New York isn’t ready for bitcoin mining, says state lawmaker proposing a three-year moratorium

Anna Kelles, the New York Assemblymember for Ithaca, is a nutritional epidemiologist-turned-politician. She's also the force behind a proposed three-year halt on the recent migration of bitcoin mining companies to upstate New York that has drawn the attention of the crypto industry. 

During that time, New York regulators would undertake a study of the mining industry and its impacts. 

Ithaca is perhaps most famous as the home of Cornell University, where Kelles used to teach. It’s no surprise, then, that she is focused on the lack of scientific data on crypto mining operations. Specifically, she is concerned with the environmental impacts of New York’s sudden prominence in global mining. She told The Block her team had identified 13 new mining centers, most of which had set up shop in largely abandoned power plants that feature outdated and inefficient generation technology. This was, she said, especially concerning, as the 2019 Climate Leadership and Community Protection Act mandates huge reductions in New York’s overall emissions. 

When it comes to crypto mining, massive energy expenditure is one of the most consistent public criticisms facing proof-of-work blockchains, especially Bitcoin’s. It was Elon Musk’s professed reason for ending Tesla’s brief flirtation with BTC payments for vehicles. Square has similarly pledged to work on greening Bitcoin while eliminating the firm’s overall carbon footprint. But these conversations are dependent on limited information.

Without a doubt, reliable data on Bitcoin mining and its energy mix have been notoriously hard to come by. During an interview with The Block, Kelles emphasized that the future of mining in New York — following the sorts of studies that the bills seek to mandate — would result in the best data on crypto mining networks and their energy usage yet. She also spotlighted more local environmental impacts of crypto mining, especially around the Finger Lakes where new operations have clustered. 

As to the concerns that a three-year moratorium could do lasting damage to New York’s economic prospects in this emerging industry, Kelles was broadly unconcerned. 

Below is an edited transcript of a conversation between The Block’s Kollen Post and Kelles.

The Block: What is the moratorium? And why pick on crypto mining?

Kelles: I do not see this moratorium as a definite, permanent situation. For me, I want it to be put in place and I want it to be put in place now to stop us from going down a road that we cannot recover from. But once we have that data that will determine which direction we go from there

If we want to permit it, if we want to regulate it, we can't regulate an industry that we don't understand. So if we finally find we have enough plants and in New York State, right here in New York State, we could actually for maybe the first time get a comprehensive estimate of what that mix is, because we do know where they are. We do also have historical data of those plants. 

New York is the state that has created the most aggressive environmental legislation in the country. To have it be the primary target or one of the primary targets for a massive expansion of cryptocurrency mining. Not only that, but in the most inefficient power plants in the state.  

The Block: The bill initially reached the public in the New York Senate, which came from Senator Kevin Parker. Why the confusion over your authorship? And what are the origins of your interest?

Kelles: Because there are fewer members, if a senator puts a bill in, they get a number faster than if an assembly member puts a bill in, so I sort of put the cart before the horse. This is my first year. So I didn't realize that the way that you get around that is you put out a public statement. You know, ‘I'm carrying this bill with so-and-so. We're introducing it together.’ Other senators have made sure that that is what happens. But Parker did not.

It's actually a very complicated story. I introduced a bill and asked him to carry it, and then he wrote an additional bill and asked me to carry that, which is essentially a component of my bill. The bill that is synonymous with the one that I have is a moratorium with a full generic environmental impact statement or GEIS. And his second bill is a study to evaluate the energy costs of crypto, which is, in essence, a subcategory of what will be a full GEIS. So my bill is more comprehensive, but it actually goes further back than that because this bill is basically a redo of a bill that Clyde Vanel put through in 2019. 

He put forward a bill that was also more comprehensive. It would have created a task force that was designed to evaluate, comprehensively, cryptocurrency. One aspect of that large study would have been to evaluate the energy costs of cryptocurrency mining. That had an expiration date on it of December 31, 2020, when the study was due to be released. But because of covid, that task force was never put together and that study was never done.

The reason that I got pulled in is because when I was the chair of Planning, Energy and Environmental Quality, which is one of the committees in the county legislature, it just so happens a couple of years ago that our power plant was mothballed and they had a contract with a company that wanted to build a data center there. And so the big question was, ‘OK, well, are you courting crypto?’ And at the time they weren't. The times have changed.

The Block: Why would so many miners and mining centers be moving to New York, especially in the last couple of years? Why are these power plants available?

Kelles: From the research that we've been able to do, there's about 13 mining centers in New York State. Most of them, if not all of them, are related to power plants because it's the most cost-effective. We have so many that are mothballed in New York State.

The thing that's frustrating is that not only are they coming in and buying up old peaker plants that are the least efficient of all of the technologies. They are turning them on — where they previously might have run two days out of the year — they are now running 365 days of the year, 24/7.

These power plants were mothballed because we have worked very hard to improve the efficiency of our energy grid. The most recent power plants that have been built are built on the most modern technology, which is the most efficient technology. Grading them compared to each other, they produce less greenhouse gases per unit energy and fewer air pollutants — not that they don't produce any, I'm not condoning, I'm just simply comparing them to the older versions. And so as that happens, the older plants are no longer competitive on the markets, and so they're what we call the peaker plants because they are only turned on and they only sell into the market when there is severe peak demand.  

The Block: Wouldn’t it also benefit the miners to be using more efficient technology?

Kelles: That's irrelevant if you're just using it as an energy source and you don't care about the externalities. It's a cheap power source.

For example, the Greenidge facility. The company went bankrupt and mothballed that plant, I think, sometime around 2012, 2013. They went bankrupt and Greenidge bought it and got a grant from New York State through, I think, Empire State Development, the economic entity that Governor Cuomo oversees, to extend a natural gas pipeline that they did not pay for. It was paid for by the state to extend a natural gas pipeline to the facility.

If you buy a power plant and you build a relationship with the state and you say, ‘Hey, we're going to re-up this power plant and we're going to become a peaker plant again, so that if you need energy, we'll sell into the grid for you. So we're going to free up and we're going to create this additional backup system.' And then you create a subsidiary that runs from the power plant or the company that owns the power plant. 

In your contract with your subsidiary, you say the energy is in the cost of the rent. We're just going to roll it all in. So you build that. You build that mine inside the power plant, then you've created a shell. You’ve created two separate companies. You've got the one company that interfaces with the government that sells into the grid, which means it's regulated by DEC [Department of Environmental Conservation] because you're interfacing with the grid. But you have a second company that's completely contained within the facility itself. And so you turn that power plant on, run it 365 days out of the year. And the company that's inside the building can use all the energy it wants all of the time. And it's part of the rent.

The Block: But the moratorium applies to all mining centers. Are there ways firms can mitigate their impact? Greenidge, for example, says it’s buying offsets for its emissions. Can offsets make these mining operations more benign, in your view?

Kelles: That's the classic greenwashing right there saying because if you think about it, every industry did that. 'Yeah yeah yeah, it's fine. We'll just buy offsets. we can increase our energy expenditure indefinitely. We'll just buy more offsets.' That's literally impossible because renewable energy has to be on land or on water and there's only so much. 

Looking at the environmental impact assessment in the context of the Climate Leadership and Community Protection Act, the CLCPA set target goals of reducing our greenhouse gas emissions by 85 percent with an additional 15 percent offset by 2050, with an interim at 2040.

When the bill passed and the CLCPA became law, it was based off of our energy usage at the time. So if you are trying to reduce your GHG [greenhouse gas] emissions, and you're at the same time massively increasing your energy needs as a state, you've created a moving target. So that's one thing that's really important to remember. The second thing that's really important to remember is that only 15 percent of the 100 percent is allowed to be offsets, meaning that you can produce GHG emissions and then you offset by buying something else.

The only thing that really pencils out right now are the industrial wind farms. And there are only so many places that have the right wind speeds and topography. Now, you can do offshore wind farms, but, you know, that's much more costly, but is something that the state is investing in. 

The Block: What about actually using renewable energy sources?

Kelles: The thing that people really need to consider are the opportunity costs right now. So last Thursday at a CLCPA hearing, the president of Nicita mentioned that currently our electric grid is fed 27 percent [by renewables]. So if we have 73 percent of our current energy usage still being fossil fuels and we are struggling to get those 73 percent onto renewable or the offsets, sorry, my brain just melted for a second. Then if you are adding a significant amount of energy and you're using the renewable that's created for this additional energy use, then it's not being used to feed into the grid for the 73 percent that we're still trying to get off the grid. 

The Block: Mining is a global operation though. Is it better to have mining happening in a regulated environment like New York rather than, say, Inner Mongolia or Xinjiang?

Kelles: When we are talking about climate change, we always talk about the greenhouse gas emissions impact right where the energy usage impacts, but we're not talking about the impact on air quality and water quality. You cannot underestimate those impacts. So even if you put it totally on renewables for the energy, if you look at Greenidge alone, Greenidge is pulling in over 1.5 million gallons of water from Seneca Lake a day. It's pulling it in at the water temperature that it is — which I think it's somewhere between 40 and 60 degrees — and the permit allows for them to dump that water back in every single day over 1.5 million gallons a day back into a Class C trout stream at up to 108 degrees temperature the permit allows for them up to 108 degrees during winter and 86 degrees temperature in summer. And if you study trout, you'll see that trout begin to show signs of severe stress at 70 degrees temperature. 

Even if that water, once it enters into the lake, would take significant time to produce a scientifically, statistically significant change on the full body of water temperature, it is having a massive effect on the point of entry into the sea trout stream, first of all. Second of all, it doesn't have a filtration system on it. So it's pulling in massive amounts of wildlife into circulation, which causes, of course, you know, severe death tolls. The other thing that I think is really important is that we have seen a massive increase in harmful algal blooms in our freshwater bodies in the Finger Lakes area. And that change can happen with modest, quite modest changes in temperature. So is this contributing? Again, we don't know, but the consequences of not knowing could be pretty severe.

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