Pennsylvania Battle Over Climate-Warming Crypto Mines Intensifies

The grid of large silver trailers sitting atop a patch of asphalt on the western bank of the Susquehanna River near Berwick, Pennsylvania, might not seem like much upon first glance. Hulking over them are nuclear cooling towers that belong to the Susquehanna Steam Electric Station, next to a web of energy-generating infrastructure. Inside those trailers, however, is a hive of activity — nearly 8,000 mining rigs, or supercomputers, designed to plug away at the algorithm required to mine bitcoin.

These rigs constitute the Nautilus Cryptomine, which came partly online in March and aims to be among the “largest, most efficient” bitcoin mines in North America.
 

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Nautilus is raising concerns among some environmentalists not just for what it represents — the emergence of a controversial bitcoin mining industry in Pennsylvania, which may lead to a spike in the state’s energy use and emissions — but also for how it got there in the first place. The mine opened with the help of a sales tax exemption for data centers, enshrined in law in 2016 and intended to build out a different type of industry: server or data storage farms that, for instance, host cloud capacity. 

Nautilus and a related firm, Cumulus Data, both associated with the Nautilus mine, are two of eight companies in the state to claim the sales tax exemption, according to the state Department of Revenue. They are the only two crypto-related ventures on the list — but advocates fear that they won’t be the last, should the sales tax exemption, expected to grow from its current $17 million price tag to $90 million by 2027, remain in place as is.

In recent years, the commonwealth has seen a steady build-out of energy-intensive mines that generate cryptocurrency. Pennsylvania lacks regulations for this volatile yet burgeoning industry but possesses enough stores of fossil fuel to see it compete with crypto-heavy states such as Texas and New York; some environmentalists fear what the commonwealth could look like if it becomes a bitcoin hub.

Crypto currency mining, when fossil fuel powered, contributes to air pollution while hurting the state’s efforts to reach its climate goals. One Eastern Pennsylvania plant, run on waste coal, saw its emissions of nitrogen oxides and sulfur dioxide, two ingredients of ground-level smog, triple in a year after being purchased by a crypto-mining company.

“Pennsylvanians in government, industry and environmental groups, as well as ordinary citizens, have worked hard for clean air,” said Charles McPhedran, senior attorney in the clean energy program at Earthjustice, in a May testimony before the House Environmental Resources and Energy Committee. “The last thing we need is a new source of greenhouse gases and local air pollution.”

The fate of a tax exemption that could bolster this new source of pollution is no longer certain in Harrisburg, where attempts to regulate bitcoin mining are facing resistance from a growing industry that wants the state to be open for business. Crypto proponents urge legislators not to pass laws that could signal otherwise while downplaying the industry’s energy intensity.
 

An Earthjustice report found that, from mid-2021 to 2022, the cryptocurrency industry was responsible for an excess 27.4 million tons of carbon dioxide emissions.

 
With newfound power in one chamber, Pennsylvania Democrats are attempting to get ahead of things. First step: Rein in a program they fear could subsidize the rollout of a planet-warming cryptocurrency mining industry with HB 1282, a bill that would preclude proof of work coin mining operations, usually abbreviated as POW, from claiming the data centers sales and use tax exemption. The bill passed the House Environmental Resources and Energy Committee on June 6 along party lines and will need to go to the full House for a vote.

“[POW crypto mining] is a substantial user of energy, and it’s a very inefficient use of energy,” said Rep. Greg Vitali (D-Delaware County), HB 1282’s prime sponsor and majority chair of the House Environmental Resources and Energy Committee, in an interview with Capital & Main. “As a matter of good public policy … this type of activity, that will prevent us from reaching our climate change goals, should not be getting a state subsidy.”

The state recently ended a monthlong budget impasse when Gov. Josh Shapiro signed its main appropriations bill — but both chambers have yet to pass related bills, such as an omnibus tax code bill. In the meantime, Vitali, HB 1282’s author, said he has asked House leadership to pass it as part of a larger budget bill, whenever that may happen. Lawmakers are not scheduled to return to the Capitol until September.

HB 1282’s passage in committee preceded another vote on a broader measure to stop a bitcoin rollout in its tracks that was scheduled but killed at the last minute at the request of House leadership. The bill, HB 1476, would have placed a two-year moratorium on new crypto mines with at least 5 megawatts of power load; required existing crypto mines to report their energy generation, water use and emissions to regulators; and directed regulators to conduct an environmental impact study on the industry at large. New York state passed a similar measure last fall. Pennsylvania could still pass HB 1476 in the current session, which ends in 2024.

Nautilus is the only crypto mine in the state to claim the data centers sales and use tax exemption, but if it remains in place, it may not be the last. Further exemptions could subsidize the proliferation of an industry that at best serves few and at worst is wasteful by design, critics say. Proof of work cryptocurrency mining requires that miners compete against each other using highly specialized computers to solve a mathematical equation with brute force to earn the right to add a block of transaction data to the blockchain and receive newly minted bitcoins as a reward.

The process involves a tremendous amount of energy: Each computer uses “about three times the amount of the average Pennsylvania home, and again, miners have thousands or tens of thousands of them,” Rob Altenburg, PennFuture’s senior director for energy and climate, testified in a May 1 hearing before the House Environmental Resources and Energy Committee on the environmental effects of crypto mining. (Separately, PennFuture co-signed a letter to the committee publicly endorsing HB 1282, along with the Sierra Club Pennsylvania chapter, Earthjustice and the Conservation Voters of Pennsylvania.)
 

“There isn’t a way to waste energy in a clean way.”

~ Pennsylvania State Rep. Greg Vitali

 
A 2022 Earthjustice report found that, from mid-2021 to 2022, the cryptocurrency industry was responsible for an excess 27.4 million tons of carbon dioxide (CO2) emissions. The overall energy consumption of bitcoin mining is comparable to that of entire countries.

Nautilus is powered by nuclear energy and can claim carbon neutrality. But other crypto mines across the commonwealth can’t. Stronghold Digital Mining, for instance, powers its two mines with coal waste, while others plug directly into natural gas wells. And while technically powered by renewable energy, Nautilus, which is connected to PJM, still diverts Susquehanna Steam’s clean power from the grid, creating a gap that is likely backfilled by fossil fuels.

“There isn’t a way to waste energy in a clean way,” Altenburg told Capital & Main.

Vitali’s two-year crypto moratorium bill would give regulators time and a mandate to study these effects. As prime sponsor of the bill, Vitali previously told Capital & Main the legislation’s committee vote, scheduled for June, was canceled by House leadership following input from trade unions and the oil and gas industry. But he remains committed to the legislation and plans to run the bill by his committee again when the House returns to session in the fall.

Controversy has also emerged over energy sources. One of Pennsylvania’s better-known cryptocurrency operations, Stronghold Digital Mining, runs two plants on coal waste left over from another energy era, which some legislators are eager to get rid of in their districts, Vitali said. Stronghold bills this as an environmental benefit and earns tax credits for doing so. “You’re just trading one problem for an air pollution problem,” Vitali said.

Stronghold told Capital & Main it is “in favor of policies that encourage innovation and have direct local environmental impact,” when asked for its stance on HB 1476, the crypto moratorium bill. It did not take a stance on HB 1282, the tax exemption bill, having not applied for the sales and use tax exemption.

Vitali also said he met with Talen Energy Corp., one of two companies that own Nautilus Cryptomine. Vitali said the company told him that the data center sales and use tax exemption was an important factor in the choice to locate in Pennsylvania. Eliminating eligibility for a tax exemption could add costs should Nautilus expand in the state down the line. Talen, the parent company of Cumulus Data, and Nautilus co-owner TeraWulf Inc. both declined Capital & Main’s request for comment on the bills.

Regulations would offer crypto a path toward being a “good actor,” said Dominic Folino, president of the PA Blockchain Coalition, a nonprofit dedicated to advancing blockchain-related policy that’s spent nearly $50,000 on lobbying in the state since it opened up shop in August 2022. But he warns against bills like Vitali’s that could “deter [crypto] organizations from coming to Pennsylvania.”
 

Despite fear that narrowing the sales and use tax break could disincentivize a bitcoin rollout, there is little evidence that it was introduced for this purpose to begin with.

 
He’s also skeptical of environmental concerns. “I constantly hear that crypto mining uses more energy than the country of Argentina,” he said. “And then I’ve heard the other side and seen from many sources that Christmas lights use more energy than Argentina. So, you know, I think it’s a matter of comparing apples and apples.”

Despite fear that narrowing the sales and use tax break could disincentivize a bitcoin rollout, there is little evidence that it was introduced for this purpose to begin with.

“Crypto, when this bill was passed, it wasn’t a thought,” Altenburg told Capital & Main about the sales and use tax exemption.

The exemption that Nautilus claims, and that Vitali is attempting to narrow in scope, is called the Computer Data Center Equipment Program and was created in 2016 in the rush of that year’s annual budget negotiations — and it was expanded the same way in 2019 and 2021.

It was tacked onto a 300-page omnibus bill in the 11th hour of budget proceedings in 2016, and per a 2016 summary of the bill, was “designed to attract new investment from businesses that operate … servers or data storage equipment,” with an initial budget of $5 million a year. The program’s first incarnation made no reference to cryptocurrency, nor was it mentioned in floor debate. Pennsylvania had nothing by way of crypto mining at the time, and bitcoin mining did not require the energy that it does today.  

The bill was expanded in 2019 with a budget of $7 million in a similar process as part of a larger omnibus tax code package passed after budget negotiations. The program was amended again in 2021 with the introduction of a measure that altered the sales tax refund mechanism to an exemption. The first crypto mines in the state were coming online at the time.

“This was one of those issues that were inserted secretly into one of the budget bills,” Vitali recalled. “There was not a lot of general awareness about it from other legislators and the public; the main intent was not directed at cryptocurrency data centers broadly.”

At the time, critics argued the program would disproportionately serve large tech corporations. That hasn’t happened yet. But it could shepherd in a different industry — one environmentalists fear to be a sleeping giant.

“Pennsylvania must not subsidize a new polluting industry,” said Earthjustice attorney McPhedran, who co-signed a public letter in support of HB 1282.

“We have a legacy of fossil fuel pollution,” McPhedran added. “We don’t need … a tax exemption that favors a polluting industry.”

Copyright 2023 Capital & Main