Measuring the Impact of the Green Mining Initiative
Crypto Carbon Ratings Institute (CCRI)
https://carbon-ratings.com
September 2024

Contents
1.

Introduction .................................................................................................................... 1

2.

Background ................................................................................................................... 2

3.

Framework to measure the impact of the GMI ............................................................... 3

4.

Conclusions & outlook ................................................................................................... 7

5.

Contacts ........................................................................................................................ 8

6.

References .................................................................................................................... 9

1.

Introduction

Bitcoin mining is known for its high energy consumption. In the Bitcoin network, so-calledminers compete to solve a computational puzzle to add new blocks to the chain. The
purpose of adding blocks is to validate coin ownership and transactions included in theblocks. To participate in the competition, miners run specialized hardware devices which
consume energy. Depending on the energy source, the mining activity translates into carbon
emissions – which may have adverse impacts on our climate.
PayPal’s Blockchain Research Group, in a strategic collaboration with Energy Web and DMG
Blockchain Solutions Inc., has developed an incentive mechanism to encourage Bitcoinminers to use low-carbon energy sources. In the first step, miners that want to participate inthis Green Mining Initiative (GMI) need to obtain accreditation from Energy Web, which
audits Bitcoin miners’ energy sources. Subsequently, on-chain transactions by GMI users arerouted to accredited green miners. To ensure the transactions are validated by green miners
only, the transactions are broadcasted with very low transaction fees and an additional BTC
reward locked in a multisig payout address that can only be claimed by green miners (seehere for further details).
The GMI subsidizes miners that use clean energy sources to run their operations andincentivizes other miners to switch to clean energy sources or ideally invest in additional
renewable energy generation resources, such as wind and solar PV. Block rewards andtransaction fees determine overall mining activities and associated carbon emissions. The
sum of both revenue streams determines miners’ income and represents the upper limit they
can spend on hardware and energy to run their operations. In the past, block rewards werethe main source of miners’ income. However, with each Bitcoin halving, the share of income
from transaction fees increases (ceteris paribus; unless the Bitcoin price increases in theabout four years between two halvings and/or a respective decrease in transaction fees
overcompensate the effect). Therefore, we expect that transaction fees will become the main
source of miners’ income in the long run – and the GMI offers an effective mechanism totarget this revenue stream and nudge miners via economic incentives towards clean energy
sources. The average share of transaction fees in overall miner rewards year-to-date 2024 is
8% up from 6% on average in 2023.

Figure 1: Share of Bitcoin transaction fees in overall mining rewards (sum of block reward + transaction fees)
Source: CCRI research.

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The following section provides background information on crypto-related climate impacts andhow to measure and account for them. Section 3 introduces the framework to determine theclimate impact of the GMI. Section 4 concludes and provides an outlook with avenues for
future research.

2.

BackgroundAt the time of writing in April 2024 (post the fourth Bitcoin halving), we estimate that Bitcoin
mining causes 88 million metric tonnes of carbon dioxide (MtCO2) annually. After Ethereumswitched its consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS) in
2022, Bitcoin has continued to be the largest emitter among blockchain networks by far,causing 37x more emissions than the second-highest emitter (Dogecoin). Figure 2 charts theincrease of Bitcoin’s carbon footprint since its inception less than two decades ago, andhighlights its dominant share in total blockchain network emissions. The chart also shows
Ethereum’s carbon footprint, which dropped by over 99.9% after “The Merge” in 2022 (fordetails, please see here).

Figure 2: Annualized CO2 emissions of proof-of-work cryptocurrencies. Source: https://indices.carbonratings.com/

To quantify the energy consumption of PoW blockchain networks, two approaches have
evolved.
•

The top-down approach was populated by Alex de Vries’ Digiconomist Bitcoin Energy
Consumption Index. It assumes that the money earned by miners is directly invested,
to a certain degree, into energy. With data available on the miners’ income (consistingof block rewards and transaction fees), the exchange rate for Bitcoin, and theassumption that a predefined share of income is spent on energy, it is straightforward
to calculate the respective monetary value of energy. With an assumption regarding the
average electricity price, the total network energy consumption can be calculated on adaily basis.

•

The bottom-up approach was initially developed in (Krause & Tolaymat, 2018),
refined in (Stoll, Klaaßen, Gallersdörfer, 2019) and is now used in the most-cited
Cambridge Bitcoin Energy Consumption Index. Instead of starting with miners’ income,the bottom-up approach considers the network hash rate to be the main driver of2

energy consumption. The approach resorts to a list of available hardware devices, theirpower demand, and hash rate as input parameters. For a given electricity price, we canfilter this list of profitable devices. The profitable devices can then be weighted
according to their age and availability in the market, thus providing an estimate for all
hardware devices that are up and running at a given point in time. This hardware
picture allows for calculating the daily power demand, and thus, the total annualizedenergy consumption of the network.
Subsequently, for both approaches, emission factors can be used to translate the energy
consumption into carbon emissions. For instance, CCRI uses emission factors fromthe Environmental Protection Agency for U.S. states, from the Environmental Energy
Agency for European countries and from Climate Transparency for all other G20 countries.
It is noteworthy that Bitcoin proponents, industry associations, and the first academic studies
on the subject highlight potential climate benefits of mining from power grid balancing
services 1–3, renewable energy expansion 4–8, methane emission reductions 9,10, and heatrecovery.11 Our research suggests, however, that the energy-related climate costs of Bitcoin
mining currently far outweigh such benefits.12
For crypto stakeholders, the key question is how to account for their individual responsibility.
As mentioned above, block rewards and transaction fees determine overall mining activity.
Consequently, it is vital to allocate a fair share of the total network carbon footprint to bothemission drivers. CCRI together with South Pole and in consultation with PayPal published aframework in 2022 to support crypto value chain stakeholders in allocating carbon emissions
to their activities based on their cryptocurrency-related holdings and transactions.
Beyond the individual GHG inventories, the GMI has also implications for Bitcoin’s network
carbon footprint and potentially total global emissions. In the next Section, we provide aframework to determine the climate impact of the GMI through three different lenses.

3.

Framework to measure the impact of the GMI

Here we propose a framework to evaluate the climate benefits of the GMI. The framework
differentiates three lenses through which we determine the climate impact the GMI mightbring. The three lenses are GMI users’ GHG inventories, the Bitcoin network’s carbon
footprint, and overall carbon emissions.
GMI users’ carbon footprint
Leveraging green miners for transaction validation has a direct impact on GMI users’
corporate Scope 3 emissions. Already in the short term, knowing that transactions have beenvalidated by a green miner may be factored in during the carbon accounting process. For
instance, a single Bitcoin transaction caused 40kg of CO2 as of April 2024 (source: CCRI
API). Accounting for the reduced emissions caused by green miners may therefore be used
to reduce respective emission allocations from transactions. Looking at the equation of theoriginal Crypto Climate Impact Accounting Framework (by CCRI and South Pole inconsultation with PayPal), we may amend the formula as follows:3•Original Crypto Climate Impact Accounting Framework:•

Extended Crypto Climate Impact Accounting Framework:

GMI usercarbonfootprint=

Total networkxemissionsfNumber ofcoins held+

Total supply of
cryptocurrency

g Number of GMI
transactions

g The factor g is the average amount of carbon caused by one GMI
transaction (as miners that qualify for Energy Web‘s Green proofs may still
use some emitting energy sources)

The Extended Crypto Climate Accounting Framework considers the average amount ofcarbon emissions caused by one GMI transaction (g). If all miners participating in the GMI
were to mine exclusively based on carbon-free energy sources, g would be zero and there
would not be any emission arising from transactions (although the emissions arising fromcoin holdings would still prevail as the first part of the equation is not affected by “g”. Still, the“g” factor warrants further investigation, as it is likely that not all miners participating in the
GMI will only use carbon-free electricity. To establish a better understanding of how th “g”
factor may look like, we define four exemplary miners:••••

GMI miner 1: using 97% carbon-free sources1
GMI miner 2: using 75% carbon-free sources
GMI miner 3: using 55% carbon-free sources
GMI miner 4: using 40% carbon-free sources

1 This figure is based on the public available Clean Energy Score of DMG which is to this date the only mining

company that publish its Clean Energy Score (= share of carbon-free energy sources) as part of the «Green
proofs for Bitcoin» program run by Energy Web.

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We assume that the remaining energy sources are equal to the global distribution of fossilfueled-based electricity production resulting in a carbon intensity of 803 g CO2e/kWh.2 In thenext step, we define three scenarios which assume different weightings of the exemplary
miners in the GMI. Depending on the scenario, we calculate a relative emission reduction foreach GMI transaction between 95% and 46% compared to the average carbon intensity per
regular Bitcoin transaction which sits at 494 g CO2e/kWh as of May 2024.

Figure 3: Relative emission reduction for each GMI transaction per scenario

It is noteworthy that in case total network emissions remain constant, broadcastingtransactions with very low transaction fees would increase the share of regular transaction
fees in total transaction fees. At the same time, the reduction of total network transaction

2 The global fossil-fueled-based electricity production distribution (59% coal, 37% gas, 4% oil) is taken from

OurWorldinData. Life Cycle Emissions Factors for Electricity Generation Technologies are taken from NREL.

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fees would also decrease miner rewards from this component (1-f), and therefore, increases
emission allocations to coin holdings (f).3
The extended Crypto Climate Impact Accounting Framework assumes that 100% of thetransactions are routed to green miners. If a GMI user routes also some transactions to nongreen miners, it is important to account for those using the second factor of the originalframework. Translating the additional costs for GMI users from green miner subsidies to CO2
abatement costs may be one avenue to quantify and compare the climate impact of the GMI.
Considering the emission caused by each Bitcoin transaction, by using the GMI, entities suchas PayPal may reduce their carbon emissions by about 40kg per transaction as of April
2024. Assuming a carbon price of $100/tonne – this reduction translates into a benefit of $4
per transaction. This approach also offers a mechanism to link the green premium to a
dynamic reference carbon price index to achieve effective emission reductions.

Bitcoin’s network carbon footprint
Incentivizing green miners may also support the decarbonization of the Bitcoin network as awhole. The revenue of Bitcoin miners usually consists of block rewards and transaction fees.
The GMI offers an additional revenue stream to miners symbolized by GMI tx revenue in theequation if they fulfill the requirements of the GMI and decide to participate.
Overall miner=
revenue

GMI tx revenue

Block reward+

Tx fee+

GMI tx revenue

This revenue stream is optional if miners partcipcate in the GMI.

The GMI tx revenue is driven by two factors: the number of GMI tx rewards that the miner
can successfully claim as well as the amount of GMI tx reward per transaction. If the entire
GMI tx revenue of an eligible miner surpasses the setup cost to participate in the GMI, it
would be rational for a miner to do so. If the entire GMI tx revenue of a non-eligible miner(not enough carbon-free energy used) surpasses the setup cost to participate in the GMI as
well as the cost to switch its operations to carbon-free energy sources, it would be rational fora miner to do so. If miners switch to clean energy sources, the carbon intensity of the
network and ceteris paribus its carbon footprint decreases. Consequently, not only the shareof emissions allocated to transactions but also the share of coin holders decreases. The
higher the share of energy sources that is switched from fossil-fuel-based electricity tocarbon-free sources, the stronger the effect. Yet additional factors such as the Bitcoin market
price, electricity prices, and mining hardware developments have to be considered whenestimating the decarbonization effect that can be attributed to green mining incentives.
Again, the climate benefit observed for the Bitcoin network might result in a waterbed effectand trigger higher emissions in other sectors which previously used the renewable energy
sources now used by green miners.

3 Example: Considering total network emissions of 100 Mt CO

2 and a block reward of 9 BTC and a tx fee of 1 BTC(f=9/10; f-1=1/10). There are 100 coins and 100 tx. The GMI user holds 1 coin and executes 1 tx.
Scenario 1 (no GMI): Carbon footprint = 100 x (9/10 x 1/100 + 1/10 x 1/100) = 1
Scenario 2 (GMI with green miners i.e., g = 0): Carbon footprint = 100 x (9/9.99 x 1/100) = 0.901
In Scenario 2, total incentives decrease due to the missing 0.01 BTC tx free from the GMI transaction with almost
zero tx fee. Still, total emissions are substantially lower in Scenario 2.

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A second key benefit the GMI may bring besides emission reductions is transparency. The
Bitcoin mining industry currently lacks disclosure and verification of climate claims.
Introducing respective accreditation programs may help in gaining more transparency on thetypes and extend of energy sources used by Bitcoin miners.

Overall climate impact
To quantify the overall positive climate impact from emissions reductions brought by the GMI,
we need to look at the additional clean energy resources deployed by green miners. Only
such additional clean energy generation resources should be counted when calculating theoverall climate benefit of the GMI. The GMI can be an effective tool, especially in cases
where the green incentive triggers investment decisions in such clean resources.
Already today, there are some examples of crypto miners that have invested in renewableenergy sources. Optimal sites for generating energy from renewable resources are often inremote regions with insufficient local demand, energy storage capacity, and transmission
infrastructure. Two notable examples are a partnership of Tesla, Block, and Blockstream to
set up a 3.5 MW solar-powered Bitcoin mine in Texas, and Aspen Creek’s 30 MW off-grid
mining facility.13 However, linking such investment decisions to the GMI in the future willremain challenging as various other costs and revenues determine the respective businesscases.

4.

Conclusions & outlook

The GMI offers an effective tool to incentivize miners that already use clean energy sources
and support others to switch from fossil to clean energy sources. For GMI users, the initiative
yields immediate impact in corporate or individual GHG accounts and is an effective tool toreduce emissions that were previously hard to abate. The impact of the GMI to accelerate
overall Bitcoin network decarbonization and global net climate benefit depends on additionalparameters such as the adoption rate of the GMI, which future research may quantify once
the GMI is fully launched.
It is noteworthy that the GMI may also bring climate and environmental impact beyond CO2
emissions reduction. Incentivizing the usage and expansion of clean energy generation
resources may also reduce negative externalities for air and water pollution, or biodiversity
degradation. Furthermore, sustainability impacts beyond the climate and environment
domain should be considered. The GMI, for instance, offers a channel to route transactions
to trusted miners in jurisdictions that comply with broader corporate sustainability policies
and codes of conduct.

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5.

Contacts

Paper authors
CCRI – Crypto Carbon Ratings Institute:
Dr. Ulrich Gallersdörfer – Co-founder – Computer Science, Munich
Lena Klaaßen – Co-founder – Climate Finance, Zurich
Dr. Christian Stoll – Co-founder – Climate Economics, Munich
Please reach out to us: hi@carbon-ratings.com

About CCRI
CCRI – Crypto Carbon Ratings Institute – is a research-driven company providing data on
sustainability aspects of cryptocurrencies, blockchain and other technologies. Theinterdisciplinary team has built a multi-year research track record with a specific focus on
cryptocurrencies and their sustainability impacts. CCRI uses the most up-to-date data
sources as well as methods based on peer-reviewed studies published in renowned scientificjournals. CCRI provides insights that help their clients to understand and manage cryptorelated ESG exposure. CCRI works with a broad range of clients including institutional
investors, exchanges, and blockchain networks. As the leading provider of sustainability dataand indicators for crypto assets, CCRI has deep experience in helping clients to conduct
crypto-related climate disclosures.

Disclaimer
This article shouldn’t be taken as financial, investment, or tax advice. The report does notconstitute a recommendation or suggestion, directly or indirectly, to buy, sell, hold, make, or
undertake any investment or trading strategy with respect to any investment, loan,commodity, security, or any issuer. It should not be construed as financial, investment, legal,
or tax advice. CCRI does not provide personalized advice, and the report should not be
considered as a substitute for professional advice tailored to your specific circumstances. It is
important to note that investment decisions should be based on your own assessment andunderstanding of the market, and not rely on the information presented in this study. You
should conduct your own research and seek guidance from independent financial, tax, or
legal advisors before making any investment decisions. CCRI shall not be held accountable
for any financial losses or damages incurred as a result of following or relying on the report's
content. CCRI does not guarantee the sequence, accuracy, completeness, or timeliness of
any information provided in this report. The content speaks only as of the indicated date, andany projections, estimates, forecasts, targets, prospects, and/or opinions expressed herein
are subject to change without notice and may differ or be contrary to opinions expressed byothers. Crypto services may be subject to limitations and conditions under applicable law.
Furthermore, the Crypto Carbon Accounting Frameworks discussed in this report should beseen as inspiration to design account standards for crypto activities. Ongoing updates ofcarbon accounting guidelines should be considered when deciding on whether theframeworks comply with current rules.
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