HKEJ Column

Professor Guojun He

26 March 2025

As of early 2025, the global cryptocurrency market was valued at over US$3 trillion (see Note 1). Cryptocurrency has made a leap from a specialized domain with a minority following in its early days to a global financial ecosystem. Unlike traditional financial markets, the cryptocurrency market operates 24 hours a day, seven days a week and transcends borders. At present, hundreds of publicly listed companies, hedge funds, family offices, and pension funds have invested in crypto assets. In July 2024, the BITCOIN Act was introduced in the US to establish a Strategic Bitcoin Reserve, underscoring the status of cryptocurrency as a strategically significant asset class.

Meanwhile, crypto mining is similarly an international industry worth billions of US dollars. To date, at least 13 crypto mining companies have been listed on the NASDAQ Index in the US, facilitating the creation of emerging industrial chains characterized by specialization and scale. From the production of specialized mining hardware and large-scale mining operations, to electricity trading and carbon credit management, crypto mining has evolved into a hybrid industry that integrates energy, technology, and finance, far beyond mere computation. With technological advancements and increasingly clear regulatory conditions, the cryptocurrency market is set to expand its influence in the world financial system and to play an even more important role in the international monetary system in future.

However, according to frequent media reports, the energy consumption of crypto mining is equivalent to that of a medium-sized country. This has not only made the industry the enemy of environmental protection but was also part of the reason the Beijing government imposed a carpet ban on it in 2021, citing “high energy consumption and carbon emissions; low contribution to the national economy; limited impact as a driving force for industrial development and technological advancement; and the detrimental effects of its unmonitored and chaotic growth on promoting high-quality economic and social development as well as energy saving and carbon reduction”. Meanwhile, latest research studies illustrate that under a properly-designed policy for electricity prices, crypto mining is likely to benefit the expansion of renewable energy and the reduction of overall carbon emissions. Prior to 2021, China had been the world’s largest crypto mining centre, accounting for over 65% of the global mining hashrate (see Note 2). In May of the same year, the National Development and Reform Commission and other government departments jointly announced plans to comprehensively crack down on and prohibit crypto mining (see Note 3). The considerations underlying the decision were the pressure of energy consumption on the objectives of “dual energy consumption control”, the need for financial risk management, and concerns over carbon emissions. Crypto mining activities were then transferred to the US, Kazakhstan, etc. In early 2025, the US became the biggest crypto mining market while legitimate crypto mining activities almost disappeared in China.

Crypto mining can help carbon emissions mitigation in that it encompasses three key features of renewable energy: high fixed cost of initial development; low marginal cost of electricity generation; and imperfect correlation between electricity supply and demand. Not only do these features hamper market potential but the grid systems would be affected if they are not flexible enough. In addition, given the “memoryless” nature of mining activities (i.e. no disruption to mining operations after shutting down and restarting within a very short time), they can serve as an ideal “adjustment device” for renewable energy power grids, compensating for the supply and demand imbalance of renewable energy. Such a mechanism can benefit the rapid development of renewable energy infrastructure in the Chinese Mainland.

While the National 14th Five-Year Plan affirms the goals of substantially accelerating the installation of clean energy infrastructure, including wind and solar power, the development of renewable energy faces the challenge of an “oversupply of wind, solar, and hydroelectric energy”. Despite China’s global dominance in installed capacity of renewable energy in 2024, the oversupply rate of solar energy in some regions had exceeded 10% while that of wind energy had reached up to 15% (see Note 4), causing severe wastage of clean energy and even resulting in negative power prices. Integrating crypto mining into the power grid adjustment system not only absorbs and utilizes surplus power but also overcomes the volatility of renewable energy, stabilizes grid operations, and generates economic benefits.

With a proper electricity pricing policy, introducing crypto mining can enhance investment in renewable energy production and curb overall carbon emissions under suitable conditions. In Western China, where energy resources are abundant, the adoption of crypto mining will help to augment the economic feasibility of renewable energy and encourage the expansion of renewable energy production.

For example, America’s Electric Reliability Council of Texas (ERCOT), a Texan electrical grid operator, has devised a large, flexible load curtailment programme, in which almost all operational large, flexible loads are crypto mining facilities. During the winter storm Elliott in December 2022, the crypto miners’ hashrate drastically declined to 38% of the gross cryptocurrency network hashrate on the same day, providing the grid with perfectly stable service (see Note 5). China can learn from this model and design a regionally differentiated policy based on the energy structure to regulate crypto mining. In the case of the hydroelectricity-rich Sichuan province, crypto mining activities should be permitted during wet season and be restricted or suspended during dry season. As for Inner Mongolia and Xinjiang, which are rich in wind power and solar power respectively, a dynamic electricity pricing mechanism should be implemented in line with the respective wind and daylight intensity.

In terms of policy, electricity pricing should be dynamically adjusted in accordance with grid power supply and demand. Miners should be charged lower prices when there is an abundant supply of renewable energy but higher prices in case of insufficient electricity supply to encourage power conservation. Such a policy framework involves the following four key elements. First, build a regulatory system that distinguishes crypto mining powered by renewable energy from that relying on fossil fuels, providing policy support for the former while imposing tight restrictions on the latter. Second, implement a dynamic electricity pricing mechanism; adjust pricing according to renewable energy supply and grid load; ensure priority for mining activities to consume excess renewable power; and require mining companies to install smart electricity meters and energy monitoring systems, reporting real-time energy usage data and ensuring regulatory transparency. Third, establish a carbon emissions responsibility mechanism, mandating mining companies to reach specific carbon intensity targets or purchase carbon quotas to offset their emissions. Fourth, consider incorporating crypto mining as part of the local energy transformation pilot schemes to evaluate its actual impact on promoting renewable energy adoption and minimizing carbon emissions.

If crypto mining is to be reinstated in the Mainland, priority could be given to the following three pilot regions.

Sichuan: Given the enormous hydroelectric power resources and low electricity prices in the province, crypto mining using hydroelectricity can be allowed during the wet season to utilize excess hydroelectricity.

Inner Mongolia: With the Autonomous Region’s wind-energy resources in abundance and wind energy in oversupply, a crypto mining industrial park designed for wind-energy utilization could be zoned to balance the volatility of wind energy by leveraging the flexibility of crypto mining.

Xinjiang:  Due to the Autonomous Region’s ample solar-energy resources and isolation from electricity load centres, crypto mining can serve not only as a means of utilizing surplus solar power but also as a new approach to linking crypto mining with industrial poverty alleviation.

Clear carbon emissions monitoring and evaluation systems should be in place in these pilot areas to ensure that crypto mining is instrumental in cutting carbon emissions instead of exacerbating environmental burdens.

Apart from environmental benefits, resuming crypto mining can also bring economic and social value, e.g. opening up industrial growth avenues in less-developed western regions to create employment opportunities and generate local tax revenue. In addition, the electricity expenditures of crypto mining can provide a stable income source for renewable energy investments, thereby facilitating the growth of local clean-energy industries.

While the relationship between crypto mining and carbon emissions is more complex than it appears, a proper regulatory framework and pricing mechanism can support the adoption of renewable energy and help control of emissions. This necessitates that stakeholders move beyond black-and-white thinking and collaborate to strike a balance between technological innovation and environmental protection.

As a front-runner in the advancement of renewable energy and a major contributor to carbon abatement, China is well-positioned to explore the symbiotic development model for crypto mining and renewable energy, offering Chinese ideas and solutions for global energy transformation and climate change. Equating power consumption to carbon emission is a simplistic way of thinking. To limit carbon emissions in future, we need more innovative and complex solutions. With appropriate regulation, crypto mining can become a viable option worth reconsideration by China.

Note 1: https://www.coingecko.com/zh/global-charts

Note 2: https://www.gate.io/zh/learn/articles/60-bitcoin-mining-and-energy-consumption-statistics-for-2023-you-need-to-know/1265

Note 3: https://www.ndrc.gov.cn/xxgk/zcfb/tz/202109/t20210924_1297474.html?code=&state=123

Note 4: https://zjic.zj.gov.cn/ywdh/nyhj/202408/t20240812_22695794.shtml

Note 5: https://ceepr-mit-edu.eproxy.lib.hku.hk/climate-impacts-of-bitcoin-mining-in-the-u-s/