Mining Industry Not That Worried by SEC’s Proposed New Climate Reporting Rules
Some of the requirements might be challenging for smaller publicly-traded miners to comply with, however.
This week’s proposal by the U.S. Securities and Exchange Commission (SEC) for publicly traded companies to report information on greenhouse-gas emissions and risks related to climate change seem like they could be major challenges for energy-intensive crypto mining firms. However, several in the industry say they’re not that concerned about the potential new rules and even welcome them.
The SEC’s proposal would require publicly traded companies to report greenhouse-gas emissions from their operations and from the energy they consume, and some to obtain independent certification of their estimates. Among crypto-linked companies, digital asset miners would be the most affected by such rules, given their demand for large amounts of energy to run their operations.
“We welcome it,” said Fred Thiel, CEO of Marathon Digital (MARA), one of the largest publicly traded bitcoin mining companies, which aims to make its operations 100% carbon neutral by the end of 2022. “We don’t think as a miner, complying with the reporting requirements is going to be necessarily onerous,” he said, adding that the report would add transparency for Marathon’s “shareholders and to the community that we serve.”
The bill will also highlight the miners that use more renewable energy and help investors decide which companies will fit their environmental, social and governance (ESG) mandate, noted Ethan Vera, co-founder and chief operating officer of crypto mining and data firm Luxor Technologies.
“The latest proposed bill by the SEC for public companies to disclose the amount of emissions that they produce will shed light on the miners that aren’t using renewable energy,” Vera told CoinDesk. “A growing [number] of public investors have strict ESG guidelines that guide their investment decisions and make them prioritize bitcoin miners that fit in that category,” he added.
With the U.S. becoming the digital asset mining capital of the world, after China’s sweeping ban on the crypto sector, the impact of crypto mining on the environment has become a big debate both in the U.S. and around the world. Most recently, the Environmental Conservation Committee of the New York State Assembly voted on Tuesday afternoon to move along a proposed law that would ban so-called proof-of-work (PoW) cryptocurrency mining for two years. Earlier this month, a similar PoW ban narrowly failed to pass in a European Union Parliament committee vote.
These efforts to regulate the mining industry may not have come into effect yet, but it shows that lawmakers around the world and U.S. are taking a hard look at the environmental impact of crypto mining. “The SEC’s agenda isn’t startling, given Gary Gensler’s past statements and the Biden administration's goal to tackle perceived climate risks,” said Will Foxley, content director at bitcoin mining service provider Compass Mining, as well as co-host of CoinDesk TV’s "The Hash."
An advantage for larger firms
The SEC’s proposal will be open for public comment for at least two months before the agency will begin its work on a final rule. However, if the proposal requires companies to report more detailed emission disclosures, it may be challenging to comply with, said Zach Bradford, CEO of CleanSpark (CLSK), a Nasdaq-listed bitcoin miner that uses renewable energy sources.
Overall, the bill would require firms to disclose their governance of climate-related risk; the material impact, if any, of those risks on a firm’s business, strategy or outlook; and how these risks might affect its financial statements. Bradford thinks this part will be easily handled by miners.
However, the proposed bill would also require companies to disclose varying levels of information about their own emissions. Scope 1 pertains to direct greenhouse (GHG) emissions that occur from sources that are controlled or owned by an organization – for example emissions associated with fuel combustion in boilers, furnaces and vehicles, according to the Environmental Protection Agency (EPA). Scope 2 emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat or cooling. Finally, the bill would also require some companies to report Scope 3 details, which include the emission disclosures of its supply chain and customers.
This level of detail might take a long time for miners and other companies to comply with. “I would expect that reporting of level 1 and level 2 emissions in a mandatory fashion will encounter an uphill battle,” Bradford said, adding that complying with them will be “fairly heavy and expensive lift, especially for smaller filers.”
Compass’s Foxley agreed. “The difficulty for miners comes in terms of reporting. More regulation means more paperwork, which increases overhead,” he said. “We’ve seen this story before in other industries: large-capital backed miners will benefit at the expense of smaller players.”
Large companies may not be completely spared either, however, if they are required to include independent assurance of their Scope 3 emission disclosures, Bradford said, noting that “if this portion does pass, I would expect a fairly long adoption period being added to a final rule.”
Either way, Bradford said he expects CleanSpark will not be impacted significantly by the proposed new rules. “At CleanSpark, we are always aiming to be ahead of the regulatory environment so we anticipate a minimal impact to our reporting and operational efforts should any of these rules be adopted,” Bradford said.
Incentives to use cleaner energy
Moreover, implementation of this new regulation by the miners will likely incentivize more adoption of renewable energy. “If this ends up raising the cost of capital for carbon-heavy miners, in the absence of any subsidies put in place to counter the effect at local or state levels, it will merely incentivize a shift in hash power away from the most carbon intensive parts of the U.S. and into the more renewables dominated regions,” said Chris Bendiksen, bitcoin research lead for digital asset manager CoinShares.
In fact, a fourth-quarter survey by the Bitcoin Mining Council estimated that bitcoin miners globally are now utilizing a 58.5% mix of sustainable energy for their mining operations, up one percentage point from the third quarter.
The SEC’s proposed new regulation could raise the adoption of more sustainable energy sources for crypto miners even further. “By asking public companies to report their carbon footprint, I think, it only pushes people towards more use of renewable energy, which only helps the deployment of renewable energy and speeds our transition from legacy fuel types to renewables,” Marathon’s Thiel said.
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