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Legislative Update: Bills Target Cryptomining’s Energy ConsumptionFebruary 2, 2023
Cryptocurrency mining has boomed over the last decade, and with that explosion has come increased attention from the public and more scrutiny from policymakers. Just a few years ago, China was home to approximately three-quarters of the world’s cryptomining operations, the result of abundant, cheap, renewable energy coupled with governmental incentives aimed at attracting cryptocurrency miners, especially bitcoin miners who compose the majority of the industry.1 But, by the fall of 2021, backlash against cryptocurrency by the Chinese government led to nearly a complete ban on cryptomining and cryptocurrency trading in the country.2
With China out, the United States has become the leading home of cryptomining, now accounting for just over one-third of Bitcoin’s “hashrate”—the industry term to describe the collective computing power of cryptocurrency miners.3 Texas has been site of the largest influx of cryptomining, thanks to its relatively affordable energy and the state’s cryptocurrency-friendly policymakers.4 Texas was the second state to include cryptocurrency and blockchain in its commercial law, and at one point, Gov. Greg Abbott tweeted that Texas will be the leader in worldwide cryptocurrency.5
The rapid growth of cryptomining in the US has not gone unnoticed by its detractors. Critics decry the amount of energy used in cryptomining, claiming that it strains power grids and spikes energy costs for residents. Environmental advocates also maintain that cryptomining leads to the use of dirtier sources of energy at a time when the US is attempting to decrease reliance on fossil fuels.6 Most criticisms of cryptomining focus on a method called “proof-of-work” mining, which uses significantly more energy than some other methods.
In response, politicians at both the state and federal levels have called for more studies, and they have introduced legislation aimed at reducing the greenhouse gas emissions and energy use from existing mines, and moving the US away from the proof-of-work method. This update looks at the state of cryptomining legislation.
In March, the Biden Administration issued Executive Order 14067, commissioning a report on the energy and climate implications of crypto-assets in the US. The White House Office of Science and Technology Policy issued its report six months later, and its primary recommendations were to minimize greenhouse gas emissions and other environmental impacts by increasing technical assistance and improving collaboration among the states, the Department of Energy, and the Environmental Protection Agency.7
In late 2022, Sen. Edward J. Markey lead the introduction of the Crypto-Asset Environmental Transparency Act, which would require the EPA to conduct a comprehensive impact study of US cryptomining and require the reporting of greenhouse gas emissions from cryptomining operations that consume more than five megawatts of power.8
The StatesNew York
In November, New York Governor Kathy Hochul signed Assembly Bill A7389C, which imposes a two-year moratorium on new proof-of-work mines and denies permit renewals for existing proof-of-work mines that seek to increase their energy usage.9 The moratorium only applies to facilities that utilize carbon-based fuel—e.g., coal-fired or gas-fired power plants. Facilities that utilize renewable energy (e.g., solar or wind) to power their proof-of-work operations are not subject to the moratorium or the permit-renewal restrictions. The legislation also requires the New York Department of Environmental Conservation to prepare an environmental impact study examining the effects of proof-of-work cryptomining in the state.10Oregon
Last month, Oregon politicians introduced House Bill 2816, which would require cryptomining operations in the state to reduce their carbon emissions 60% by 2027, 80% by 2030, 90% by 2035, and 100% by 2040.11 H.B. 2816 is meant to expand on an earlier clean-energy measure passed in 2021, H.B. 2021, which requires Oregon’s public utilities and energy-service suppliers (ESSs) to reduce greenhouse gas emissions 100% by 2040. H.B. 2021 set baseline emissions for ESSs at .428 metric tons of carbon dioxide equivalent per megawatt hour of electricity. H.B. 2816 applies the same .428 metric tons of carbon dioxide baseline to cryptomining operations. Failure to comply with emissions requirements at each benchmark will result in a US$12,000 penalty for each successive day of non-compliance.12
O’Melveny & Myers will provide updates as new cryptomining legislation surfaces. For questions about cryptomining legislation or other digital-asset developments, please contact Monica Hwang or Wenting Yu.
1 John Ruwitch and Emily Feng, How the U.S. benefits when China turns its back on Bitcoin, NPR, (February 24, 2022, 5:12 AM), https://www.npr.org/2022/02/24/1081252187/bitcoin-cryptocurrency-china-us.
2 Andrey Sergeenkov, China Crypto Bans: A Complete History, Coindesk, (March 9, 2022, 2:37 PM), https://www.coindesk.com/learn/china-crypto-bans-a-complete-history/.
4 Zhaoyin Feng, Why China’s bitcoin miners are moving to Texas, BBC News, (September 4, 2021), https://www.bbc.com/news/world-us-canada-58414555.
6 Judith L. Mernit, Bitcoin’s Intensive Energy Demands Are Sparking a Crypto Backlash, YaleEnvironment360, (June 21, 2022), https://e360.yale.edu/features/bitcoins-intensive-energy-demands-spark-a-crypto-backlash.
7 FACT SHEET: Climate and Energy Implications of Crypto-Assets in the United States, White House Office of Science and Technology Policy, (September 8, 2022), https://www.whitehouse.gov/ostp/news-updates/2022/09/08/fact-sheet-climate-and-energy-implications-of-crypto-assets-in-the-united-states/.
8 Senator Markey Introduces Legislation to Combat Energy-Intensive Cryptomining as it Strains Grid, Undermines U.S. Climate Goals, Ed Markey United States Senator for Massachusetts, (December 8, 2022), https://www.markey.senate.gov/news/press-releases/senator-markey-introduces-legislation-to-combat-energy-intensive-cryptomining-as-it-strains-grid-undermines-us-climate-goals.
9 Assembly Bill A7389C, New York State Senate, (November 22, 2022), https://www.nysenate.gov/legislation/bills/2021/a7389/amendment/c.
11 Sebastian Sinclair, Oregon Weighing Crypto Miner Carbon Crackdown, Blockworks, (January 11, 2023), https://blockworks.co/news/oregon-weighing-crypto-miner-carbon-crackdown.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Monica Hwang, an O'Melveny partner licensed to practice law in Texas, Wenting Yu, an O'Melveny partner licensed to practice law in California and New York, William K. Pao, an O'Melveny partner licensed to practice law in California, Connor Corbitt, an O'Melveny associate licensed to practice law in Texas, and Silvia Smith, an O'Melveny associate licensed to practice law in Texas, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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