COP28 and Bitcoin: The Beginning of a Beautiful Friendship?

This week sees the kick-off of COP28, the annual conference to discuss a coordinated global approach to dealing with climate change issues. This year, it is held in the United Arab Emirates (UAE), one of the world’s largest oil producers.

Already desperate rhetoric is emphasizing the catastrophic cost of inaction; 120 heads of state are brushing up their speeches; and even Pope Francis will make an appearance despite a lung inflammation.

Noelle Acheson is the former head of research at CoinDesk and Genesis Trading, and host of the CoinDesk Markets Daily podcast. This article is excerpted from her Crypto Is Macro Now newsletter, which focuses on the overlap between the shifting crypto and macro landscapes. These opinions are hers, and nothing she writes should be taken as investment advice.

Yet, as usual, the event will most likely end up being a waste of time as well as energy (of all kinds). Nevertheless, there is a positive crypto twist embedded in the shambles.

First, let’s briefly address my skepticism.

The track record so far is not auspicious. The first COP (which, if you’re curious, stands for Conference of Parties) in 1995 called for governments to establish specific, legally-binding targets and timetables for reducing developed country emissions of greenhouse gasses. Almost 30 years later, we still don’t have those.

The chair of the event is Sultan Ahmed Al-Jaber. He is also CEO of the state oil company ADNOC, which is expected to boost its oil production next year after the recent upward revision of the UAE OPEC+ quota. ADNOC has also been aggressively expanding its international fossil fuel interests. I do believe that an oil executive is better placed to get other oil executives to listen, and ADNOC is working on diversifying its revenue streams. But it’s a stretch to ask us to believe there is no conflict of interest here. Indeed, leaked documents have revealed that the UAE was planning to use its position as host country to discuss oil and gas deals with more than a dozen countries.

Governments around the world are aware that more funding is needed to combat climate change. In 2009, donor countries agreed to mobilize $100 billion a year by 2020 to help developing countries reduce their dependence on fossil fuels. This target was only reached this year, but it doesn’t matter anyway: a recent report by the International Energy Agency suggested that the annual amount needed would be more like $2.7 trillion. Not all of that would need to come from public coffers, which is just as well since most developed economy governments are struggling with more short-term priorities such as helping allies defend borders, maintaining benefits and not defaulting on sovereign debt.

Plus, emission reduction policies are not popular with voters and could lead to political upsets. The surprise win in last week’s Netherlands general election of far-right candidate Geert Wilders was in part a result of some of the drastic emission measures proposed by the outgoing government, such as reducing livestock herds. In Germany, dwindling support for the once-powerful Green Party has made space for a resurgence of the far-right Alternative für Deutschland (AFD). Many European countries are at odds with the EU’s plans to charge shippers for their emissions – and the EU goes to the polls next year.

Elsewhere, leaders are walking back climate commitments due to internal pressure. In September, U.K. Prime Minister Rishi Sunak announced that the U.K. was delaying its decarbonization plans, to avoid “losing the consent of the British people.” Germany is reactivating several mothballed coal plants this winter to avoid an energy shortage. China has approved roughly 50% more coal plants over the past two years than in the two years before that.

There are so many issues that impede an alignment of global incentives to fund the transition while curbing fossil fuel production and use that all the above is just scratching the surface.

Yet we are encouraged to curb our cynicism because COPs are important for raising awareness of the importance of “doing something.” I’m all for doing “something,” but after 28 years of these conferences, we have made little progress in understanding the economics of the problem, and in addressing the necessary incentives.

Perhaps Al-Jaber can bang some heads together and get some representatives to override national interests. But he would have to do that for all delegates, and with the UAE not exactly setting a good example, the chances are slim.

Meanwhile, the cost of hosting such an expansive event (which is increasingly being dominated by commercial interests) must be astronomical. Over 70,000 people are expected to attend. I doubt they will get to Dubai by rowboat or bicycle.

A valid question is when the vast expense of all the COP-related hand-wringing will be diverted to focus on technological breakthroughs that will help with adaptation as well as more efficient renewable generation systems.

One such breakthrough is Bitcoin. It is by no means a solution to all of the hardship ahead from climate change, nor will it solve many of the barriers to greater adoption of renewable energy. But it can help with decarbonization.

It wasn’t that long ago that Bitcoin was vilified for its environmental damage. Investors and casual observers rejected the very idea of learning more about bitcoin because it was harmful. Climate activists campaigned for the code to be changed, lawmakers campaigned for its mining to be banned. Thankfully, this has largely died down as study after study debunked the false claims. Remember how in 2017 Newsweek proclaimed that Bitcoin mining would use all of the world’s electricity by 2020? We’ve come a long way since then.

It’s not just peer-reviewed papers that have highlighted the potential for bitcoin mining to support greater investment in renewable generation and methane capture. It’s also a powerful sprinkling of well-written reports from institutional research teams such as Bloomberg and KPMG. The narrative has shifted. Even misguided regulators have pivoted their crypto objections to focus on illicit uses.

The way-too-brief summary is that Bitcoin mining can economically support the construction and operation of renewable grids, even small ones in remote areas, by acting as a swing consumer. Bitcoin mining is practically the only industrial energy user that is location agnostic (rigs don’t care where they are as long as they have energy and an internet connection) and can power up and down with relative ease.

What’s more, bitcoin miners can help mitigate methane emissions from fossil fuel production by converting the gas into energy to power the income-generating machines. According to the International Energy Agency, methane is responsible for roughly 30% of the rise in global temperatures since the Industrial Revolution, and fossil fuel production is the third largest source of methane contamination (after wetlands and agriculture). Removing part of this while helping to secure a financial network sounds like a win for energy companies, bitcoin miners, investors and – of course – the environment.

There is so much more to say on this, but in sum, bitcoin is a significant piece in the climate change adaptation puzzle.

And this year, COP28 will have its first Bitcoin mining delegation. I don’t know to what extent Bitcoin miners were present in previous COPs, but the fact that this time there is an official “delegation” with a high-quality panel feels significant. It almost cements the shift in the narrative, and will hopefully help to spread the constructive possibilities even wider.

It also highlights just how “early” Bitcoin is. Its technology is misunderstood by most, its use cases are undervalued by many, and its potential is as yet barely appreciated.

The environmental misunderstandings have been painfully frustrating – but, with Bitcoin actually having a presence at the most high-profile climate change conference, we can appreciate that progress has been made. There’s a long way to go yet, but events like this will help push the narrative forward, and connect various interests that will together work on the small steps that can take us all a long distance.