Proof-of-work cryptocurrency mining, which is designed to consume enormous quantities of energy, effectively entails millions of computing machines racing to solve a complex, but meaningless, problem. As more mining machines enter the race, the difficulty of the computational problem gets harder, and the electricity required to win increases exponentially.
After cryptocurrency mining was banned in China in 2021, the number of mining operations exploded in the United States. It is estimated that 38% of Bitcoin globally is mined in the U.S. Top-down estimates of the electricity consumption of cryptocurrency mining in the U.S. imply that the industry was responsible for an excess 27.4 million tons of carbon dioxide (CO2) between mid-2021 and 2022.
In 2022, Kentucky was home to nearly 20% of the collective computing power of the country’s proof-of-work mining operations. The growth of cryptomining threatens to keep polluting coal power plants active, strain the grid, and raise electricity rates for Kentuckians.
Kentucky produces more carbon dioxide pollution from cryptocurrency mining than any other U.S. state, and has the second highest carbon intensity for crypto of any state.
Kentucky’s carbon footprint from cryptocurrency mining is estimated at 3.3 megatons of carbon dioxide per year, because approximately 70% of Kentucky’s power came from burning coal, according to government data. Coal-powered electricity has numerous and severe health impacts from air and water pollution and is an enormous driver of greenhouse gas pollution.
While proof-of-work mining proponents claim that cryptocurrency mining often looks for the cleanest energy, the industry in fact often seeks readily-available cheap energy and minimal regulation, which can result in re-starting defunct coal and gas plants, as well as cancelling or significantly delaying the closure of power plants scheduled to retire.
Tracking cryptocurrency mining in the United States is difficult. The industry is notoriously opaque, and little-to-no reporting requirements exist at either the state or federal level. The most reliable sources of information are a patchwork of filings before the Securities and Exchange Commission (SEC) by publicly traded cryptocurrency companies, environmental permit applications, utility and other energy filings, and local reporting.
Cryptomining Will Drive Up Costs for Everyone Else in Kentucky
The growth of cryptocurrency mining in Kentucky threatens to drive up costs for other utility customers. In Kentucky, cryptomining facilities benefit from discounted electricity rates and tax incentives that will ultimately be passed onto other customers. Kentucky utilities pay millions for any upgrades to the grid to serve crypto mines. In some cases, there may not be enough power generated locally to power cryptocurrency mines, so the utility would need to buy additional electricity from the market. These costs are often shared by other customers of the utilities, who are already often paying higher rates than cryptomining companies.
There is ample evidence of utilities expending significant sums to serve cryptocurrency mining operations — costs that will be passed on as higher rates to the utility’s other customers.
Crypto Miners in Kentucky Get Deep Discounts on Electricity Rates But Do Not Deliver Jobs
Kentucky state law permits electric utilities to offer Economic Development Rates to energy-intensive proof-of-work cryptocurrency mining operations although the operations consist mainly of rows of mining machines that need little monitoring, with minimal jobs or community benefits.
Public interest organizations, Kentucky’s Attorney General, and industrial utility customers have opposed proposals to give some cryptomining companies subsidized power rates because of the negative impacts on other customers. For example:
Limited economic development incentives available should be reserved for companies where there is evidence the subsidies will create additional jobs. Earthjustice argues against contracts that benefit cryptocurrency miners rather than local communities. Kentucky’s Economic Development Rate contracts should include require guarantees that jobs will be created.
Tax Incentives for Cryptomining in Kentucky
The Kentucky state government offers enormous tax incentives to this industry, which have been estimated to cost Kentucky taxpayers millions of dollars per year in lost tax revenue.
These tax incentives include tax exemptions on mining equipment, tax exemptions on electricity consumed, sales-tax refunds on mining equipment, tax incentives on income taxes and wage assessments; and income tax and limited liability entity tax credits.