report said.

The DOI declined to comment when contacted by Newsweekand says that the report’s findings speak for themselves.

However, said Paasha Mahdavi, an associate professor in the Department of Political Science at the University of California Santa Barbara, who specializes in the relationship between the government and the oil industry. Newsweek that cryptocurrency firms and oil producers were simply exploiting a loophole in federal law designed to reduce the impact of climate change—and profit from it in the process.

“The loophole exists in the first place because, until recently, companies did not have to pay any penalties for methane that is directly vented into the atmosphere or not perfectly captured via flaring,” Mahdavi said in an email.

However, that practice may soon come to an end. The recently passed Inflation Reduction Act (IRA) includes two sections that, when passed, would apply a royalty on gas flared on-site under federal leases, meaning crypto miners would have less incentive to use the gas as an energy source, and oil companies would have to reduce methane emissions instead of “passing the buck” to avoid paying the new IRA-imposed methane taxes.

But amid recent concerns over high gas prices — and rising corporate profits — could the changes in the law potentially affect consumers’ bottom lines as they move away from a profitable solution to the methane problem? Mahdavi says yes, just not in the way anyone expects.

“It would eat into profits, but not in the same way for all firms,” ​​he said. “The major oil companies [BP, Chevron, Exxon, Shell, etc.] is already striving to reduce methane venting for safety reasons and due to pressure from stakeholders to reduce operational emissions overall. So they would bear this cost anyway, but have the money and tools to do it effectively.”

However, he noted that smaller independent firms such as Chesapeake, Hilcorp, W&T and others do not have the same resources as the larger firms and lack similar pressure from shareholders, meaning they are likely to bear a greater cost as a result of the changes and will , therefore likely to try to recoup losses elsewhere.

And their options are shrinking.

“One thing that has changed the game, though, is better methane monitoring technology,” Mahdavi said. “It’s getting harder and harder for companies to avoid the methane problem, as satellite technology and other remote sensing tools make it easier for regulators to identify non-compliant. So while there is a risk of continued crack-a-mole, the number of loopholes for companies to hide shrinking.”