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Mining the environment – is climate risk priced into crypto-assets?

Author

Listed:
  • Gschossmann, Isabella
  • van der Kraaij, Anton
  • Benoit, Pierre-Loïc
  • Rocher., Emmanuel

Abstract

Some crypto-assets have a significant carbon footprint and are estimated to consume a similar amount of energy each year to individual countries like Spain, the Netherlands or Austria. As the mining and expansion of these crypto-assets are fully dependent on energy supply, their valuation is particularly vulnerable to jurisdictions’ climate policies. Increasing financial exposures to such crypto-assets are therefore likely to contribute to increased transition risk for the financial system. This article provides an overview of the estimated carbon footprint of certain crypto-assets such as bitcoin and its causes. It also discusses the primary policy role of public authorities, which need to evaluate whether the outsized carbon footprint of certain crypto-assets undermines their green transition commitments. Finally, it analyses policy options for prudential standard-setters and the need for climate-related considerations in crypto-investors’ practices. JEL Classification: G28

Suggested Citation

  • Gschossmann, Isabella & van der Kraaij, Anton & Benoit, Pierre-Loïc & Rocher., Emmanuel, 2022. "Mining the environment – is climate risk priced into crypto-assets?," Macroprudential Bulletin, European Central Bank, vol. 18.
    • Handle: RePEc:ecb:ecbmbu:2022:0018:3
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    File URL: https://www.ecb.europa.eu//press/financial-stability-publications/macroprudential-bulletin/html/ecb.mpbu202207_3~d9614ea8e6.en.html
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    Citations

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    Cited by:

    1. Agur, Itai & Lavayssière, Xavier & Villegas Bauer, Germán & Deodoro, Jose & Martinez Peria, Soledad & Sandri, Damiano & Tourpe, Hervé, 2023. "Lessons from crypto assets for the design of energy efficient digital currencies," Ecological Economics, Elsevier, vol. 212(C).
    2. Long, Suwan(Cheng) & Lucey, Brian & Zhang, Dayong & Zhang, Zhiwei, 2023. "Negative elements of cryptocurrencies: Exploring the drivers of Bitcoin carbon footprints," Finance Research Letters, Elsevier, vol. 58(PA).
    3. Read, Oliver & Diefenbach, Carolin, 2022. "The Path to the EU Regulation Markets in Crypto-assets (MiCA)," wifin Working Paper Series 13/2022, RheinMain University of Applied Sciences, Wiesbaden Institute of Finance and Insurance (wifin).

    More about this item

    Keywords

    crypto-assets; climate transition risk; energy-efficient consensus mechanism;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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