Alex Pickard wanted to run his Bitcoin mine on green energy, as part of an idealistic new industry embracing a low-carbon future. But the business he's since left took the environmentally-unfriendly road to production powered by fossil fuels, resembling in some venues a smokestack operation. The recent jump in price aided and cheered by such renewables crusaders as Elon Musk could have the perverse effect of tripling the carbon footprint of the creation they believe will make the world a far better place.

In early 2017, Pickard––a 27-year old mechanical engineering graduate–– rolled $300,000 in winnings from dabbling in the cryptocurrency into a fleet of ASIC-driven computers, and moved from the Southern California coast to Wenatchee, Washington to mine Bitcoin. The remote rural hamlet was renowned as the nation's apple-growing capital, and also for offering America's cheapest energy costs, courtesy of the hydro-electric plants lining the Columbia River. "A friend wanted me to join him in setting up a mine in Los Angeles that ran on natural gas," says Pickard. "But I was not going to be a miner using fossil fuels." Wenatchee's super-low rates were appealing, he says, but his main motivation for the move was the opportunity to use renewables for mining bitcoin.

A year later, the local utility shut down Pickard's operation for overloading the grid. He's since soured on Bitcoin, arguing that the network's slow pace and high transactions costs will forever prevent it from becoming a currency for everyday purchases, and that the coins are now strictly a vehicle for wild speculation.

Pickard observes that worldwide Bitcoin production features the downside of his operation in Wenatchee by putting huge stress on electric grids as mines churn at high rates, at all times. Yet it doesn't offer the upside of running primarily, or much at all, on green energy. Instead, Bitcoin relies mainly on fossil fuels, and leaves a giant carbon footprint by devouring, by one respected think tank's estimate, as much energy as Argentina. "Bitcoin's been fighting off the 'bad for the environment' narrative for quite a while," says Pickard, who now conducts market studies for prominent investment firm Research Affiliates.

Pickard, however, still watches his former world closely, and notes that it will be interesting to see if ESG-oriented funds start shunning companies that hold Bitcoin. That could undermine the big trend now driving the price skywards, the rush to park excess cash in Bitcoin headlined by Musk's recent $1.5 billion purchase for Tesla.

Jeff Schumacher, CEO of NAX, an enterprise that packages such holdings as art, insurance, and airline miles into tradeable digital assets, believes a backlash is already building. "Institutional money is going into bitcoin, and those institutions have responsibilities," he says. "Bitcoin could become like cigarettes or oil. ESG is top of mind for family offices and institutional investors. Any responsible investor caring about ESG is going to have trouble with Bitcoin. We're already seeing family offices shun it for environmental reasons." Schumacher predicts that investors' growing conviction that Bitcoin is bad for the environment will drive its price significantly below its current level.

The reverence Bitcoin evokes from Musk and other sustainable energy enthusiasts stands in stark contrast to its role as a big source of greenhouse gas emissions. "Bitcoin mining and renewable energy make for the worst match," says Alex de Vries, founder of Digiconomist, a website that tracks Bitcoin's energy record. "Bitcoin production is mainly located in areas using the least environmentally-friendly source, coal." Put simply, Bitcoin production is about as anti-ESG as you can get.

He points out that roughly seventy percent of all global Bitcoin production happens in China, and that most of the nation's output is powered by coal. "China's production is mainly in the north, in Inner Mongolia and Xinjiang province," he says. "In Xinjiang, miners do move their equipment to areas offering hydroelectric power in the summers, but they mainly rely on coal." Bitcoin mining alone uses twice the total power in Xinjiang coming from all wind and solar combined.

De Vries goes on to say that miners seek to locate in places with the lowest energy costs, and many of those locales tilt heavily to sources that emit the largest volumes of greenhouse gases. Iran now hosts 8% of all Bitcoin production, slightly more than the U.S., chiefly because sanctions on its oil exports force the nation to consume a large portion of its output at home. "Iran mainly can't export crude, so it's adapted by finding a use providing cheap energy for Bitcoin miners," says de Vries. "The cost is less than 1 cent per kilowatt hour, while most miners in most places are paying 5 cents, which is already considered low."

Wherever Bitcoin is produced in bulk, he says, it provides a heavy strain on the grid. "Bitcoin mines only shut down if miners leave the business, or if their computers break down," he says. "They operate at maximum power 24 hours a day. If more mines come on, they add to the base load. That limits the extra capacity of the grid to meet times of peak demand."

All told, de Vries reckons that Bitcoin mining devours 77 terawatt hours of electricity (TWh) a year; the University of Cambridge's index puts the number much higher at 130 TWh. The Cambridge estimate places Bitcoin's consumption on a par with Sweden and Ukraine, and at almost 90% of Malaysia. De Vries estimates that a single Bitcoin transaction uses the same amount of electricity that Visa deploys in processing as many as 735,000 credit and debit card purchases. According to one study, it takes twice the electricity to mine a dollar's worth of Bitcoin as to unearth the $1 in gold, platinum, or copper.

The almost five-fold spike in Bitcoin's price since early September to around $50,000 will have a major impact on its energy footprint––if it settles near that level. If it goes higher as Musk and its champions expect, its carbon footprint with expand with its price. What's extraordinary is that in theory, the huge run-up should have multiplied the amount of electricity miners are using, but that number has barely budged. Bitcoin miners' ASIC machines churn out series of numerical codes called "hashes." Every 10 minutes, a batch of new coins are released, and the miner whose hash displays the winning code pockets the coins.

When prices exploded in the past, notably in 2017 as Pickard prospected in Wenatchee, the ranks of miners soared as well. The amount of energy used pretty much tracked the jump in revenues, which in turn waxed and waned with the price, since the amount coins released every 10 minutes remains constant. The rush for riches multiplied the number of hashes per second competing for coins that within months, had become far more valuable. Electricity consumption followed. By de Vries' calculations, Bitcoin's power usage leapt almost 10-fold from the start to mid-November of 2017, shadowing its moonshot in price from $2,000 to around $20,000.

But during the new rampage starting in September, Bitcoin's energy consumption hasn't followed its explosive price trajectory. Instead, it's flatlined. The global industry is now running on almost the same volume of electricity as when its product's price was $10,000, or 80% lower than today. As Pickard says, "It's amazing, in October, the hash rate was 140 million tera-hashes [a tera-hash is one trillion hashes] per second. Now, the figure is just 154 million, an increase of just 10% versus a price increase of four hundred percent."

Why that extraordinary lag? New prospectors and big miners bent on expansion are desperately seeking new computing power, but bottlenecks leave them stymied. Only two producers make the chips for the ASIC models designed for mining, Samsung and Taiwan Semiconductor. Their supply chains aren't yet furnishing anywhere near the volumes needed by the Bitcoin ASIC-makers, the largest of which is Bitmain of China. Bitmain states that it's sold out until the third quarter of 2021.

While the number of miners remains nearly frozen, the money to be made––and hence the money they're making––has soared. In October, the business was generating total annual revenues of about $3.6 billion. Today, the pie has grown to $18 billion. Almost all of those extra billions are flowing to the miners who were effectively "grandfathered" when the boom began, via the shortage of chips and specialized computers. "Take a huge farm of 10,000 'machines' or computers," says Pickard. "In October, the operation generating revenues of $30,000 a day, and barely breaking even. Now, that number has jumped to $150,000, and their costs, including electricity, are the same." The incumbent miners are reaping a gigantic windfall. "While the new machines haven't been produced, the existing ones are generating a lot more money," adds de Vries.

That won't last. If prices remain at today's levels or higher—a big "if" to be sure—rivals will grab the ASIC machines as they become available, and build new mines that greatly expand capacity to grab their share of the huge surge in revenues. "I see countless examples on crypto news websites of people raising money to build new mines," says de Vries. He reckons that electricity consumption would at least triple from 77 to 230 TWh per year. That would swell the industry's appetite to match all of Australia's consumption, and equal half of energy powering Texas.

China as a bellwether?

A bellwether for Bitcoin may be a dramatic move in China. The Inner Mongolia region just announced plans to shutter all cryptocurrency operations by April, and ban any new ones. China's goal to reach peak CO2 emissions by 2030, and make China carbon neutral by 2050 could mean that most of the inevitable expansion won't happen in what today is the nation mining most of the world's Bitcoin.

Other nations are likely to follow China in restricting Bitcoin production in order to fulfill their ambitions for curbing greenhouse gases. "Bitcoin may conflict with climate goals in many countries," says de Vries. "They may say, 'We don't want it in our back yard.'" He adds that as some nations pull back, those that remain welcoming will see a much bigger than proportional share of the new mines, not to mention the existing operations forced to re-locate. "Miners will be flocking to fewer locations," he says. Those locations are likely to be the ones that do least to promote green energy, so Bitcoin could become even more reliant on fossil fuels. The glorious future foreseen by Musk et al may founder in another rush that's equally powerful––the rush to embrace green energy.