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Tuesday, August 29th @ 11:36 AM
The following is an interview with Brian Consolvo, Principal–Technology Risk at KPMG. He is a co-author of KPMG’s new report “Bitcoin’s role in the ESG imperative” alongside KPMG’s Director of ESG and Climate Advisory Kirk-Patrick Caron. The report is a significant milestone in mainstream Bitcoin discourse, particularly on environmental grounds, and represents a point of convergence between pro-Bitcoin environmental advocates and a wider swath of the professional world involved in the ESG landscape.
For many years, Bitcoiners have taken issue with the narratives put forth by those with an unfavorable view of the technology, and have been frustrated with unfounded and hysterical claims from Bitcoin detractors on its environmental and social merits.
This interview covers the recent KPMG report and has been edited for concision and clarity. The views of co-author Brian Consolvo are his own and do not necessarily represent the perspective of KPMG.
Nichols: To kick things off, what was the impetus behind writing this report? Why did you decide to look at Bitcoin through an ESG lens, and was there anything specifically that prompted that?
Consolvo: If I just think back to the amount of time I’ve been in this space and seeing what some of the critics put forth about Bitcoin, and then going through my own journey with KPMG, who is obviously very big on ESG, you start going through each of the categories and come across a lot of the benefits that Bitcoin provides — both the asset and the technology. It’s interesting because a lot of people attack the energy consumption, which again is only one part of the ESG framework, but I think I’d never really seen anyone take a full attempt at explaining all the benefits that it provides across all three pillars.
The big impetus was the article that came out back in January-February by the New York Times that attacked Bitcoin’s energy consumption. I thought, “Hey this is a really good time for me to use my platform to document all the benefits, all the public good that Bitcoin does”. I sort of had a fundamental idea about what I was going to put in the paper, but as I started researching, I started coming across all these other things I had never even thought of. I think the paper did a pretty good job of showing how much good it does versus just the same kind of FUD we hear day in and day out.
Nichols: Why do you think there is so much FUD out there? Where and why does this FUD emanate, and what can we do to solve it?
Consolvo: For me, it comes down to education. Bitcoin is just such a complex topic. It’s not something that most people understand very well. When I go back to when I first started to research Bitcoin and do my own homework on it, it took me a while. It was kind of frustrating because you’re like: “What am I missing here? Why don’t I get this?”, because it’s just not foundational concepts that we’re all used to. It requires you to be open-minded to not just how Bitcoin works, but to understand what problems it’s actually solving. So then you start to understand how Bitcoin works, but before you can even go any further, you start having to research economics and you have to start being an expert in energy consumption and things like that. It’s just a very broad range of topics that Bitcoin starts to touch.
I think the report does a pretty good job of saying “Yes, Bitcoin does use a lot of energy, but I don’t think energy consumption is really the issue here”, and we need to really focus on the emissions behind that energy production. I would flip it around and ask somebody who’s a staunch Bitcoin critic: “If you’re concerned about the amount of energy that it’s using, if the world could snap its fingers and move to a fully sustainable energy mix, would you still attack the energy consumption?” I don’t think they would. So that’s why you have to really bring it back to the emissions, but then also look at the ways that it’s actually helping with the transition to more sustainable energy and the way it’s able to help monetize some of these projects.
Nichols: You delineate between Scope One and Scope Two emissions as they relate to Bitcoin. Can you walk us through that? What is Bitcoin’s emissions profile and how do you contextualize the emissions Bitcoin is associated with?
Consolvo: People hear about all the environmental impacts of Bitcoin and we tried to make it clear in the paper: Scope One emissions are virtually zero for Bitcoin, it’s just using electricity.
It’s funny because, I guess society sees electric vehicles as zero-emission vehicles which for the most part, that’s relatively true — they’re not using combustion and gasoline etc., they’re running on electricity. Bitcoin is no different. Bitcoin runs off electricity. But, where the Scope Two emissions come from is: Where is that energy coming from? Is it coming from a power plant burning fossil fuels, or is it coming from a solar or wind farm? That’s where we try to make that distinction in the paper.
One of the things my ESG counterpart Kirk-Patrick Caron actually pointed out to me in the paper is that some bitcoin mining actually does have Scope One emissions. If you think about using flared gas, you’re using something that enters into the atmosphere at least to some degree. So I think behind the meter, mining does have some Scope One emissions, but by and large, the industry is primarily zero emissions as it relates to Scope One.
Nichols: I want to dig down a little bit more into the natural gas component of this. Your report mentions Crusoe Energy as well as Vespene. Can you describe what people are using this vented methane for and kind of what the potential of this might be in terms of reducing GHG emissions from a market-based mechanism? There’s pure incentive here, which I find fairly novel.
Consolvo: If you think about Crusoe Energy and their partnership with Exxon to co-locate around what they’re doing around the oil and gas wells — a company like Crusoe can co-locate next to them and rather than letting that methane enter the atmosphere directly, they convert it to energy use. So now you have a company like Exxon who not only is able to reduce the greenhouse gasses that they’re responsible for, but they’re able to monetize it.
So the question that I’m asking is: Why the hell isn’t every single oil and gas producer reaching out and partnering with bitcoin miners to do exactly that?
Some of it is just a matter of perception with some of these companies. But again, I think it goes back to education. Imagine being a big executive at some oil and gas producer and someone’s telling you, “Hey we need to partner with these bitcoin miners and here’s why”. You’re probably thinking, “Wait a minute. That sounds kind of crazy”, right? Especially given preconceived notions you might have about Bitcoin. But I think that is something that will likely change over time given the benefit that each party has.
Nichols: As far as how much landfill natural gas is out there, can you speak to that as far as the potential of Bitcoin to capture this? You do mention Vespene in the report, I would be curious for a bit more color there.
Consolvo: They were probably one of the truly unique use cases that I came across before doing the paper. They’re basically co-locating at landfills to use the methane that seeps out of those areas — I think landfills are one of the biggest contributors of greenhouse gases, so that’s another example that you could start to see a lot more adoption just given the benefits to both parties and what it can help do to your greenhouse gas emission profile.
Nichols: The last piece on the energy subject I’d like to go over is the grid management aspect of Bitcoin as far as demand response. You mention winter storm Uri in Texas as an example. Can you speak to the importance of balancing load on the grid and what role Bitcoin can play in that? Why is demand response important for the grid as we bring more renewable energy generation online?
Consolvo: I’m not an energy expert, but I think the long and short of it is when you have a public utility that’s generating power, they have to generate more power than they’re actually going to use, given the different fluctuations in demand throughout the day. It’s called a duck curve, where the amount of power that we use fluctuates throughout the day and it kind of looks like a duck when you map it out on a chart: Most power consumption takes place around the early evening when everyone’s getting home from work. Let’s say we get home from work at 6 p.m. Well, at 6 o’clock in December, the sun’s not shining, so you’re not really able to tap into solar energy. Wind supply can be a little bit more problematic, just given the lack of adequate predictability.
But what demand response does is, when certain events take place in this example, winter storm Uri — granted, there were some major issues that happened with the actual infrastructure that caused some of these things to happen. But miners are incentivized to shut off because the power starts to become too expensive. So they get beyond their breakeven point if they weren’t able to shut down or they didn’t shut down.
Well, now everyone’s paying a significant price for energy. There are some regulations on that so I’ll be careful with how far I go with this, but they’re basically able to balance the price and the economics of it all, because they can shut down at a moment’s notice, pretty much. And they’ll do that the minute the price to mine becomes too expensive. They’re able to give a lot of that power back to the grid when it actually needs it.
Nichols: What would your response be to someone who says “bitcoin mining is a waste of energy”? I think you’ve done a good job of showing the utility of bitcoin mining as far as grid management, emissions reductions and monetizing wasted renewable energy, but that could serve as a nice segway into the S and G parts of the ESG discussion.
Consolvo: The first thing I’d say nowadays is, “Hey, to each their own”. There are probably things I might feel that are a waste of energy for people too. How much time do people spend video gaming, right? I don’t have any issue with that, but that’s fine if you think it’s a waste of energy. Where I start to think there’s a problem is if policy is influenced based on whether or not you think your use of electricity is any more beneficial than mine.
If I want to mine bitcoin in my house, if I want to mine bitcoin at scale, like a large bitcoin miner, I’m paying for that energy just like you are. There shouldn’t be any stipulations or additional rules like this tax that’s been mentioned on miners. To me, that doesn’t seem like that’s a fair treatment. You’re entitled to your opinion, and I respect anyone’s opinion on whether or not they think it’s useful or not. But, I think to me, that’s ultimately what it comes down to.
Now to answer your second question in terms of the social aspect, I think we in Western society probably don’t have as much of a need for bitcoin as other countries, and I think that’s a really important part that we try to cover via the social aspect. Here in the United States, women can open bank accounts, women get paid, women have jobs. That doesn’t apply to every other country. The example we put in the paper was this was a way for them to have a job and have their value that they’ve created not stolen from them.
If you look at El Salvador, they are very dependent on international remittances. If you’re in El Salvador, a lot of these folks that might migrate to the United States send money back home.
Well, the money they send back home is probably going through a Western Union-type company that takes their cut. Again, I’ll point back to the paper but the amount of effort that they have to go through to get that money, I don’t see how you can’t think that bitcoin doesn’t solve a fundamental problem with the way these monetary rails are set up.
Nichols: To move on to the governance piece, you guys talk about the decentralization of Bitcoin, the incentives of miners, and the lack of single points of failure in the network. What value for society do you think that type of decentralization might offer?
Consolvo: The value that it solves is that there’s no one that can come in and abuse their power. If you just look around the world at the various governments that have certainly abused their power over the years, that’s a fundamental issue. The way the governance is built into the protocol — in the asset class in general — I think inherently solves for that issue. I don’t ever have to worry if someone’s gonna come in and freeze or seize my assets or if they’re gonna change the rules — say, to increase the 21-million supply — because it helps their objectives. They don’t have the ability to do that and I think that’s pretty powerful and it’s not something that we’ve ever seen before prior to Bitcoin.
Nichols: For the last part of this, I want to set the stage for what the Bitcoin community should be doing when it comes to ESG — what is the importance of engaging with people who are ESG-minded for Bitcoin and Bitcoin companies? That also leads into why KPMG is looking at Bitcoin through the ESG lens.
Consolvo: This is an extremely important topic for a lot of companies, one of which is KPMG as well. When you think about these ESG proponents or ESG-minded people, it comes down to education. Many of these ESG proponents just think “oh, Bitcoin’s using way too much energy, that’s a problem, that’s not gonna fit into my portfolio” or whatever else they might be using bitcoin for. So I think it comes back to education again.
Nichols: What do you think integrating Bitcoin into the ESG conversation might yield? There’s obviously a lot of ESG funds investing in publicly traded companies. So what can bitcoin miners specifically do? I think that’s probably one of the largest sticking points here — what they can do to engage with that community to get them to see the importance of Bitcoin, for the reasons you just said.
Consolvo: I just really think it comes down to education. I think a lot of Bitcoin companies are doing it, but it’s making people aware of what value Bitcoin actually provides. It’s dispelling some of the myths and misconceptions about Bitcoin that are still out there today. But I do think that the body of people who kind of view Bitcoin as bad for the environment, used by criminals etc., is starting to dwindle. I think it’s never going to fully dwindle for probably as long as I’m here, but what they can do is just continue to make it known what purpose the miners solve other than just creating a secure protocol for a speculative asset. I think a lot of people view it that way. It’s a lot more than that.
Nichols: One thing that I think is not discussed enough in the environmental conversation around bitcoin is its finite supply. There’s a big conversation around climate change and how we discount the future costs of climate change back to the present. I’m wondering if you have any thoughts on the difference in a discount rate on a bitcoin standard versus a fiat standard.
Consolvo: What I view that is very beneficial to Bitcoin is it really promotes saving and not consuming. I think we currently live in a consumption-based society and if you think about being a consumption-based society and the amount of money that we will print at various times in order to jumpstart the economy, that’s just creating consumption. If you’re an ESG proponent, I don’t see how you can have those two things relate to each other — they’re contradictory. If you’re going to be in a consumption-based economy, you’re going to use resources and you’re gonna have a huge impact on the environment, whereas bitcoin promotes saving, and if you’re saving, you’re not consuming. Therefore that to me seems like just a natural positive impact on the environment over a long period of time.
Nichols: Also, needing to exponentially grow GDP at a given percentage per year in an open-ended manner, that is simply not a possibility on a long-term time scale. So I think that’s something that has gone under the radar as far as the environmental and social consequences.
Consolvo: That’s spot on. You’re inherently going to be having a significant environmental impact based on consuming that much and by meeting these GDP targets or inflation targets, etc.
Nichols: Lastly, what has the response to your report been?
Consolvo: The response has been pretty overwhelmingly positive. I couldn’t have imagined the amount of outreach that I was going to get from this paper prior to doing it. I figured the Bitcoin community would be very pleased with it, and I even underestimated that. What I’m really curious about is, what about the naysayers? Did I present anything to them where they said to themselves, “You know what, I was wrong about this. I never realized that bitcoin can do this or do that. I never realized that there’s people in Afghanistan that have a huge need for it, or people in any of these countries with massive hyperinflation”.
So I mean, those are the people I’m curious to hear from.
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