Old Wells: A New Frontier for Crypto-Mining and Complaints | McGuireWoods LLP

Cryptocurrency mining is an emerging industry that must overcome the watchful eyes of local communities and regulators. This unique process uses computers to solve complex mathematical problems on a blockchain, which rewards miners with cryptocurrency but also requires significant energy resources. Cryptomining companies face praise and scrutiny when they seek energy supplies from older sources, such as coal mines, steel mills and natural gas wells.

On March 1, 2023, for example, the Pennsylvania Department of Environmental Protection (DEP) discovered that a company had allegedly placed cryptocurrency mining computers and equipment on an old pad containing four wells – even though the mining permit was still pending. Although the DEP determined that the site was not operational on the day of the visit, the township that housed the site in Elk County, Pennsylvania, claimed that operations had begun, as they had recently complained of noise disturbances and problems with the engines.

Similar fact patterns are likely to continue. Well mining, which involves the use of natural gas wells to mine, is becoming increasingly popular. Methane gas – often released into the atmosphere during the drilling process – can be captured and used to power the mining equipment. This not only generates income, but can also reduce the amount of methane released into the atmosphere.

On the positive side, the use of legacy energy sources to power cryptocurrency mining can effectively rely on abandoned resources. For example, previously closed coal mines and steel mills can be repurposed for cryptocurrency mining. This generates income and can revitalize local communities that were affected by these closures.

But the use of older energy sources for well mining also raises potential concerns. As demonstrated in the Elk County dispute, the noise the mining equipment generates can allegedly disturb local communities. The loud hums and vibrations can reportedly affect the quality of life of nearby residents, leading to noise pollution complaints. There are also possible environmental concerns related to the use of older energy sources for cryptocurrency mining. For example, claims of violation of air pollution laws may arise if the equipment used in the mining process is proven to emit pollutants into the air. Additionally, if the well miner cannot perform the necessary cleanup and plugging operations, taxpayers may be left to foot the bill. Regulations and permitting guidelines seek to mitigate these problems, but they have only gone so far with this newer application of technology.

Regulators are starting to focus much more on the impacts of cryptocurrency mining:

• Regulatory Disclosures. On March 3, 2023, US Senator Ed Markey (D-Mass.) and Representative Jared Huffman (Calif.-02) reintroduced the Crypto-Asset Environmental Transparency Act, which would require crypto mining companies to disclose their emissions and energy. use. Markey said crypto mining allegedly “sucks megawatt after megawatt from our public grids and emits sky-high greenhouse gases,” while Huffman argued that “allowing this industry to run rampant with impunity is a risk to the health and safety of our communities and our planet.” This bill is scheduled for a vote in the Senate.

• Air Quality Permits. In June 2022, the New York Department of Environmental Conservation (DEC) denied Greenidge Generation LLC’s application to renew an air quality permit related to cryptocurrency mining. Greenidge’s permit had allowed it to use a plant as a natural gas-fired “peaking” plant, and it sought to increase power generation to support crypto mining. The DEC found that Greenidge’s plans allegedly conflicted with New York’s Climate Leadership and Community Protection Act, which aimed to reduce greenhouse gas emissions.

• Mining moratoria and tax incentives. In November 2022, New York’s governor signed Senate Bill S6486D to temporarily ban fossil fuel-powered cryptocurrency mining for two years. The legislation sought to limit the use of coal-based mining, while allowing permits for operations that used alternatives to power, such as water or wind. In contrast, in May 2022, the Oklahoma Senate attempted to introduce the Commercial Digital Asset Mining Act (SB590) to provide tax exemptions for the sale of crypto mining equipment.

• Financial input. In April 2023, the World Economic Forum released a video that appeared to promote the use of cryptocurrency mining to reduce flaring. The video was seen by many as a signal of growing support for using cryptomining to reduce emissions while generating a new source of income.

The regulation of cryptocurrency mining is a complex and evolving issue. Energy, technology and cryptomining companies may continue to monitor new developments in this field, including environmental issues, regulatory oversight and disclosure requirements, potential investor and community scrutiny, and tax implications.

As shown above, companies should comply with environmental and permitting regulations, as failure to do so could result in potential legal action or financial penalties. Regulators and local communities often seek to enforce these regulations to ensure that mining is conducted in a responsible and sustainable manner. They can also pursue energy companies that knowingly sell their legacy assets to crypto mining operators, especially where the buyer has a proven history of non-compliance.