Crypto, Data Centers, and Climate

Edith Howard: Hello everyone and welcome to this Federalist Society virtual event. My name is Edith Harold and I'm Assistant Director of Practice Groups with the Federalist Society. Today we're excited to host this webinar on "Crypto, Data Centers, and Climate" in which we'll look at the federal and state regulation of the environmental effects of Bitcoin. This panel features Thomas Cmar, Ewelina Czapla, and Kara Rollins as speakers and Jonathan Brightbill will be moderating, who is a trial and appellate lawyer at Winston & Strawn and a former Acting Assistant Attorney General of the United States DOJ. If you'd like to learn more about today's moderator or speakers, their full bios can be viewed on our website at fedsoc.org. Near the end of the program, we will turn to the audience for questions. If you have a question, you can enter it into the Q&A function at the bottom of your Zoom window, and we'll do our best to answer as many as we can. Finally, I'll note that as always, all expressions of opinion today are those of our guest speakers, not the Federalist Society. With that, Jonathan, thank you for joining us today, and I'll hand things over to you.

 

Jonathan Brightbill: Great, thank you Edith, and good afternoon to everyone and welcome to today's Federalist Society webinar on Crypto, Data Centers, and Climate. Today's discussion will be about cryptocurrency and Bitcoin, its energy needs and environmental impacts and some of the past and developing legal and policy issues surrounding it. As Edith said, my name is Jonathan Brightbill. I'd like to thank the Federalist Society for hosting today's discussion as well as our three expert panelists whom I will introduce in turn for some opening remarks. Now on January 1st, 2000 at 12:00 AM the world's computers and business networks did not devolve into chaos, believing it was January 1st, 1900. The much feared and hyped Y2K bug passed without much more disruption than when power outages force us - some of us - to reprogram our microwaves, oven clocks, and those clunky clock radios we all used to have on our nightstand. But looking around the world today, it's amazing how much more our daily lives have become digitized, interconnected to and made more dependent than ever on vast societal networks in the two and a half decades since then.

 

From the internet, our power grids, our banking systems, and - as COVID brought to the fore for many - even our transportation and logistical systems, bringing the food and goods that billions of people need around the world and in cities is ever more interconnected and sensitive to disruption. Today we are here to talk about another of those exciting new technologies in which many see great promise, and that is crypto. With cryptocurrencies and Bitcoin in particular, proponents seek to develop a decentralized form of money that can transcend borders and governments, a medium of exchange where transactions are instant, fees negligible, and intermediaries unnecessary and that can also serve as a store of value in exchange that allows individuals to have protection from devaluing government spending. But Bitcoin's proof-of-work mechanism is energy inefficient, and that's not a bug. It's the design. The computational competition required to validate incoming transactions and add them as new blocks onto the blockchain now requires vast data centers consuming an increasing amount of electricity, and this comes at a time when environmental activists, many policymakers and even businesses making ESG commitments are calling for transitions from our existing power networks away from fossil fuels and to new technologies.

 

These new technologies are needed to form or to support other increasing draws of electricity - artificial intelligence, electric vehicles - so our need for electricity in the future to power this country and the world is only projected to increase, not decrease. At the same time, however, many Bitcoin proponents state that the actual marginal impact of Bitcoin mining on the network is vastly overstated and in fact, Bitcoin miners and mining can be valuable partners with renewable generation developers and others to try to encourage more forms of electrical development. Today we're here to discuss the environmental impacts of Bitcoin, what the industry itself is doing to address those concerns, and efforts by the Biden-Harris administration and the Energy Information Agency to examine those issues. So we're going to start our discussion here today with remarks from Thomas Cmar, Senior Attorney of the Clean Energy Program at EarthJustice. Thomas is going to go over some of the environmental and climate concerns relating to cryptocurrency and Bitcoin. Thank you Thomas for joining us.

 

Thomas Cmar: Thank you, Jonathan. I appreciate that introduction. As Jonathan said, my name is Tom Cmar. I'm a senior attorney with the nonprofit legal organization, EarthJustice, and I'm on the clean energy team. I'm based in Cincinnati, Ohio. I've been working at the intersection of energy and environmental law and in particular specializing in work on power plants and the electric sector for almost all of my 20 year career. And because I'm based in Ohio - and before that I was based in Chicago for a number of years - most of my state level work has been in the Midwest and Midwestern states, and also I've done a lot of work in Kentucky. I should start here with a disclaimer, which is that I'm speaking in my personal capacity as an attorney who works for Earth Justice but not on behalf of any EarthJustice clients. Most of my work on cryptocurrency mining operations has been through state energy work in particular in Kentucky.

 

EarthJustice in Kentucky works with a coalition of Kentucky led state and local organizations that advocates for a faster but also an equitable transition away from fossil fuels to clean energy with a focus on minimizing impacts to ratepayers and especially low income ratepayers who are captive customers of monopoly electric utilities. With respect to cryptocurrency mining in Kentucky and throughout the US, the story for the groups that I work with started in 2021 when there was an explosion of new cryptocurrency mining facilities in the US and in some key states like Kentucky and Texas after China banned those operations. Dozens of new facilities came looking to locate in Kentucky in particular where they were chasing after low energy prices, and it's important to remember that for these facilities, electricity is by far the largest input and variable cost, and so there's huge incentive for these facilities to choose where they locate based on what kind of prices and arrangements they can get around their electricity. 

 

That includes not only deals around the price of electricity, but also many states are now offering tax abatements or economic development incentives, and there is a real concern among folks who work on behalf of ratepayers that there's a race to the bottom - that states are trying to outbid each other and that has a cost on local taxpayers and ratepayers. As Jonathan alluded to, there's also concerns about the local environmental impacts of these facilities and especially the noise from these facilities. Some of them are close to residential communities and there are a number of organizations, community organizations near these facilities that have raised concerns about the quality of life impacts of living near cryptocurrency mining facilities.

 

In terms of the environmental perspective though, at least from the Earth Justice standpoint, the biggest concern we have is climate. Adding these large new loads to the grid at a time when the transition away from fossil fuels is already happening - it's happening primarily for economic reasons - but we are in the process of advocating that it happened faster and also in an equitable way to address the cost and affordability impacts of the transition, and so a boom in construction of these types of data centers that are major energy users, we have the concern that that's weighing down a long overdue and necessary energy transition, that it's potentially keeping legacy coal and gas plants online for longer that based on pure economics would otherwise be retiring in favor of clean energy sources that are also cheaper in the long run for ratepayers. And so it's in this context that we've evaluated claims that the cryptocurrency mining industry has made about the benefits they provide. In terms of the economic development aspects of it, most of these facilities only create a handful of full-time jobs in facilities. We've looked at in Kentucky, you might get 5 or 10 new jobs at an average size facility, and yet they were frequently receiving millions of dollars of economic development incentives.

 

And so that was one big concern that we've raised with new development in Kentucky. From a clean energy perspective, there's a concern that even facilities that claim they're relying on clean energy are not actually adding new clean energy to the grid, whether they're relying on what so-called RECs, renewable energy certificates or otherwise, through procuring the clean energy, they're taking it away from having it be available to other customers and thus slowing down the transition to a decarbonized grid. There is an idea out there that we frequently hear that some amount of clean energy out there is being wasted and that cryptocurrency facilities or somehow helping the grid by taking advantage of that wasted energy, but we would resist that notion that cryptocurrency facilities are somehow a solution for that. In our view, what we need is more and better transmission, more deployment of battery storage again, to help with getting clean energy to the regular rate payers who need it and having large new, there's a concern that having large new data center loads get in the middle of that process only slows things down and makes things more expensive.

 

One last thing I'll mention before I hand it off to the other speakers. Jonathan mentioned the Energy Information Administration or EIA. One of the major challenges that has confronted decision makers with the cryptocurrency mining boom is that tracking the energy use of this industry has been difficult. The reporting around this industry is opaque and there's little to no reporting requirements at either the state or federal level. Publicly traded companies do sometimes make filings before the Securities and Exchange Commission or SEC, there's some scattered regulatory filings available, but there's no centralized place where information about the energy use from this industry is compiled and made publicly available. In January, 2024, the EIA announced that it intended to begin collecting energy information from the cryptocurrency mining industry on an emergency basis.

 

The EIA published a survey in February '24 that sought information from industry actors as to both energy consumption and certain characteristics of their facilities that relate to energy consumption. I'm sure you'll hear about this from the other panelists today. There was a lawsuit that was brought by the industry challenging the emergency nature of that data collection. Earth Justice was not directly involved in that lawsuit. I'm not going to weigh in on the specific issues there, but the point I would like to make is that the collection of energy use information from the cryptocurrency mining industry is sorely needed.

The EIA, this is exactly what the EIA does. They're charged by Congress with collecting information from every major energy consuming industry in the country for the purpose of synthesizing that information, providing analysis and information that's helpful to federal and state decision makers as well as members of the public that helps to understand the effects of energy use from different industry that allows for effective planning of future energy needs. And while I understand from the industry's perspective, there are concerns about whether some of this information might get into proprietary or confidential matters, to the extent those are legitimate concerns, there are well-established processes by which the EIA can collect confidential information and keep it confidential while still using it to inform broader aggregated studies of the industry and its impacts.

 

My understanding of where that process stands now is that between now and September, the EIA intends to commence a new process where it'll begin taking comments from the industry and the public on a new proposed survey. And just to close here, I think it's very important that the EIA move forward with that effort. This industry is a large energy consumer. It has big potential impacts on the grid and on electricity costs, and there needs to be better information available to decision makers and the public that only an agency like the EIA is able to provide. In the interest of time, I'll leave it there, but thanks for your attention and I look forward to hearing from the other speakers and look forward to the discussion. Thank you.

 

Jonathan Brightbill: Great. Thanks Tom. Thank you for your remarks. For those of you who are interested in submitting questions, I do think that the chat is going to be active and available for those who want to provide questions for our panelists. You can go ahead and do so and we'll get to that at the Q&A session after the opening remarks. We're going to move on next to Ewelina Czapla, the director of Energy Policy at the Chamber of Digital Commerce and its Digital Power Network. The Digital Chamber or the Chamber of Digital Commerce is a trade group for promoting the acceptance and use of digital assets and blockchain-based technologies. Ewelina, you take it away.

 

  Ewelina Czapla:

Sure. So Ewelina Czapla here. I'm with the Digital Chamber and Digital Power Network. We actually just rebranded Jonathan, so we got rid of that “commerce” part - I know it was a mouthful - so now we're just the Digital Chamber. Essentially, the Digital Chamber launched the Digital Power Network as an affiliate about a year ago in order to advocate and educate folks about the Bitcoin mining industry. Essentially, we work on federal level policymaking and represent nearly all of the publicly traded US-based bitcoin mining facilities along with a series of other folks including privately-held Bitcoin mining data centers, the folks who build hardware, so the chips that are used in the computers, the folks who build the cooling systems that are implemented on site to operationalize the computers, as well as folks who really work on sort of more of the service and consulting side of the business as well.

 

So it's actually quite a large ecosystem at this point, and I think we're seeing a lot of interplay between our membership and other elements of the data center industry, so to the extent that some of our members operate Bitcoin mining data centers, they're also now diversifying and working on artificial intelligence or cloud compute data centers as well, so the industry is really growing. I think, Jonathan, you've made a great point there. We're really digitizing everything now. So that demand for electricity is growing, whether it be from data centers, EVs, or everything else that we're really going to be plugging into the grid in the coming years. The DPN's membership operates across the country. There's a large prevalence in Texas, of course, of miners, but folks are really all over from North Dakota to New York throughout the Mid-Atlantic, Georgia. And our membership is really diversified in how they operate from an energy perspective. 

So some folks are grid connected, some folks are behind the meter. They are co-located with a power generation source. Some folks are entirely off grid and they are mitigating methane emissions at the wellhead, at landfills, capturing that waste gas and essentially generating electricity off grid. Our mining facilities are unique, they're incredibly flexible, and they offer a bridge in the energy transition that is both operational and financial. Essentially, our data centers are really good at monetizing stranded or wasted assets. So if you think about how your typical intermittent renewable resource operates, it'll often be generating its peak amount of electricity when demand is just not there. For example, wind turbines are most effective later in the day, in the evening and at night. That is not necessarily when there is load on the grid, and often that means that power will be curtailed. So essentially that means that it's lost, it's wasted, it's not sold to anyone.

 

Our miners are able to partner with those companies and sign agreements to essentially buy that power when it's not usable on the grid and monetize that asset for those developers. So essentially, if you've invested in that wind facility, you can now see earnings that you didn't project, and it helps them pay down that asset faster. It can also serve as a great financial bridge to invest in things like battery storage so that several years down the road, essentially the company that's built the wind facility has the capital to then invest in the battery storage for the longer term. A great thing about our miners is also that they require less bandwidth than your traditional data center. So when you're comparing Bitcoin mining to things like cloud compute or artificial intelligence where that bandwidth requirement for internet connection is quite high, we're relatively low. And that's great because it means that our data centers can essentially operate in relatively remote areas where there isn't terribly advanced infrastructure built out.

 

Here in the DC area, of course, we have a huge cluster of data centers right outside the city, and all of those are really reliant on the very high speed internet connections that we have available here. But frankly, a lot of our miners can go out into the field, out into West Texas where there's very little around, there's little infrastructure and they could take advantage of what is there in order to set up these data centers. These data centers are broadly energy intensive, whether they be Bitcoin miners or general cloud compute. And typically when you see data centers come online, they're running 24/7. And that's frankly because there are some contractual commitments that typical data centers make. So for example, I have an iPhone, I have photos on my phone and I have a contract with Apple. I pay them, I think it's a $1.99 a month, and they guarantee that they will have all of my files somewhere on a server so that if I wake up at 3:00 in the morning and I want to look at my cat photos, they are there and ready for me at any point in the time in the day.

 

And that kind of large industrial load presents a particular challenge, especially when it comes to regional planning in the short and medium term. Our miners are a little bit different. They have operational flexibility that your typical data center doesn't. Bitcoin mining is on principle very price sensitive because you are essentially mining an asset, right? So the coin itself has a value. You have to compare the value of that coin that you are mining to the costs incurred in mining that coin. So typically here just electricity prices and to some extent things like FTE, full-time employment, taxes and other sort of operational costs. So when you're comparing that operational cost to the value of Bitcoin, if that price of electricity is too high, it's no longer economically or financially viable to mine Bitcoin. And in those instances, our data centers are able to come offline.

They essentially ramp down the computers and within a matter of a few minutes, they can bring an entire data center offline. And it's really to their benefit to some extent because of course they don't want to be going into the red. They want to be mining Bitcoin at a profit. But it's also great from the perspective of demand response. So typically you see prices grow for electricity when demand rises, and this often coincides of course with our miners ramping down. They're very incentivized to participate in demand response and ancillary service programs that are offered by grid operators. So essentially when your utility decides that there's too much demand on the grid, you might be essentially moving into the reserve capacity that's on the grid, you can essentially shut down your Bitcoin mining facilities as the grid operator if they're participating in these ancillary service programs.

 

And in that way, they are a wonderful buffer so that when you are seeing these elements of strain on the grid, particularly when there's critical weather conditions, particularly difficult storms, let's say, our miners are able to come offline in the matter of a few minutes, and that means all of the typical consumers - residential and commercial - can continue receiving electricity without any issue. And that's particularly difficult, particularly important when you're facing difficult conditions outside. This is something that is very, again, unique to our data center facilities. It's not something that your AWS type facilities are going to be able to do. And it actually is essentially inherent to the way that Bitcoin mining works. Its proof-of-work mechanism allows these computers to essentially solve a cryptographic puzzle and earn Bitcoin. That function is discrete, it's a series of discrete attempts to solve a problem. So essentially it's built into the process that you can quite literally turn off the computer, stop essentially running that cryptographic puzzle, and you'll face essentially no issue in coming back online as the operator.

I think the other important thing to think about here is the broader context. So I think some folks have already hit on this. We are seeing the growth of data centers, whether they be Bitcoin mining data centers or other types. Now within this sort of period of load growth for the first time in decades, we are seeing load growth being projected in the coming years. And that is really creating attention for regional planners who are trying to decide to what extent they need to bring certain assets online, whether that be transmission distribution facilities, whether that be generation and potentially battery storage that goes along with that. And that really needs to be balanced with essentially the amount of industry and commercial activity that we're bringing onto the grid, right? So typically when you see demand growth on the grid, it's because you're seeing GDP growth, you're seeing economic growth.

 

So these two things kind of go hand in hand and for the first time in some time, we're actually seeing that demand growth in a way that regional planners haven't been accustomed to in the past decade. So right now we are trying to sort out how it is that we can meet these needs with our existing infrastructure. I think the crux of the issue here is that while we are at a phenomenally higher rate now developing new generation resources, we're seeing a record-breaking investment in renewable resources. At the same time we're seeing delay in deployment because we are seeing essentially a lot of different permitting issues that come up, whether they be on the state level or federal level, that really hinders some of these generation and transmission facilities from coming online and really being able to meet that demand growth, that load growth we're seeing on the grid.

 

So right now in Washington, we're seeing that this demand growth conversation is really also part and parcel of this permitting reform conversation. And we're seeing progress of course being made on that. We saw a bill introduced, I think it was earlier this month that really is the first concerted effort on permitting reform that's come out in the past few years. There are of course others that are being developed right now as well. And I think at the end of the day, what we'll end up seeing is an amalgamation of these different efforts that really will make sure that we're seeing transmission coming online, and we're also seeing these generation resources being built in and deployed in a less regulatory risky environment. I think Thomas touched a little bit on this EIA proceeding that happened earlier this year. The EIA did issue an emergency survey asking that our membership essentially provide data on their energy consumption that did go to court, and I'm sure Kara is going to do a great job of going into the weeds on that.

 

The Digital Chamber did participate in that suit alongside with the Texas Blockchain Council and one of our member companies Riot. And we are continuing now to partner with the EIA to get a sense of how it is that we can make sure that they have the kind of information that they're looking for in order to address grid reliability and flexibility issues without disclosing anything that our memberships would essentially find would be counterproductive to their operations. I'm hopeful that that conversation will continue to be productive and that we will have some resolutions to that coming up soon. But I'll leave it off there for Kara. Oh, Jonathan, I think you're still muted.

 

Jonathan Brightbill: Okay, great. Well, thank you. And then let's hand it off to Kara Rollins, Litigation Counsel at the New Civil Liberties Alliance, who is going to discuss some of the litigation that occurred earlier this year relating to that emergency collection and where things might be going from here. Kara, take it away please.

 

Kara Rollins: Great, thank you. And it's been touched on, so I'm going to sort of start by the statutory and regulatory frameworks that were at issue in the case, we represented Texas Blockchain Council and Riot Platforms, which is one of their member companies which operates facilities in Texas, Digital Chamber or - see, I did it again because y'all changed your name - joined as interveners in this. And so we had just this incredible swath of miners from across the country who were out here. So how did we get here? And so I think what's really important is that the Energy Information Administration was started back after the '73-'74 oil embargo. It's charged with a really important role in planning energy and understanding the nation's energy needs. I mean, we had this issue with the oil embargo where one of the things that I think - lessons learned from that - was Congress felt that we were a bit flatfooted on what the nation's energy needs were and we were really hindered by that shortage.

 

And it had long-term problems even beyond the end of the embargo. And one of the solutions to that amongst others was to create this sub-agency within the Department of Energy, which has independent authority to obtain data and information. And it looks at things like energy consumption and cost in order to have an idea of what are our reserves, our production, our demand related economic data, how do we plan for grid and transmission concerns in the future? And so it plays a very important role in the stability of American energy and planning American energy needs in the future. And I think it's also one of those agencies that probably most people have never even heard of. I certainly hadn't heard of it when the case got started. And so one thing that they are charged with is this ability to do information gathering because they are a statistical and data-driven organization, they do that through surveys.

 

And one of the mechanisms for their surveys in terms of enforcement is that they can either do civil penalties at roughly 12,900 dollars per violation, or they can do criminal fines for willful violations of 5,000 dollars per violation. They have a regulation on the books which says each violation is constituted by each day. So a little bit different between the statute and the regulation, and we could talk about what that means in a post-Chevron world a little bit later. But one of the things that our clients were coming and saying is, "Hey, we just got this thing in the mail. We can't make heads or tails of what they're asking. And by the way, they're telling us there are civil penalties and criminal fines involved." I mean, that's scary for a company to get regardless of your size, regardless of what's going on. And so when I dove into this, the way the process is supposed to happen is that anytime there's an information gathering tool that may impact more than 10 people, not definitely impacts more than 10 people or individuals, companies, what have you, the Paperwork Reduction Act kicks in, right?

 

This is a bipartisan effort to deal with what the Supreme Court has called one of the less auspicious aspects of the enormous growth of our federal bureaucracy, and that's paperwork demands from every agency or sub-agency and really figuring how do we minimize the burden on individuals, other government entities, for example, state entities as well as businesses. This entire process is overseen by OMB, but the agency heads themselves are charged with following the PRA when they're doing these information gatherings. PRA and its implementing regulations have a really comprehensive scheme for how collections of information should be approved and how they're deployed. And so the process varies somewhat by the categories and emergency collection versus standard collection, but generally speaking, one of the minimum things that's required is public notice in the federal register. And there are sort of other differences. For example, on the accelerated emergency process, the emergency period that you can collect information subject to one of these approvals is for a shortened period of time.

 

When we were looking at this originally, I actually sort of had to go back pretty far to see when the last time the EIA conducted an emergency survey. And it was after there was, if I recall correctly, a cyber attack that had impacted production facilities along the Gulf Coast. I mean like a true emergency. Are production facilities safe? Are there concerns about our strategic reserves? How did this impact what we're looking at? Compare that to sort of the standards that were in the initial emergency request to OMB, and it was, well, the price of Bitcoin is high. We recently had a cold snap. "We feel a sense of urgency" is one of the things that the administrator said in seeking emergency relief. And that just feels very different from what the statute and the regulation required.

 

The request for emergency approval goes in on January 24th, OMB approves it on January 26th with an expiration date of oddly, almost would've been tomorrow, July 31st. And so the PRA's emergency regulations say that you get a control number, and I mean if you've filled your taxes or any other government document, there's always an OMB control number at the top, right? If there's not an active OMB control number, the agency cannot collect information subject to that. Emergency control numbers are good for 90 days. The PRA limits emergency collections to 180 days. What happened here when the survey got deployed on January 31st is that it was initially authorized for 189 days. So it's blowing past the timelines that were stated in the law and the regulations, and more importantly, one of the things that happened certainly to our clients is while the survey gets deployed around January 31st, they weren't receiving 'em in the mail. I mean, this is like USPS hard mail until February 9th, with a reporting date of February 23rd. So again, this sort of "Hurry up, we have this emergency" gets coupled with these surveys getting delivered to these companies, 82 in total, we're still not sure who received them, what, why and under what metric, and now they have to fill them out within two weeks under threat of civil penalties and criminal fines. And again, you can't give false information to the government. So there's all these other things that also attach to this that make how you fill out this survey really important. And one of the things that we consistently heard from mining members is that they want to provide useful information to the government, but they also don't want to be providing information that sort of gets into their proprietary or there were security concerns.

 

And that security concern drills down to both their personnel - the people that work at their facilities - and also sort of the property itself as well as proprietary business and confidential information, and at least on the first iteration of the survey it not only wasn't clear what they were asking for or how it related to the agency's stated purposes, but some of the information got down to those levels including site-specific information, which if it got into the wrong hands or was released in some way publicly - because the government didn't actually promise - and there were some suggestions that there would be sort of location level data released and it doesn't take a lot, once that information is released, you don't need a street address to back up where these are, which create serious security and personnel concerns. And so we looked at it, we said, well, you're supposed to follow this process, and at least to some of these questions that we had, and a great example of the discrepancy is EIA estimated it would take half an hour to fill out the survey.

 

Riot, without actually completing the survey - we were able to get a TRO - estimated it took several individuals over 40 hours, and that was before getting a completed survey. Again, with all those concerns of we don't want to provide false information to the government, we want to make sure that we're answering useful information, that we're protecting proprietary interests, and we're just trying to figure out what exactly it is they're asking for. And so we filed that case on a Thursday night. We got a TRO on a Friday, and by early the following week, we had an agreement with the government that they were going to withdraw the request and go through the normal process. And that's where we're at now. And we've had some productive conversations about the concerns that we had, particularly as Ewelina suggested, that there were questions that what we'll say is, go to how the mining rigs actually operate.

 

And essentially with enough information, you could reverse engineer what these companies were operating. And there's not just confidential business information or economic advantages that come with that, Bitcoin mining, I think to nobody's surprise, is big money, big business. And I think we don't think for a second that it's not just American miners out there doing that, that there are sort of foreign security interests involved. And so there are things that we need to make sure that if the government's going to be in possession of that, that they are truly protected. And the government also had concerns of - well, why did they need to know certain aspects of the mining rigs? For example,I think that they had asked for age and number and hash rate, and some of that information may fully bear on grid usage, but some of it doesn't. And so there was concerns regarding that

.

But again, now that we're engaged in actual conversations with the EIA, we certainly had the experience that they're listening to the concerns and they're asking what I would say the right questions to sort of figure out where the middle ground is. But certainly to the extent that they do move forward with a survey, it's going to follow the standard process in the federal register, right? We're going to be able to see the survey, it's going to go to OMB, we'll be able to comment on it in addition to participating in the front end, and then OMB will decide whether or not to issue a control number and then it gets authorized. I think that's where things are at but I always make this point, this is sort of a classic administrative law case to me in a lot of ways where the agency for one reason or another feels a sense of urgency to get something done and then proceeds to get that thing done, and along the way, maybe just sort of missed the mark on what it is or isn't required to do. And so here we are now it's late July, which is when the emergency survey was supposed to end, and had they followed the standard process, had they had the conversation in advance, maybe they would've already had a deployed survey. And so it to me is just a classic microcosm of administrative law and the cart going before the horses. I'm glad that we're where we're at now, but it's unfortunate that we had to have a lawsuit in order to get to that position.

 

Jonathan Brightbill: Great. Well, thank you very much Kara. And I have at least one audience question which I'm going to come back to after I launch a question of my own, and I'm going to start with you, Tom. So we've established and discussed how Bitcoin mining requires large data centers and large amounts of electricity. This has resulted in environmental groups such as Earth Justice and Sierra Club and others having concerns about potential impacts. But what about artificial intelligence and the growing number of data centers that are coming online to support AI applications? Are the same legal, policy, and energy questions that - I know you're not speaking specifically for Earth Justice, so I'll just say those expressing concerns about Bitcoin mining, are those same legal, policy, and energy questions raised by AI or is that different somehow and why?

 

Thomas Cmar: Yeah, I would say thank you for the question. I would say that we would follow the same framework that we follow for cryptocurrency mining that we would follow for any of these large data centers, large loads, which is that we're not inherently opposed to the activity and certainly artificial intelligence, I mean, we all recognize that that is going to require development of new data centers, that this is a extremely valuable potential activity that we're certainly not going to be opposed to that development, but just applying the framework of what are the impacts on customers of any particular proposal, what are the impacts on the local grid?

 

We're not opposed to the data centers themselves, but where, as you mentioned in your introduction, Jonathan, cryptocurrency mining is inherently an energy wasteful activity. So that obviously raises concerns about the level of energy use and also concerns about externalizing costs, whether it's costs to - additional costs to customers - which is what we've seen in the cases that I've worked on in Kentucky. Our major concern was that these were proposals where a utility was proposing effectively to subsidize a new data center and baked into that was there would inherently be costs that would be passed on to regular customers. And there's also the concerns about externalizing the harms of pollution, whether that's additional air and water pollution from power production, noise pollution that can be harmful to people's health who live near these facilities, the impacts on climate change. And so that's the metric against which we would evaluate any project is how it would affect other customers and what effect it could have - positive or negative - overall on the energy system and making sure that those trade-offs are made plain and considered as part of any decision.

 

Jonathan Brightbill: Okay, thanks. Ewelina, what's your perspective on a comparison between Bitcoin mining and its data centers and energy needs and AI and what this may foretell for AI?

 

Ewelina Czapla: Sure. So right now we're seeing a lot of energy consumption by artificial intelligence because these large models are consuming huge amounts of data in order to sort of train and inform themselves. Typically, artificial intelligence data centers and HPCs - high power compute data centers -consume more electricity than your typical Bitcoin mine. And I think in the longer term they will have a different profile because we're going to be seeing these models, artificial intelligence models changing, becoming smaller and more specialized and more informed over time. And that will likely impact on a localized level the type of power consumption that will be happening. But at the end of the day, I think these data center companies are often diversified and they are essentially dealing - from their perspective - with similar issues. 

 

It's about making sure you're essentially procuring low cost power, you're essentially maintaining reliability. And from their perspective, it's simply a difference as far as sources of revenue.

When you're mining Bitcoin, you're essentially generating revenue almost instantaneously. Whereas when you're doing things along the lines of artificial intelligence and you're essentially signing contracts with some sort of client, a consumer who's going to be buying the information that you are running through your models, that's a longer term more regular source of revenue. So essentially you can use these two as a business to sort of balance out how it is you're procuring revenue in the short and long term and use one to sort of counteract the other when there's revenue shortfalls in either area. From a power consumption perspective, though, again, I think while artificial intelligence is probably more of a consumer at the outset, I think likely in the long term there will be similar implications for all data centers coming onto the grid.

 

Jonathan Brightbill: Great. Okay. So a question from our chat group is about observed data centers seeking to build a facility on a nuclear power plant and draw all of its power from that. Are the issues presented in that context alike or different from what we're seeing elsewhere in the effort to deploy Bitcoin mining and data centers and where it's being done?

 

Ewelina Czapla: So there are existing Bitcoin mining data centers that work with nuclear facilities, so this wouldn't be a novelty. I think from the perspective of a nuclear power plant operator who's essentially providing base load power, they've got the ability to produce quite a lot of power very consistently throughout the entire day. Having the ability to sell that power at night when perhaps the demand isn't there to a willing consumer, I think is in the best interest and long-term profitability of that nuclear facility. Also, from an operational perspective, I think it's helpful because essentially there's an element of wear and tear on nuclear facilities when you're ramping up and down on electricity production, it essentially degrades the quality of the facility faster. So by being able to maintain consistent power production throughout the day and night, you're essentially also helping in the longer term sort of operational soundness of that actual facility when it comes from a maintenance perspective.

 

Jonathan Brightbill: Okay. So Kara, let me switch to you and switch topics. So you mentioned the Supreme Court's recent decision in Lober Bright impacting Chevron. What impact do you see - Chevron, West Virginia v. EPA, Kisor v. Wilkie - the Supreme Court has made an impact on administrative law to say the least over the last couple of years - do you see any impact from those decisions on the legal debate around EIA and other authorities to regulate in this area?

 

Kara Rollins: Yeah, so I think I'll take EIA first because they have a relatively tightly structured statute and what they're authorized to do and information they're authorized to collect. And so when I said earlier they're allowed to do independent statistical analysis of energy information and reserves production, demand-related economic data, they have information gathering power to send surveys out to people owning or operating facilities or business premises who are engaged in, among other things, major energy consumption. And so I think that looking at statistically what we do know of AI consumption, Bitcoin mining consumption, are they major energy consumption? Maybe that's up for debate, but I think that the agency in looking at this question is also sort of fielding what are we really talking about? And so I think that that part - Can they send a survey? Can they ask these questions? - I think that that's still relatively sound in light of even some recent Supreme Court cases.

 

The one thing that I did flag was the sort department of energy itself, which has interpreted each violation within the Federal Energy Administration Act to mean each day constitutes a separate violation. I think that to me is a classic statutory construction problem. And certainly when we are talking about criminal fines as opposed to maybe civil penalties, those tend to be subject to sort of even stricter statutory analysis. So in a possible case or subject to a petition for rulemaking, what have you, it would be something that I think that it's not clear that that part of the regulation, how they do the enforcement of violations would necessarily stand in the long term in a post-Chevron world because each violation feels pretty straightforward. If you're talking about the violation is not filling out a survey, then each day that you don't fill out the survey doesn't quite make sense in a standard statutory construction analysis.

 

And so that's specific but as to EIA, I think some of the more global concerns that come in for the mining community or others that are involved in this space are going to be things like environmental permitting and overarching regulatory structures like the SEC. Many of these companies are publicly traded. Obviously the SEC has its own view of some aspects of say, crypto more generally, but to the extent that what is being said about these products and their ability moving forward or how they're talking about energy consumption, does SEC eventually look at that and say, well, we found violations on what you've disclosed to shareholders? I mean, certainly in the past there's been those types of allegations, and I think that there's a whole-of-government approach being targeted towards crypto and De-Fi more generally and the mining community is part of that. And as I always warn folks, if you hear "whole-of-government" used regarding your regulated area, you should be very, very worried.

 

And so I do think that there's going to be probably in the future innovative ways of looking at what I've come to recognize as maybe among certain folks a disfavored line of business. And so I don't think that this is the end, but I do think one thing that I've learned from this process is that the mining companies and the trade groups associated with them are willing partners with the government. They want to have these conversations, they want to be part of solutions moving forward, and they bring interesting experience about development of their industry and where they see problems and how they can be partners with the government. And I think that that's a net positive of what's going on.

 

Jonathan Brightbill: Great. Thank you, anyone else want to go?

 

Thomas Cmar: Jonathan? Yeah, if I could, I just -

 

Jonathan Brightbill: Yeah, please. Go ahead.

 

Thomas Cmar: I just want to weigh in here. And I want to start by just saying I appreciate Kara's comments and largely agree with her statutory analysis, so I want to highlight those points of agreement. I also wanted to note though, just in terms of whether the cryptocurrency mining industry is a major energy consumer, I think that's really not subject to debate. The EIA found that the industry may represent up to 2.3% of total US electricity demand. That's more than some entire states. I mean, this is very significant - this industry has grown up just in the last few years - and is a very significant energy consuming industry that is currently outside of the reporting requirements that generally apply to most other major energy consuming industries. So it's simply bringing the industry onto the same playing field as other major consuming industries are already required to operate on. And the AA also, in terms of its justifications for why this reporting was necessary, they cited potentially dangerous effects on electric grid reliability from the unpredictability of mining operations in particular, whether Elina mentioned demand response programs, there's concerns about whether it's possible for decision makers to predict when a cryptocurrency mining facility will choose to curtail their load as part of one of those programs or where they may decide for economic reasons not to curtail their overload.

 

That's a major question that needs to be answered through better information gathering and analysis. And then also concerns about the industry contributing to increases in electricity prices in key states where they're particularly active. For example, in Texas, there was a study by the consulting firm, Wood McKenzie, on behalf of the state grid operator ERCOT, that found that Bitcoin mining already raised electricity prices for non-mining Texans by over 1.8 billion per year, or 4.7%. So this is an industry that's having very significant impacts on the grid right now, which is why folks who work on behalf of communities and environmental groups are raising concerns.

 

Jonathan Brightbill: So Ewelina, there was a comment made by Kara about crypto and Bitcoin maybe being a "disfavored industry." Obviously there are other sources of electrification coming along that require more and more electricity to be drawn - residential heating laws - this is a question from our audience, Residential heating New York City law 97 - there's obviously a lot of electrification of transportation that's going to draw from the grid and draw at potentially prime times as opposed to being able to work in the margins - so what's your reaction to whether Bitcoin and crypto is somehow being targeted in some way as a disfavored industry as compared to these other new sources of electricity, and candidly, how do you see things continuing to develop depending on what happens in the upcoming presidential election and whether we have a continuation of Biden-Harris policies or a return to President Trump?

 

 Ewelina Czapla: I think there's a couple of different issues there, but to your point around these characterizations that this is somehow, I guess you'd say "wasteful", as far as economic activity goes, there are millions of Americans that use Bitcoin every day that either own it as a long-term asset that serves as an investment, or alternatively, they're actually using it as a form of currency and transacting. I think often what you are seeing is that these estimates around power consumption are wildly overblown by as much as 75%. And frankly, I think some of this is about getting a sense of scale. So you'll see claims around "Bitcoin mining consumes as much power as X, Y, or Z", frankly, we are the United States, we're huge as far as geographic area goes, as far as population goes. So any given industry in the US consumes as much power as some whole other country.

 

Our steel manufacturing industry consumes as much power as India. Are we going to suggest that for some reason we should stop producing steel? It's these kinds of benchmarks that are not realistic. They're not necessarily logical that I think we're running up against quite frequently. And at the end of the day, I think this load growth that we're seeing across different types of data centers and electrification, whether it be EVs or in New York taking essentially the lead on making sure we electrify everything from stoves to heating systems, all of that produces more demand on the grid. Those policies, I think are obviously attempting to solve some environmental problems, but unfortunately they're running up against issues that contend with the realities of deploying infrastructure and you can't have it both ways is what we're learning now.

 

And as far as what we're seeing in the future, I think the past week has been incredibly exciting. I think right from the outset, RFK as a candidate was pro-Bitcoin and really was the first sort of torch-bearer. Then we saw President Trump, I think over a month ago now, really come out and say he's a digital asset proponent. This is something that he sees as part of the future, and that blockchain technology, whether it be in the form of payment systems or really as the grounding of Web 3.0 and the internet of the future is not going away. And it's frankly where the US can benefit most from innovating and being a leader. And frankly, that power consumption comes with GDP growth again. So all of that is to everyone's benefit, I think in the long term. We're now most recently seeing Kamala Harris engaging as well with the digital asset industry. Her campaign is essentially in talks with folks throughout industry to get a sense of how it is that essentially it's driving value.

 

She's historically been a proponent of the tech industry. She really understands the value of innovation, and I think essentially the role of Bitcoin and blockchain is to her one and the same as those various tech companies that we've seen come up and out of California, obviously where she got her start. So from my perspective, I think things are looking up. We're seeing more bipartisan activity than ever, we're seeing on the Hill bills being introduced with bipartisan support to develop market structure, really provide clarity for the industry so that in years to come, we can continue to see this growth in the US rather than seeing folks go offshore, because frankly, they want to abide by the law, but they're not quite sure what it is here.

 

Jonathan Brightbill: Okay. Well, thank you Ewelina, and thank you Tom and Kara for your comments and discussion. And thank you once again to the Federalist Society and Edith for hosting today's online webinar.

 

Edith Howard: Yeah, and on behalf of the Federalist Society, thank you to Tom, Ewelina and Kara for speaking, and Jonathan for moderating. We appreciate your time and expertise today. And thank you also to our audience for joining us. We greatly appreciate your participation. You can stay up to date with announcements and upcoming webinars on our website, fedsoc.org, or on all major social media platforms. Thank you once more for tuning in and we are adjourned.