Guidance from the Crypto Climate Accord describes how stakeholders in the crypto sector can measure, track and report GHG emissions.
The CCA is a private sector-led initiative targeting decarbonisation of the cryptocurrency and blockchain industry. The initiative is a collaborative effort supported by RMI, WattTime, Ripple, Patch, Zumo, Offsetra, Luxor.Tech, GSR and Energy Web.
The popularity of cryptocurrencies has soared in recent years and continues to accelerate. According to data from Chainalysis, global crypto adoption among retail investors grew 881% in 2021 vs 2020. This surging demand, while positive for the cryptocurrency space, poses significant challenges related to energy usage, worrying climate conscious investors.
The CCA’s new guidance describes how stakeholders in the crypto sector can measure, track and report their electricity use and GHG emissions – focusing on three areas; namely, emissions of individual mining operators; emissions of downstream users such as exchanges, application providers, and individual holders; and overall emissions of an entire cryptocurrency network.
For emissions of individual mining operators, the report highlights five steps necessary to determine the amount of emissions from mining activities: determine the boundaries for reporting, obtain activity data, determine electricity grid emissions factors, match emissions factors and electricity consumption, and calculate the total emissions footprint.
The report recommends three accounting approaches for cryptocurrency miners: location-based attributional accounting, market-based attributional accounting, and consequential accounting. Location-based attributional accounting uses the average emissions factors based on the generation mix for the local grid, while market-based attributional accounting takes into account green energy purchases, and consequential accounting uses marginal emissions rates and other methods to understand how overall system emissions change through actions.
For emissions of downstream users, the report recommends cryptocurrency users calculate their emissions on a per transaction basis as well as on a value basis. The reason for using both methods is due to the high correlation between a cryptocurrency’s energy consumption and its market value in the proof-of-work consensus. This approach gives users a higher level of confidence that they are comprehensively accounting for the emissions associated with their activities, the report says.
For emissions of an entire cryptocurrency network, the report recommends estimating the total amount of electricity consumed by the cryptocurrency network through emissions modelling, utilising two primary approaches as a first step.
The first approach is the Cambridge Bitcoin Electricity Consumption Index (CBECI), which involves emulating the most detailed models currently available for estimating the electricity consumption of the Bitcoin network. This approach is suitable if there is good data available on network hashrate, daily cryptocurrency issuance value, daily miner fees, currency market price, and mining equipment efficiency, the report said.
The second approach is the Digiconomist Bitcoin Energy Consumption Index, which requires data or estimates of the total mining revenues, the percentage of mining revenue spent on energy, and the price of electricity. This approach is suitable if the data required for the CBECI is not available.
The report also looks at ways to reduce the emissions from mining, including energy efficiency, load shifting, re-location, on-site renewables, unbundled energy attribute certificates (EACs), and off-site renewables.