China’s crypto mining ban is more severe than before

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In recent weeks, China has severely cracked down on crypto mining by shutting down operations in at least five coal- or hydropower-rich provinces or regions.

China’s environmental policy is a key factor in the mining crackdown, industry professionals said. Specifically, China’s carbon neutrality policy has created an energy shortage in the country due to its drastic reduction in coal-fired electricity, which has contributed over 57% of the country’s energy consumption.

The carbon neutrality policy is reducing the power of coal, which has been a major energy source for the country, said Winston Ma, adjunct law professor at New York University and author of The Digital War How Chinas Tech Power Shapes the Future of AI, Blockchain and Cyberspace. China will have to look at the periphery of its power grid to close this gap.

China’s carbon neutrality policy has two objectives. It aims to ensure that the country’s carbon emissions peak before 2030 and achieve carbon neutrality by 2060, which means reaching zero net carbon dioxide emissions at some point before that deadline.

According to this policy, China must halve its carbon dioxide emissions from coal-fired power plants by 2030. To that end, it must shut down, modernize or set aside up to 364 gigawatts (GW) of coal-fired electricity, a third of the country’s total, according to London-based climate data provider TransitionZero.

For reasons of financial stability and energy security, the government would like to crack down on crypto mining and trading, said Arthur Lee, founder of SAI, a clean energy mining company based in Beijing.

A hard cap

China has set tough caps on carbon emissions and will strive to meet climate targets, according to a report by state media Peoples Daily on September 30, 2020, which was reposted on the central government’s official website.

Local governments, especially those dependent on coal-fired electricity in northern China, are struggling to meet aggressive climate targets set by the central government. Major coal-based power producers such as Inner Mongolia and Xinjiang, which were previously the two main centers for crypto mining in China, were among the first regions to receive directives to crack down on companies with high power consumption, including bitcoin mining companies.

Such drastic changes have faced backlash from businesses and local governments, Chinese state media Oritental Outlook reported. The general manager of a coal liquefaction company said it had to shut its factories completely to meet the planned reduction in coal power, according to the report.

A local government in northern China even turned off streetlights at night to comply with the carbon neutrality policy, according to the report.

In the Peoples Daily report, senior government officials said voices are being raised to call for lower emission caps. But officials did not directly respond to whether the central government would make concessions on these absolute carbon emission caps, while calling for unity among different authorities and stressing the importance of achieve objectives.

In this context, the Financial Stability and Development Committee of the Chinese State Council called for a crackdown on crypto mining and trading on May 21.

Committee members are senior officials from key government agencies such as [National Development and Reform Commission]said Lee, the Ministry of Public Security and the China Securities Regulatory Commission.

Not just crypto mining

The total energy consumption of all bitcoin mining operations in China combined is around 2.2 GW, estimated by Nick Hasen, CEO of Seattle-based cryptocurrency mining company Luxor.

That number is paltry compared to the 364 GW energy deficit created by the forced reduction in China’s coal-based power. To meet climate goals, cryptocurrency mining is apparently just one of many energy-intensive industries that have been targeted by politics.

Tangshan, one of the largest steel centers in central China’s Hebei Province, cut production by up to 50% to meet its carbon neutrality targets in March. Construction, manufacturing, transportation and petrochemicals are also on the list of energy intensive industries.

The policy aims to phase out coal-fired power, while using more hydropower and developing wind and photovoltaics, Lee said. One of the reasons crypto mining has been explicitly pointed out is that a significant portion of the energy consumption for crypto mining is based on coal.

While Chinese miners take advantage of excess hydropower in southern provinces during the rainy season, they tend to look to major coal-based power producers like Xinjiang and Inner Mongolia during the rainy season. dry season.

Crypto mining could also be an easy target because of how the business operates.

You can go to a building (mining farm) and see the building use 100 megawatts (MG), which is not usually very common unless you go to a mega factory, Hasen said. So that makes them an easy target.

Firm position

The central government website reposted another Peoples Daily article titled China Is Serious About Achieving Carbon Neutrality on March 29, shortly after the policy was officially adopted by the National People’s Congress in during the two sessions, which is the largest political gathering each year to make major policies, and to discuss and pass new laws.

In this article, the Chinese government touted that it had reduced its coal power to below 50% of total energy consumption, while doubling the development of wind and solar power to replenish the country’s power grid. long-term.

Chinese miners are wasting no time leaving the country, given the scale of the ban on crypto mining.

From my conversations (with Chinese miners), I don’t think anyone in China is expecting Dave Perrill, CEO and founder of Compute North, a crypto miner hosting service provider. I think the writing is on the wall, the stop is there and it won’t go away.

In recent weeks, 85% of minors who have asked about accommodation services are Chinese minors and this is really due to the mass exodus, Perrill said.

The Minneapolis-based company now has three data centers in Nebraska, Texas and South Dekoda with a combined computing power of over 100 megawatts. It aims to build five new mine sites and increase its total capacity to 1.2 gigawatts by the second quarter of 2022.

What I see more is that I don’t think they necessarily need or want to go to the United States, they just want to leave China, Perrill said. The big push now is the acceleration to bring these sites to our Chinese customers and make sure they are happy.

The company has provided services to at least five state-owned mining companies, including Bit Digital and Marathon.

A 180 degree turn

Carbon neutrality goals were enshrined in the 14th five-year plan at the end of 2020. The plan is China’s blueprint for social and economic development.

However, the mention and scale of this climate initiative in the plan stands in stark contrast to the attitude of central governments towards coal a year ago.

China has made energy security and economic growth a top priority since 2019 by encouraging energy companies to increase fossil fuel production and revive coal-fired power plants. In 2020, the country commissioned 76% of the world’s new coal-fired power plants, up from 64% in 2019, according to the TransitionZero report.

The country planned to increase coal production and coal transport and storage capacities in the coming years, according to a directive issued by the National Development and Reform Commission (NDRC) on June 18, 2020.

Government researchers expected China to have a wave of coal-fired power plant construction before September 2020. However, they were forced to revise their old plans and prioritize the climate initiative in the plan. five years later in the year, Reuters reported.

It remains to be seen whether there will be a sharp drop in coal-fired electricity generation given the recent implementation of the carbon neutral policy.

While it is not clear whether China will continue to implement these intransigent energy policies at the local level, the central government appears to intend to fully implement related measures to meet climate goals.

Why hydroelectricity

China’s carbon neutrality policy may explain why it is cracking down on coal, but it doesn’t explain why the country is also cracking down on bitcoin mining backed by moving water or hydropower.

China sees a better way to use excess hydropower in the southeastern provinces than to channel it to the eastern provinces and cities that do not have enough electricity supply, Lee said. While crypto mining has been suspended in hydropower mining centers such as Sichuan, China continues to build the infrastructure that allows hydropower-rich regions to transmit electricity to cities in the east.

Southern China’s Guangdong Province, home to one of the world’s largest factories, Dongguan, faced an energy crisis in May due to the summer heatwave and sudden demand for electricity from local communities. manufacturing companies due to China’s economic recovery from the coronavirus pandemic.

Several cities in the province have ordered factories to suspend operations for hours or even days due to the power shortage. Local utilities have issued notices to shut down production at factories during peak hours from 7:00 a.m. to 11:00 p.m. local time. Spot electricity prices in the region have climbed to three times the benchmark during the period, according to local media.

The shortage of coal supplies was one of the factors contributing to the slowdown in factory activity growth in China in June, according to a June 30 statement from China’s National Bureau of Statistics.

The Guangdong Energy Bureau has called on neighboring regions to supply more electricity to the province, including one of the major hydropower crypto-mining centers, Yunnan Province. However, Yunnan itself has faced power shortages due to the delayed rainy season to generate hydropower, which is the main source of energy in the province. Not only some of the crypto mining farms, but Yunnan’s aluminum and zinc salts have also been shut down due to the power shortage.

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