United States Issues Report On Climate And Energy Implications Of Crypto-Assets

• Published date: 26 September 2022
• Subject Matter: Environment, Energy and Natural Resources, Technology, Energy Law, Environmental Law, Fin Tech
• Law Firm: McCarthy Tétrault LLP
• Author: TechLex Blog, Jacob A. Robinson, Ana Badour, Gurvir Sangha, Reena Goyal and Christopher Yam

On September 8, 2022, the White House Office of Science and Technology Policy (the "OSTP") published a report (the "Report") on the climate and energy implications of crypto-assets in the United States.

This report was published in response to Executive Order 14067, which was signed by President Joe Biden on March 9, 2022. Executive Order 14067 outlines the first "whole-of-government" strategy on regulating digital assets in the United States. Our summary of the Executive Order can be found here.

The Report examines the potential for distributed ledger technologies ("DLT") to impact efforts to address climate change and transition to cleaner energy sources. The report's publication is timely as the Ethereum blockchain underwent a significant software upgrade, known as "the Merge", on September 15, 2022. "The Merge" transitioned the Ethereum blockchain from a 'proof of work' ("PoW") consensus mechanism to a "proof of stake" ("PoS") system that is expected to reduce energy consumption by approximately 99.95%, according to the Ethereum Foundation.¹

The OSTP's Recommendations

To ensure that the responsible development of digital assets aligns with broader U.S. efforts to achieve certain climate commitments, the Report recommends U.S. crypto-asset policy and decision-making focus on the following five key areas:

1. Minimizing greenhouse gas (GHG) emissions, environmental justice impacts, and other local impacts from crypto-assets: The Report encourages the Environmental Protection Agency (the "EPA"), the Department of Energy (the "DOE"), and other U.S. federal agencies to collaborate and develop an "evidence-based environmental performance standard for crypto-asset technologies". The Report recommends setting standards for energy intensities, water usage, noise generation, and clean energy use by operators. The Report also suggests exploring executive action and legislation, to limit or eliminate the use of high energy intensity consensus mechanisms for crypto-asset mining.

2. Ensure energy reliability: The Report directs the DOE, the Federal Energy Regulatory Commission, and the North American Electric Reliability Corporation to conduct reliability assessments of current and projected crypto-asset mining operations on electricity system reliability and adequacy. It also directs these organization to develop procedures that reinforce power systems in anticipation of a rise in crypto-asset mining activities.

3. Obtain data to understand, monitor, and mitigate...