Bitcoin, the best ESG asset

Written by: Daniel Batten, batcoinz.com

Compiled by: Peng SUN, Foresight News

Editor’s Note: The full name of the ESG Investment Committee (ESG IC) is Environment, Social and Governance Investment Committee, which refers to financial institutions making responsible investments while considering environmental, social, and governance issues. The term ESG was first widely used in a 2004 report titled "Who Cares Wins," initiated by financial institutions at the invitation of the United Nations. Since 2020, the United Nations has accelerated the integration of ESG data with sustainable development goals, evolving from a corporate social responsibility initiative into a global phenomenon.

Currently, most ESG investment committees worldwide have not significantly invested in Bitcoin, but if they receive ESG funding support, it would mean Bitcoin is recognized by major investment institutions globally. In this article, the author refutes the four main arguments currently affecting ESG funding's investment in Bitcoin, primarily focusing on environmental pollution and energy consumption. However, the author’s investigation reveals that Bitcoin is the industry that uses the most sustainable energy in the world, the only industry globally whose growth has not led to an increase in emissions, has lower emission intensity than other industries, and is the only major industry whose primary fuel source is not fossil fuels. Finally, the author uses methane reduction as an example to point out that Bitcoin can utilize methane mining to achieve environmental, social, and economic sustainability.

ESG Investment Committees Need Bitcoin, and Bitcoin Needs ESG Investment Committees

Currently, ESG funds have a total asset management scale of $23 trillion, and they believe they cannot invest more in Bitcoin at this time. But what if this is merely a "statement" without solid evidence? What if Bitcoin mining is a solution for global ESG investment committees rather than a problem? Investigating whether this is the case has been my focus over the past year.

Undoubtedly, more funding directed towards Bitcoin ESG will promote the development of Bitcoin and increase its market value. Compared to the trillions of other assets held by institutional investors, Bitcoin's scale is only thumb-sized. Critics, including Willy Woo, believe that Bitcoin needs to maintain a market value above $1 trillion to allow institutions holding national wealth and/or retirement funds to invest in Bitcoin on a large scale.

Before exploring why ESG investment committees should consider Bitcoin, let’s first look at why Bitcoin supporters should more actively collaborate with ESG investment committees.

First, let’s pose a question: "What impact would allocating 1% of ESG funds to Bitcoin have on its market value?" Based on Woo's analysis, we can predict this impact within a certain range.

According to the current market value growth rate per $1 invested—if ESG funds allocate 1% of AUM (Assets Under Management) to Bitcoin, then Bitcoin's market value would increase to $1.68 trillion.

Now imagine if 2.5% of ESG funds were invested in Bitcoin, then the market value would rise to approximately $3.3 trillion. This indeed incorporates Bitcoin into the roadmap for institutional investors. As institutional investors invest in Bitcoin, its market value will further increase. We have now established a positive feedback loop as initial contact begins between the Bitcoin and ESG communities.

Background

For 19 years, I have been involved in impact investing. My work includes due diligence on technologies that can yield economic returns while benefiting humanity and the planet. I have seen over 200 different clean technology proposals. Among them, I found Bitcoin to be the fastest, most impactful, and most measurable clean technology I have encountered.

This is significant because the current ESG investment committees face a problem: reliable ESG investments are in short supply, with 30% of investors stating they find it difficult to locate attractive ESG investment opportunities. This means Bitcoin is crucial to solving this issue. However, two things must first be done: data and action.

Let’s first look at the data.

Current ESG Investment Committees' Views on Bitcoin

Currently, there are four main arguments against Bitcoin ESG that hinder widespread institutional investment in Bitcoin:

• Bitcoin primarily uses fossil fuels, leading to a surge in its usage;
• Bitcoin has high emissions and may grow exponentially;
• Bitcoin's emission intensity is increasing;
• Coal is the primary energy source for Bitcoin mining.

Media reports shape public perception, and the media relies on research reports. It turns out that these four articles all originate from the Cambridge Centre for Alternative Finance (CCAF).

Therefore, let’s summarize: based on these four ESG perceptions, $23 trillion cannot be allocated to invest in Bitcoin. However, these four views are based on a single study. One study determines many things. I was curious why the findings from Cambridge University differed so greatly from those of the Bitcoin Mining Council (BMC), so I decided to study Cambridge's research report in more detail.

Notably, Cambridge University disclosed the limitations of its model, with its website admitting that they may not be able to simulate the current reality.

In other words, "it may be outdated." Dynamic models like Bitcoin mining rely on continuously updated data.

Cambridge's Bitcoin release intensity chart visually displays the frequency of this model.

Their mining chart "stopped fluctuating" in January 2022. This means that at the time of writing this article, their model has been outdated for 22 months.

What does this mean? 22 months ago, Kazakhstan, a country almost entirely based on fossil fuels, accounted for 13.2% of global hash power.

Today, it has dropped to only 100 megawatts. Given that the network consumes over 15,000 megawatts of electricity, this is far below 1% of the total network. This is significant.

Secondly, there is a larger issue: the Cambridge model does not include off-grid mining.

Last year, I established a Bitcoin mining foundational model called BEEST, which updated the mining chart and calculated the impact of off-grid mining.

BEEST Results Summary

To our knowledge, there are 52 off-grid mining companies. To reiterate, the Cambridge model does not include these mining companies. In terms of hash power, they account for 28% of all mining machines. Almost 80% of them are powered by sustainable energy.

We are not surprised by this. After all, they engage in off-grid mining due to cheap electricity, which is often renewable energy.

It is important to exclude the very few individuals with an excessively high proportion of sustainable energy from their model. This is akin to political polls only surveying urban voters.

What happens if we add Cambridge University's two exclusion models?

Before answering this question, we need to understand two important background pieces of information.

On August 31, 2023, Cambridge University acknowledged that their model exaggerated energy consumption for at least two years and may still overstate emissions.

Two weeks later, on September 14, Bloomberg Intelligence abandoned the Cambridge model and began using BEEST. Bloomberg stated:

Thus, we now have an updated off-grid and on-grid mining model, which is the preferred model for the ESG investment committee, revealing the following four points:

1. The Bitcoin network uses over 50% sustainable energy. This makes Bitcoin the industry that uses the most sustainable energy in the world.

2. Bitcoin's emissions have not increased over the past four years.

This not only affects institutional adoption but also impacts mining policies. For example, the proposed PoW ban by the EU. The White House stated that to develop favorable policies for Bitcoin mining, they need data showing that emissions will not spiral out of control as the network grows.

We now have this data. Over the past four years, hash power has grown by over 400%, prices have increased by over 160%, yet emissions have not grown. Therefore, Bitcoin is the only industry globally whose growth in scale has not led to an increase in emissions.

3. Bitcoin's emission intensity has halved. This is a measure of emissions per unit of energy, currently lower than other industries.

4. We know that Bitcoin's primary fuel source is hydropower. Therefore, Bitcoin is the only major industry whose primary fuel source is not fossil fuels.

Like electric vehicles (EVs), Bitcoin's direct emissions are 0, but both generate secondary emissions from electricity use. The difference is that Bitcoin primarily uses hydropower, while EVs mainly use coal.

In other words, the four articles about Bitcoin are all incorrect. They are not only wrong but also misattribute the responsibilities of an industry that has achieved four ESG firsts, which is unprecedented in any sector:

The image compares Bitcoin mining with other global industries.

Now Bitcoin supporters can share this new narrative with the global ESG investment committee, supported by a complete and representative set of data.

Re-educating takes longer than educating; some investment committees may have a bit of confirmation bias. However, for those investment committees curious about the world, they will find sufficient facts to invest in Bitcoin ESG, and this fact is becoming increasingly transparent.

Without a thorough investigation of ESG, it is impossible to assess the impact of spreading this new Bitcoin ESG narrative on the funds allocated to Bitcoin; it can only be said that disseminating this data may prompt ESG funds to allocate 1% of their AUM to Bitcoin. Intuitively, I believe that reaching 1% will require not only widespread dissemination of data but also action.

ESG investment committees and past Bitcoin critics have pointed out what actions can be taken:

Methane Reduction

ESG funds state: "If Bitcoin mining can reduce enough methane to offset network emissions, then it would be easy to make a decision."

The White House's OTSP report on cryptocurrency mining states that using emitted methane for Bitcoin mining "is more likely to help rather than hinder the U.S. government in achieving climate goals."

The policy head of the International Monetary Fund stated: "The methane reduction case is the most compelling argument for Bitcoin in ESG to date."

In other words: accurate data and models can protect Bitcoin from misinformation and indicate that Bitcoin is a good ESG investment. However, methane reduction can solidify Bitcoin's position as the best ESG asset in the world.

Why is methane reduction so important?

First, according to the United Nations, methane reduction is "the most powerful lever we have to slow climate change over the next 25 years." Methane causes climate warming 84 times more than carbon dioxide and is accelerating. However, we are at a loss on how to address this.

By 2032, our largest methane storage may be landfills.

However, unless we find effective ways to reduce methane emissions and profit from it, this situation will not occur (which is also why it has not happened yet).

How to reduce methane from landfills and profit from it?

Where possible, you can purify landfill gas and deliver it to generators for electricity generation, as this can almost completely eliminate methane. You are turning pollution into an asset.

The problem is that many landfills cannot sell electricity back to the grid. Either the costs of upgrading the grid are too high, or in some cases, government policies do not allow it, such as in Mexico.

Recently, I asked Nuno Barbosa, CEO of Unicarbo, who has been engaged in landfill power generation for 20 years: "How many landfills globally have no choice but to sell electricity back to the grid?" He estimated that "50%."

Then I posed a second question to him: "What if there are customers with electricity demands on-site at these landfills?" He replied, "Everything would change."

What is the situation for on-site customers of landfill gas power generation?

These customers must be very unique. First, they must be willing to operate in remote landfills. Secondly, their electricity costs must constitute a high proportion of their total operating expenses, so it only makes economic sense to invest millions of dollars in additional capital expenditures on GCCS (Gas Collection and Control Systems) and generators to obtain cheap electricity.

Without Bitcoin mining, there would be no such customer base.

Bitcoin miners are very interested in the idea of mining at landfills. This is why there are currently four Bitcoin mining companies doing this, and the largest publicly traded Bitcoin mining company, Marathon, has recently joined.

Both Bitcoin mining companies and landfill owners hope to achieve this goal. What they lack is the funding to implement this idea on a larger scale. That is why I personally decided that our third climate technology fund will provide infrastructure funding to bridge this gap.

Unless we make methane reduction profitable, the levels of methane reduction needed for the planet will not be achieved. The United Nations believes that our efforts and contributions to climate are still insufficient. Notably, Bitcoin mining can enable 50% of landfills globally to profit from methane reduction.

Conclusion:

• Methane reduction is our most powerful lever for reducing climate change;
• Bitcoin mining is the only technology that can eliminate methane and profit from it.

This is good for the planet and for Bitcoin. Here’s why:

Methane Reduction and Bitcoin—Quantifying Benefits

Every year, Bitcoin miners have already reduced 6% of emissions across the entire Bitcoin network. This is rare and 6% higher than any other industry. This proportion is very high, largely because Crusoe Energy uses methane burned from oil fields to power HPC and Bitcoin mining.

However, there is an even better story beckoning us. If Bitcoin mines at the four medium-sized landfills currently emitting methane, Bitcoin's reduction could nearly double.

In other words, mining Bitcoin at these four medium-sized landfills would reduce 4 million tons of CO2 equivalent. This is more than the emissions of Geneva; it is 1,000 times more than the reductions from the largest direct air capture project ever.

This goal can be achieved within a year using existing technology.

If Bitcoin mining projects are financed at 35 medium-sized emitting landfills, Bitcoin would become the world's first industry to achieve negative greenhouse gas emissions without offsets.

Given that no industry has ever achieved this feat without offsets, Bitcoin deserves to be listed as an investment target for the global ESG investment committee.

How much funding is needed for negative greenhouse gas emissions?

Crusoe Energy invested $505 million to achieve a 4% reduction target. Therefore, merely scaling up Crusoe requires $12.1 billion.

However, by targeting emitting landfills and Bitcoin mining, the emissions reduced from venting are ten times that of burning, so only $421 million (investment, not cost) is needed to make Bitcoin the world’s first industry with negative greenhouse gas emissions.

The Cost of Wasted Human Life

On the other hand, quantifying is more challenging but equally important. Methane affects not only the global environment but also humanity.

According to the United Nations, methane causes over 1 million premature deaths each year. This is equivalent to the total number of people who died from suicide (over 700,000) and gas poisoning (300,000) last year.

The methane landfill in Haiti is an open dump. Here, 2,000-3,000 scavengers have spent most of their lives picking through garbage and then reselling it, earning about $3 a day. This place is known as hell on earth.

This photo is of Changlair Aristide, 41, who started scavenging at the age of 12.

Regardless of gender, everyone is scavenging late at night.

This is Changlier's wife, Violene. Her dream is to have a "nice home," "a home where I don't need to hold up a tarp when it rains."

The image below shows the living conditions of the scavengers. Most of them suffer from respiratory diseases and chronic headaches due to inhaling methane and infections from used syringes.

Since their homes are right next to the landfill, children are constantly exposed to methane. Babies are more likely to be born with congenital defects. The pollution from the landfill is uncontrolled, seeping into their water supply, which they use for cooking, bathing, and drinking.

The smoke produced during waste incineration releases dioxins, which scavengers inhale directly as they walk through the smoke.

Notably, Bitcoin mining has a superpower: it can transform deadly methane into community-changing methane. Methane reduction projects can allow scavengers to earn a living by sorting waste using proper tools and protective gear. Since these projects impact the health and economic well-being of entire communities, the carbon credits generated can be exchanged for a higher premium, sufficient to offset the additional costs of this work.

Conclusion

In this article, we focused on one of Bitcoin's 21 environmental benefits. We have not discussed the environmental benefits of decarbonizing the grid, nor have we talked about a world where malicious investments are not fueled by a fiat currency system.

Notably, we have only discussed the "E" part of ESG. We have only mentioned Bitcoin's social benefits because they relate to one environmental use case of Bitcoin. We have not discussed Bitcoin's governance advantages, which Anita Posch and other commentators have explored in detail.

In summary, Bitcoin deserves the belief of everyone, including the global ESG investment committee. Bitcoin can legitimately claim to be a leader among global ESG assets, with not just one but six relevant indicators supported by the latest and most representative datasets.

If there are other assets vying for the title of the world's top ESG asset, please make your case and provide supporting evidence. Among the 200 assets I have seen, Bitcoin is undoubtedly number one.

References:

1. Keynote in Lugano, Switzerland where I presented these findings. October 18, 2023.
2. BEEST model methodology and data