The rising value of cryptocurrencies increases the demand for electricity for production, the professor writes John Quiggin.
Two recent developments in financial markets have large and direct adverse effects for the future of the global climate. On the one hand, there are financial institutions of all kinds Divesty From carbon-based fuels. On the other hand, they are increasingly embracing the most meaningless and destructive trend of recent times – like cryptocurrencies. Bitcoin.
Let’s start with the good news. Long ago, the separation from coal mines and coal-fired power stations was seen as a symbolic moral gesture, with social ideologues seeking to narrow their investment options rather than profit from environmental degradation. As it turns out, social mind investors Well done, While the hardheads who keep the coal mining and oil companies in their departments lost badly.
Currently moving forward, divestment has become commonplace, while the procedure is usually performed in a series of infant stages. In this case, almost all financial institutions in developed market economies have limited their exposure to coal and have shown a strategy to end any association with thermal coal used in power generation. (Options for this Metallic coalUsed in steel construction, unlike solar and wind power generation is in the early stages of development).
Recent research has shown that this is a key issue for financial institutions ‘Grief in income ratio‘. Ending or investing in coal is guaranteed to attract a lot of hostile attention not only from environmental activists but also from regulators, whose future assessment is based on the assumption that global commitments to the economy will be adhered to.
On the other side of this equation, the risk of investing in coal becoming an “unsustainable asset”, both unused and immovable, is increasing all the time. Many global corporations (with notable exceptions) Glencore) They have sold their coal assets at a huge loss in the process.
The result is that coal mines are often owned by marginalized operators who want to take advantage of short-term profits. Such firms are not a good credit risk, reinforcing the financial institution’s reluctance to deal with them.
The results have been clarified recently Parliamentary inquiry The pro-coal MP is said to be on the rise George Christensen. Coal miners, including Whitehaven and New Hope, complained that it was almost impossible to save money from Australian banks. Although Asian banks were more willing to lend to coal, they withdrew it due to a lack of domestic support. In addition, China is the only source of financial support for coal as Japanese and Korean donors join the partition movement.
The probe was aimed at pressuring Australian financial institutions to support coal, but it seemed to have the opposite effect. During the hearing, Macquarie Bank It was announced that it would be completely separated from coal by 20224 Australian Prudential Regulatory Authority He warned financial institutions to be accountable for climate risks and the risk of limited holdings accordingly.
Progress in coal diversion contradicts the curiosity of Bitcoin and other cryptocurrencies. Although they once had to replace existing currency as a medium of exchange, cryptocurrencies are now used only as speculative assets and as a means of making illegal transactions. ransomware Payment
“Proof of work“Depends on the process by which Bitcoins and other cryptocurrencies are generated”Mines“Competing to solve increasingly detailed, but meaningless, mathematical problems using specially designed computers and a lot of electricity. The higher the value of Bitcoins, the more electricity they are worth burning to produce.
It was suggested a few years ago that Bitcoin was the electricity used in mining Comparable In the total demand of a small country like New Zealand. But as prices have risen, so has the demand for electricity, where stations powered by waste coal have reopened. Bitcoin is also used in renewable electricity mines, which generate electricity from other uses, which must rely on coal-fired or gas-fired electricity.
As concerns about the environmental damage caused by cryptocurrencies grow, efforts are being made to investigate. “Green”Ways to produce them. Such past attempts have failed, but they may succeed. However, we do not have time to wait and see. Financial institutions must separate themselves from cryptocurrencies and financial regulators need to shut them down. When and if an environmentally safe version arrives, we can take another look.
John Quiggin Is Professor of Economics at the University of Queensland. Her new book, The Crisis of Economic Crisis, will be published by Yale University Press at the end of 2021.
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