States are debating whether to restrict – or invite – crypto mining

SEATTLE – As cryptocurrency mining faces increased scrutiny on Capitol Hill in Washington, DC, some state lawmakers are considering proposals to restrict the industry over growing concerns about energy use. However, other states are pushing bills to protect cryptocurrency miners from such crackdowns, citing the economic potential of hosting mining operations.

Last year, New York became the first state to restrict cryptocurrency mining based on energy use. Lawmakers passed a two-year moratorium on new mining operations that use electricity directly supplied by fossil fuel plants. The bill was drafted in response to mining companies repurposing aging coal and gas facilities to power their operations.

“Can we meet our climate goals while adding cryptocurrency mining to our network?” asked Assemblywoman Anna Kelles, a Democrat who sponsored the bill. “It’s an important question.”

The measure also commissioned a study, conducted by the New York Department of Environmental Conservation, to look at the industry’s environmental impacts. Kelles said it will investigate air and water pollution, as well as the potential for cryptocurrency mining to divert renewable energy resources from existing demands and increase the load on the state’s transmission infrastructure. The study could guide future legislation and regulation, she said.

Now, some lawmakers in Washington and Oregon want to extend emissions and clean energy standards to cryptocurrency mining that is currently exempt.

Cryptocurrency mining is the process by which bitcoin and other types of digital money verify transactions and generate new coins. “Miners” operate the computers that contribute processing power to a decentralized network that verifies virtual ledgers by solving complex equations generated by the currency’s protocol. The miners who are the first to process these equations are rewarded with newly minted coins, or cryptocurrency.

But lawmakers in many states see the industry’s growth as a good thing.

“We need to plant our flag now as a pro-crypto state,” Missouri state representative Phil Christofanelli, a Republican, said in an interview with State line. “It’s going to continue to grow, and we want Missouri to be open and welcoming to this new form of innovation and industry.”

Christofanelli has sponsored “right to mine” legislation that would prohibit local governments from restricting cryptocurrency mining. The bill would also exempt cryptocurrencies from property taxes and specify that digital currencies do not need the same license required for banks.

The bill, which passed out of committee earlier this month, is similar to measures proposed in Montana and Mississippi this year. The Montana bill, which passed the state Senate last month and is awaiting a House hearing, would ban zoning restrictions that target cryptocurrency miners. It would also require the state Public Service Commission to offer electricity rates to miners that are consistent with other industrial customers.

“We just want to make sure the rules are known and fair, so if companies want to invest in Montana, they know what they are,” said state Sen. Daniel Zolnikov, the Republican who sponsored the bill. “Maybe something big is happening, maybe not, but why shouldn’t we open the door and see?”

While some see promise in the cryptocurrency’s economic potential, others believe its growth could slow the path to meeting the state’s clean energy goals.

“There are just so many green electrons right now,” said Mandy DeRoche, assistant attorney for clean energy at Earthjustice, a nonprofit environmental law group. “We are not going to meet our emissions targets with this additional burden.”

DeRoche raised concerns about electricity prices in areas that need to build new infrastructure to meet the demands of cryptocurrency mining, adding that the jobs created by the industry rarely live up to initial promises.

But industry advocates say their operations can be an asset, rather than a liability, to the electric grid. They argue that cryptocurrency mining will create demand that will help developers build more wind and solar power, creating an important “outlet” for that power when generation exceeds demand from homes and businesses.

“It’s an alternative funding stream for these companies, so they’re going to be incentivized to build out renewable clean energy,” said Tom Mapes, director of energy policy at the Chamber of Digital Commerce, a blockchain advocacy group. “In areas where there is excess energy capacity, this really fits in.”

Mapes acknowledged “bad actors” who have given cryptocurrency mining a bad name, but said only a small percentage of miners have attempted to use recycled fossil fuel plants. He said questions surrounding the use of cryptocurrency as a financial instrument have driven efforts to limit mining, leading to skepticism that other energy-intensive industries have not faced.

“You have certain policymakers who don’t like this technology, who see it as more of a nuisance than a help, and if there’s one way to fight that right now, it’s to argue that the energy use is a waste,” he said.

One of the politicians making this argument is Representative Pam Marsh of Oregon, a Democrat. Oregon’s Clean Energy Act applies to investor-owned utilities, which serve approximately 75% of the state’s population. Marsh has sponsored a bill that would require cryptocurrency miners and data centers that buy power from other entities — such as public utility districts and electric co-ops — to meet the same clean power goals.

“A large data center can use as much electricity as 80,000 homes,” she pointed out. “These are outliers and they must be forced to limit their energy use in the same way as they would if they were in a [investor-owned utility] territory.”

Marsh said questions about the “legitimacy” of cryptocurrency as a financial instrument have raised concerns about whether the energy use is justified. The bill is scheduled for a hearing this week in the House’s climate, energy and environment committee.

Lawmakers in Washington state are considering a similar bill. Currently, customers who bypass a local utility to buy electricity from a power generator or broker are only subject to the state’s clean electricity requirements if they are within the territory of an investor-owned utility. The measure would extend the rules to consumer-owned utilities, which sell about half of Washington’s electricity.

Although the bill does not specifically call out cryptocurrency mining, the industry’s growth was among the reasons state leaders felt compelled to introduce the proposal. Glenn Blackmon, energy policy director at the state Department of Commerce, said a proposed cryptocurrency operation in Pend Oreille County sought to use power purchased outside the local public district, questioning whether the imported power would be renewable.

“We envision that over the next few decades we will double the amount of electricity used in our state,” Blackmon said. “All that increase is going to be renewable resources, and we’re going to have to invest a lot to do that. If you were to add crypto to that, it’s possible it would be a significant additional amount.”

The Washington bill has passed the House and had its first hearing in the Senate last week.

This article was first posted on Stateline, an initiative of The Pew Charitable Trusts.