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EU Invests $843K in Study to Uncover Crypto’s ‘Significant’ Environmental Impact

Published September 28, 2023 12:48 PM
James Morales
Published September 28, 2023 12:48 PM
Key Takeaways
  • The EU will fund a 13-month study into the environmental impact of crypto assets.
  • A recent call for tender proposes developing new tools for assessing crypto technologies’ sustainability.
  • Under its digital finance strategy, the EU has committed to making digital asset technology climate-neutral by 2030.

The environmental impact of carbon emissions from crypto mining remains one of the most contentious issues surrounding the technology.

Critics argue that the demand for electricity generated by Proof-of-Work cryptocurrencies like Bitcoin ultimately leads to unnecessary emissions. Meanwhile, advocates counter that the environmental impact of mining is overstated and more efficient management energy can mitigate it.

Looking to better understand the issues at hand, the EU has put a €800,000  ($843,000) contract out to tender to develop a method for assessing the environmental impact of different crypto assets.

Developing the Tools to Measure Crypto Emissions

In a tender notice  published on Tuesday, September 26, the European Commission’s Directorate‑General for Financial Stability, Financial Services and Capital Markets Union called for researchers to submit their proposals to win a 13-month contract.

“With the rapid development of the market for crypto-assets, mounting evidence arises on the potentially harmful environmental impact of crypto-assets,” the invitation to tender states.

It further suggests that “some categories of validation protocols and methodologies” that underpin distributed ledgers may be especially susceptible to high emissions business models.

Reading between the lines, the EU’s latest proposal appears to be referencing the debate over Proof-of-Work versus Proof-of-Stake consensus mechanisms.

Due to the much lower amount of energy necessary to process transactions, PoS systems like Ethereum are more environmentally friendly than their PoW cousins.

As well as proposing a comparative analysis of different validation mechanisms, the planned study would contribute toward the work of international standardization bodies to develop an energy-efficiency label for blockchains.

Applicants now have until November 10 to submit their tenders.

MiCA Requires European Commission to Report on Environmental Impact of Crypto 

A provision in the EU’s Markets in Crypto Assets (MiCA) regulation catalyzed the latest call for tender.

According to Article 140(2)(y), of the MiCA framework the European Commission must publish reports that focus on the environmental and climate-related impact of relevant technologies.

In addition to assessing areas of concern, these reports may also identify policy options that could mitigate any adverse impacts on the climate that the crypto sector created.

EU Targets Climate Neutral Digital Finance by 2030

Concerns about the environmental impact of data centers used to mine crypto-assets have been previously expressed in the EU’s Strategy  for Financing the Transition to a Sustainable Economy.

The strategy, which adoption occurred in 2021, acknowledges that innovations including blockchain technology have “a significant role to play in sustainable finance.”

However, it cautioned that while digital technologies are key to reducing emissions, concerns about the environmental impact and increasing energy needs of data centers and distributed ledger technologies remain, “notably for crypto-assets.”

Therefore, it argued that “the EU should take the lead in making these infrastructures climate neutral and energy efficient by 2030.”

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