Dominion to switch 3 plants to biomass

Ontario Electricity Export Retaliation signals tariff-fueled trade tensions as Doug Ford leverages cross-border energy flows to the U.S., risking grid reliability, higher power prices, and escalating a Canada-U.S. trade war over protectionist policies.

Key Points

A policy threat by Ontario to cut power exports to U.S. states in response to tariffs, leveraging grid dependence.

✅ Powers about 1.5M U.S. homes in NY, MI, and MN

✅ Risks price spikes, shortages, and legal challenges

✅ Part of Canada's CAD 30B retaliatory tariff package

In a move that underscores the escalating trade tensions between Canada and the United States, Ontario Premier Doug Ford has threatened to halt electricity exports to U.S. states in retaliation for the Trump administration's recent tariffs. This bold stance highlights Ontario's significant role in powering regions across the U.S. and serves as a warning about the potential consequences of trade disputes.

The Leverage of Ontario's Electricity

Ontario's electricity exports are not merely supplementary; they are essential to the energy supply of several U.S. states. The province provides power to approximately 1.5 million homes in states such as New York, Michigan, and Minnesota, even as it eyes energy independence through domestic initiatives. This substantial export positions Ontario as a key player in the regional energy market, giving the province considerable leverage in trade negotiations.

Premier Ford's Ultimatum

Responding to the Trump administration's imposition of a 25% tariff on Canadian imports, Premier Ford, following a Washington meeting, declared, "If they want to play tough, we can play tough." He further emphasized his readiness to act, stating, "I’ll cut them off with a smile on my face." This rhetoric underscores Ontario's willingness to use its energy exports as a bargaining chip in the trade dispute.

Economic and Political Ramifications

The potential cessation of electricity exports to the U.S. would have profound economic implications. U.S. states that rely on Ontario's power could face energy shortages, leading to increased prices, particularly New York energy prices, and potential disruptions. Such an action would not only strain the energy supply but also escalate political tensions, potentially affecting other areas of bilateral cooperation.

Canada's Retaliatory Measures

Ontario's threat is part of a broader Canadian strategy to counteract U.S. tariffs. Prime Minister Justin Trudeau has announced retaliatory tariffs on U.S. goods worth approximately CAD 30 billion, targeting products such as food, textiles, and furniture. These measures aim to pressure the U.S. administration into reconsidering its trade policies.

The Risk of Escalation

While leveraging energy exports provides Ontario with a potent tool, it also carries significant risks, as experts warn against cutting Quebec's energy exports amid tariff tensions. Such actions could lead to a full-blown trade war, with both countries imposing tariffs and export restrictions. The resulting economic fallout could affect various sectors, from manufacturing to agriculture, and lead to job losses and increased consumer prices.

International Trade Relations

The dispute also raises questions about the stability of international trade agreements and the rules governing cross-border energy transactions. Both Canada and the U.S. are signatories to various trade agreements that promote the free flow of goods and services, including energy. Actions like export bans could violate these agreements and lead to legal challenges.

Public Sentiment and Nationalism

The trade tensions have sparked a surge in Canadian nationalism, with public sentiment largely supporting tariffs on energy and minerals as retaliatory measures. This sentiment is evident in actions such as boycotting American products and expressing discontent at public events. However, while national pride is a unifying force, it does not mitigate the potential economic hardships that may result from prolonged trade disputes.

The Path Forward

Navigating this complex situation requires careful diplomacy and negotiation. Both Canada and the U.S. must weigh the benefits of trade against the potential costs of escalating tensions. Engaging in dialogue, seeking compromise, and adhering to international trade laws are essential steps to prevent further deterioration of relations and to ensure the stability of both economies.

Ontario's threat to cut off electricity exports to the U.S. serves as a stark reminder of the interconnectedness of global trade and the potential consequences of protectionist policies. While such measures can be effective in drawing attention to grievances, they also risk significant economic and political fallout. As the situation develops, it will be crucial to monitor the responses of both governments and the impact on industries and consumers alike, including growing support for Canadian energy projects among stakeholders.

Related News

• Electricity Forum News

• Energy Policy News

Ontario IESO Accounting Dispute highlights tensions over public sector accounting standards, auditor general oversight, electricity market transparency, KPMG advice, rate-regulated accounting, and an alleged $1.3B deficit understatement affecting Hydro bills and provincial finances.

Key Points

A PSAS clash between Ontario's auditor general and the IESO, alleging a $1.3B deficit impact and transparency failures.

✅ Auditor alleges deficit understated by $1.3B

✅ Dispute over PSAS vs US-style accounting

✅ KPMG support, transparency and co-operation questioned

The bad blood between the Ontario government and auditor general bubbled to the surface once again Monday, with the Liberal energy minister downplaying a dispute between the auditor and the Crown corporation that manages the province's electricity market, even as the government pursued legislation to lower electricity rates in the province.

Glenn Thibeault said concerns raised by auditor general Bonnie Lysyk during testimony before a legislative committee last week aren't new and the practices being used by the Independent Electricity System Operator are commonly endorsed by major auditing firms.

"(Lysyk) doesn't like the rate-regulated accounting. We've always said we've relied on the other experts within the field as well, plus the provincial controller," Thibeault said.

#google#

"We believe that we are following public sector accounting standards."

Thibeault said that Ontario Power Generation, Hydro One and many other provinces and U.S. states use the same accounting practices.

"We go with what we're being told by those who are in the field, like KPMG, like E&Y," he said.

But a statement from Lysyk's office Monday disputed Thibeault's assessment.

"The minister said the practices being used by the IESO are common in other jurisdictions," the statement said.

"In fact, the situation with the IESO is different because none of the six other jurisdictions with entities similar to the IESOuse Canadian Public Sector Accounting Standards. Five of them are in the United States and use U.S. accounting standards."

Lysyk said last week that the IESO is using "bogus" accounting practices and her office launched a special audit of the agency late last year after the agency changed their accounting to be more in line with U.S. accounting, following reports of a phantom demand problem that cost customers millions.

Lysyk said the accounting changes made by the IESO impact the province's deficit, understating it by $1.3 billion as of the end of 2017, adding that IESO "stalled" her office when it asked for information and was not co-operative during the audit.

Lysyk's full audit of the IESO is expected to be released in the coming weeks and is among several accounting disputes her office has been engaged in with the Liberal government over the past few years.

Last fall, she accused the government of purposely obscuring the true financial impact of its 25% hydro rate cut by keeping billions in debt used to finance that plan off the province's books. Lysyk had said she would audit the IESO because of its role in the hydro plan's complex accounting scheme.

"Management of the IESO and the board would not co-operate with us, in the sense that they continually say they're co-operating, but they stalled on giving us information," she said last week.

Terry Young, a vice-president with the IESO, said the agency has fully co-operated with the auditor general. The IESO opened up its office to seven staff members from the auditor's office while they did their work.

"We recognize the work that she's doing and to that end we've tried to fully co-operate," he said. "We've given her all of the information that we can."

Young said the change in accounting standards is about ensuring greater transparency in transactions in the energy marketplace.

"It's consistent with many other independent electricity system operators are doing," he said.

Lysyk also criticized IESO's accounting firm, KPMG, for agreeing with the IESO on the accounting standards. She was critical of the firm billing taxpayers for nearly $600,000 work with the IESO in 2017, compared to their normal yearly audit fee of $86,500.

KPMG spokeswoman Lisa Papas said the accounting issues that IESO addressed during 2017 were complex, contributing to the higher fees.

The accounting practices the auditor is questioning are a "difference of professional judgement," she said.

"The standards for public sector organizations such as IESO are principles-based standards and, accordingly, require the exercise of considerable professional judgement," she said in a statement.

"In many cases, there is more than one acceptable approach that is compliant with the applicable standards."

Progressive Conservative energy critic Todd Smith said the government isn't being transparent with the auditor general or taxpayers, aligning with calls for cleaning up Ontario's hydro mess in the sector.

"Obviously, they have some kind of dispute but the auditor's office is saying that the numbers that the government is putting out there are bogus.

Those are her words," he said. "We've always said that we believe the auditor general's are the true numbers for the
province of Ontario."

NDP energy critic Peter Tabuns said the Liberal government has decided to "play with accounting rules" to make its books look better ahead of the spring election, despite warnings that electricity prices could soar if costs are pushed into the future.

Related News

• Electricity Forum News

• Energy Policy News

Canada Economic Crossroads highlights bank earnings trends, interest rates, loan delinquencies, EV tariffs on Chinese imports, domestic manufacturing, Algoma Steel decarbonization, sustainability, and housing market risks shaping growth, investment, consumer prices, and climate policy.

Key Points

An overview of how bank earnings, EV tariffs, and Algoma Steel's transition shape Canada's economy.

✅ Higher rates lift margins but raise delinquencies and housing risks

✅ EV tariffs aid domestic makers but pressure consumer prices

✅ Algoma invests to decarbonize, boosting efficiency and compliance

In a complex economic landscape, recent developments have brought attention to several pivotal issues affecting Canada's business sector. The Globe and Mail’s latest report delves into three major topics: the latest bank earnings, the implications of new tariffs on Chinese electric vehicles (EVs), and Algoma Steel’s strategic maneuvers. These factors collectively paint a picture of the challenges and opportunities facing Canada's economy.

Bank Earnings Reflect Economic Uncertainty

The recent financial reports from major Canadian banks have revealed a mixed picture of the nation’s economic health. As the Globe and Mail reports, earnings results show robust performances in some areas while highlighting growing concerns in others. Banks have generally posted strong quarterly results, buoyed by higher interest rates which have improved their net interest margins. This uptick is largely attributed to the central bank's monetary policies aimed at combating inflation and stabilizing the economy.

However, the positive earnings are tempered by underlying economic uncertainties. Rising loan delinquencies and a slowing housing market are areas of concern. Increased interest rates, while beneficial for banks’ margins, have also led to higher borrowing costs for consumers and businesses. This dynamic has the potential to impact overall economic growth and consumer confidence.

Tariffs on Chinese EVs: A Strategic Shift

Another significant development is the imposition of new tariffs on Chinese electric vehicles. This move is part of a broader strategy to protect domestic automotive industries and address trade imbalances, aligning with public support for tariffs in key sectors. The tariffs are expected to increase the cost of Chinese EVs in Canada, which could have several implications for the market.

On one hand, the tariffs might provide a temporary boost to Canadian and North American manufacturers by reducing competition from lower-priced Chinese imports. This protectionist measure could encourage investments in local production and innovation, mirroring tariff threats boosting support for energy projects in other sectors. However, the increased cost of Chinese EVs may also lead to higher prices for consumers, potentially slowing the adoption of electric vehicles—a critical goal in Canada’s climate strategy.

The tariffs come at a time when the Canadian government is keen on accelerating the transition to electric mobility to meet its environmental targets, even as a critical crunch in electrical supply raises questions about grid readiness. Balancing the protection of domestic industries with the broader goal of reducing emissions will be a significant challenge moving forward.

Algoma Steel’s Strategic Evolution

In the steel industry, Algoma Steel has been making headlines with its strategic initiatives aimed at transforming its operations, in a broader shift toward clean grids and industrial decarbonization. The Globe and Mail highlights Algoma Steel's efforts to modernize its production processes and shift towards more sustainable practices. This includes significant investments in technology and infrastructure to enhance production efficiency and reduce environmental impact.

Algoma's focus on reducing carbon emissions aligns with broader industry trends towards sustainability. The company’s efforts are part of a larger push within the steel sector to address climate change and meet regulatory requirements. As one of Canada’s leading steel producers, Algoma’s actions could set a precedent for the industry, showcasing how traditional manufacturing sectors can adapt to evolving environmental standards.

Implications and Future Outlook

The interplay of these developments reflects a period of significant transition for Canada's economy, shaped in part by U.S. policy where Biden is seen as better for Canada's energy sector by some analysts. For banks, the challenge will be to navigate the balance between profitability and potential risks from a changing economic environment. The new tariffs on Chinese EVs represent a strategic shift with mixed implications for the automotive market, potentially influencing both domestic production and consumer prices. Meanwhile, Algoma Steel’s push towards sustainability could serve as a model for other industries seeking to align with environmental goals.

As these issues unfold, stakeholders across sectors will need to stay informed and adaptable. For policymakers, the challenge will be to support domestic industries while fostering innovation and sustainability, including the dilemma over electricity rates and innovation they must weigh. For businesses, the focus will be on navigating financial pressures and leveraging opportunities for growth. Consumers, in turn, will face the impact of these developments in their daily lives, from the cost of borrowing to the price of electric vehicles.

In summary, Canada’s current economic landscape is characterized by a blend of financial resilience, strategic adjustments, and evolving industry practices, amid policy volatility such as a tariff threat delaying Quebec's green energy bill earlier this year. As the country navigates these crossroads, the outcomes of these developments will play a crucial role in shaping the future economic environment.

Related News

• Electricity Forum News

• Energy Policy News

Ontario Nuclear Power Costs highlight LCOE, capex, refurbishment outlays, and waste management, compared with renewables, grid reliability, and emissions targets, informing Australia and Peter Dutton on feasibility, timelines, and electricity prices.

Key Points

They include high capex and LCOE from refurbishments and waste, offset by reliable, low-emission baseload.

✅ Refurbishment and maintenance drive lifecycle and LCOE variability.

✅ High capex and long timelines affect consumer electricity prices.

✅ Low emissions, but waste and safety compliance add costs.

Australian opposition leader Peter Dutton recently lauded Canada’s use of nuclear power as a model for Australia’s energy future. His praise comes as part of a broader push to incorporate nuclear energy into Australia’s energy strategy, which he argues could help address the country's energy needs and climate goals. However, the question arises: Is Ontario’s experience with nuclear power as cost-effective as Dutton suggests?

Dutton’s endorsement of Canada’s nuclear power strategy highlights a belief that nuclear energy could provide a stable, low-emission alternative to fossil fuels. He has pointed to Ontario’s substantial reliance on nuclear power, and the province’s exploration of new large-scale nuclear projects, as an example of how such an energy mix might benefit Australia. The province’s energy grid, which integrates a significant amount of nuclear power, is often cited as evidence that nuclear energy can be a viable component of a diversified energy portfolio.

The appeal of nuclear power lies in its ability to generate large amounts of electricity with minimal greenhouse gas emissions. This characteristic aligns with Australia’s climate goals, which emphasize reducing carbon emissions to combat climate change. Dutton’s advocacy for nuclear energy is based on the premise that it can offer a reliable and low-emission option compared to the fluctuating availability of renewable sources like wind and solar.

However, while Dutton’s enthusiasm for the Canadian model reflects its perceived successes, including recent concerns about Ontario’s grid getting dirtier amid supply changes, a closer look at Ontario’s nuclear energy costs raises questions about the financial feasibility of adopting a similar strategy in Australia. Despite the benefits of low emissions, the economic aspects of nuclear power remain complex and multifaceted.

In Ontario, the cost of nuclear power has been a topic of considerable debate. While the province benefits from a stable supply of electricity due to its nuclear plants, studies warn of a growing electricity supply gap in coming years. Ontario’s experience reveals that nuclear power involves significant capital expenditures, including the costs of building reactors, maintaining infrastructure, and ensuring safety standards. These expenses can be substantial and often translate into higher electricity prices for consumers.

The cost of maintaining existing nuclear reactors in Ontario has been a particular concern. Many of these reactors are aging and require costly upgrades and maintenance to continue operating safely and efficiently. These expenses can add to the overall cost of nuclear power, impacting the affordability of electricity for consumers.

Moreover, the development of new nuclear projects, as seen with Bruce C project exploration in Ontario, involves lengthy and expensive construction processes. Building new reactors can take over a decade and requires significant investment. The high initial costs associated with these projects can be a barrier to their economic viability, especially when compared to the rapidly decreasing costs of renewable energy technologies.

In contrast, the cost of renewable energy has been falling steadily, even as debates over nuclear power’s trajectory in Europe continue, making it a more attractive option for many jurisdictions. Solar and wind power, while variable and dependent on weather conditions, have seen dramatic reductions in installation and operational costs. These lower costs can make renewables more competitive compared to nuclear energy, particularly when considering the long-term financial implications.

Dutton’s praise for Ontario’s nuclear power model also overlooks some of the environmental and logistical challenges associated with nuclear energy. While nuclear power generates low emissions during operation, it produces radioactive waste that requires long-term storage solutions. The management of nuclear waste poses significant environmental and safety concerns, as well as additional costs for safe storage and disposal.

Additionally, the potential risks associated with nuclear power, including the possibility of accidents, contribute to the complexity of its adoption. The safety and environmental regulations surrounding nuclear energy are stringent and require continuous oversight, adding to the overall cost of maintaining nuclear facilities.

As Australia contemplates integrating nuclear power into its energy mix, it is crucial to weigh these financial and environmental considerations. While the Canadian model provides valuable insights, the unique context of Australia’s energy landscape, including its existing infrastructure, energy needs, and the costs of scrapping coal-fired electricity in comparable jurisdictions, must be taken into account.

In summary, while Peter Dutton’s endorsement of Canada’s nuclear power model reflects a belief in its potential benefits for Australia’s energy strategy, the cost-effectiveness of Ontario’s nuclear power experience is more nuanced than it may appear. The high capital and maintenance costs associated with nuclear energy, combined with the challenges of managing radioactive waste and ensuring safety, present significant considerations. As Australia evaluates its energy future, a comprehensive analysis of both the benefits and drawbacks of nuclear power will be essential to making informed decisions about its role in the country’s energy strategy.

Related News

• Electricity Forum News

• Power Generation News

Hong Kong Typhoon Mangkhut Power Outages strain households with blackouts, electricity disruption, and humid heat, impacting Tin Ping Estate in Sheung Shui and outlying islands; contractor-led restoration faces fines for delays and infrastructure repairs.

Key Points

They are blackout events after Typhoon Mangkhut, bringing heat stress, food spoilage, and delayed power restoration.

✅ 16 floors in Tin Ping Estate lost power after meter room blast.

✅ Contractor faces HK$100,000 daily fines for late restoration.

✅ Kat O and Ap Chau families remain off-grid in humid heat.

Nearly 600 Hong Kong families are still sweltering under the summer heat and facing dark nights without electricity after Typhoon Mangkhut cut off power supply to areas, echoing mass power outages seen elsewhere.

At Sheung Shui’s Tin Ping Estate in the New Territories, 384 families were still without power, a situation similar to the LA-area blackout that left many without service. They were told on Tuesday that a contractor would rectify the situation by Friday, or be fined HK$100,000 for each day of delay.

In remote areas such as outlying islets Kat O and Ap Chau, there were some 200 families still without electricity, similar to Tennessee storm outages affecting rural communities.

The power outage at Tin Ping Estate affected 16 floors – from the 11th to 26th – in Tin Cheung House after a blast from the meter room on the 15th floor was heard at about 5pm on Sunday, and authorities urged residents to follow storm electrical safety tips during repairs.

“I was sitting on the sofa when I heard a loud bang,” said Lee Sau-king, 61, whose flat was next to the meter room. “I was so scared that my hands kept trembling.”

While the block’s common areas and lifts were not affected, flats on the 16 floors encountered blackouts.

As her fridge was out of power, Lee had to throw away all the food she had stocked up for the typhoon. With the freezer not functioning, her stored dried seafood became soaked and she had to dry them outside the window when the storm passed.

Daily maximum temperatures rose back to 30 degrees Celsius after the typhoon, and nights became unbearably humid, as utilities worldwide pursue utility climate adaptation to maintain reliability. “It’s too hot here. I can’t sleep at all,” Lee said.

Related News

• Electricity Forum News

• Overhead T&D News

Bitcoin Energy Debate examines electricity usage, mining costs, environmental impact, and blockchain efficiency, weighing renewable power, carbon footprint, scalability, and transaction throughput to clarify stakeholder claims from Tesla, Square, academics, and policymakers.

Key Points

Debate on Bitcoin mining's power use, environmental impact, efficiency, and scalability versus alternative blockchains.

✅ Compares energy intensity with transaction throughput and system outputs.

✅ Weighs renewables, stranded power, and carbon footprint in mining.

✅ Assesses PoS blockchains, stablecoins, and scalability tradeoffs.

There is a great debate underway about the electricity required to process Bitcoin transactions. The debate is significant, the stakes are high, the views are diverse, and there are smart people on both sides. Bitcoin generates a lot of emotion, thereby producing too much heat and not enough light. In this post, I explain the importance of identifying the key issues in the debate, and of understanding the nature and extent of disagreement about how much electrical energy Bitcoin consumes.

Consider the background against which the debate is taking place. Because of its unstable price, Bitcoin cannot serve as a global mainstream medium of exchange. The instability is apparent. On January 1, 2021, Bitcoin’s dollar price was just over $29,000. Its price rose above $63,000 in mid-April, and then fell below $35,000, where it has traded recently. Now the financial media is asking whether we are about to experience another “cyber winter” as the prices of cryptocurrencies continue their dramatic declines.

Central banks warns of bubble on bitcoins as it skyrockets
As bitcoins skyrocket to more than $12 000 for one BTC, many central banks as ECB or US Federal ... [+] NURPHOTO VIA GETTY IMAGES
Bitcoin is a high sentiment beta asset, and unless that changes, Bitcoin cannot serve as a global mainstream medium of exchange. Being a high sentiment beta asset means that Bitcoin’s market price is driven much more by investor psychology than by underlying fundamentals.

As a general matter, high sentiment beta assets are difficult to value and difficult to arbitrage. Bitcoin qualifies in this regard. As a general matter, there is great disagreement among investors about the fair values of high sentiment beta assets. Bitcoin qualifies in this regard.

One major disagreement about Bitcoin involves the very high demand for electrical power associated with Bitcoin transaction processing, an issue that came to light several years ago. In recent months, the issue has surfaced again, in a drama featuring disagreement between two prominent industry leaders, Elon Musk (from Tesla and SpaceX) and Jack Dorsey (from Square).

On one side of the argument, Musk contends that Bitcoin’s great need for electrical power is detrimental to the environment, especially amid disruptions in U.S. coal and nuclear power that increase supply strain.  On the other side, Dorsey argues that Bitcoin’s electricity profile is a benefit to the environment, in part because it provides a reliable customer base for clean electric power. This might make sense, in the absence of other motives for generating clean power; however, it seems to me that there has been a surge in investment in alternative technologies for producing electricity that has nothing to do with cryptocurrency. So I am not sure that the argument is especially strong, but will leave it there. In any event, this is a demand side argument.

A supply side argument favoring Bitcoin is that the processing of Bitcoin transactions, known as “Bitcoin mining,” already uses clean electrical power, power which has already been produced, as in hydroelectric plants at night, but not otherwise consumed in an era of flat electricity demand across mature markets.

Both Musk and Dorsey are serious Bitcoin investors. Earlier this year, Tesla purchased $1.5 billion of Bitcoin, agreed to accept Bitcoin as payment for automobile sales, and then reversed itself. This reversal appears to have pricked an expanding Bitcoin bubble. Square is a digital transaction processing firm, and Bitcoin is part of its long-term strategy.

Consider two big questions at the heart of the digital revolution in finance. First, to what degree will blockchain replace conventional transaction technologies? Second, to what degree will competing blockchain based digital assets, which are more efficient than Bitcoin, overcome Bitcoin’s first mover advantage as the first cryptocurrency?

To gain some insight about possible answers to these questions, and the nature of the issues related to the disagreement between Dorsey and Musk, I emailed a series of academics and/or authors who have expertise in blockchain technology.

David Yermack, a financial economist at New York University, has written and lectured extensively on blockchains. In 2019, Yermack wrote the following: “While Bitcoin and successor cryptocurrencies have grown remarkably, data indicates that many of their users have not tried to participate in the mainstream financial system. Instead they have deliberately avoided it in order to transact in black markets for drugs and other contraband … or evade capital controls in countries such as China.” In this regard, cyber-criminals demanding ransom for locking up their targets information systems often require payment in Bitcoin. Recent examples of cyber-criminal activity are not difficult to find, such as incidents involving Kaseya and Colonial Pipeline.

David Yermack continues: “However, the potential benefits of blockchain for improving data security and solving moral hazard problems throughout the financial system have become widely apparent as cryptocurrencies have grown.” In his recent correspondence with me, he argues that the electrical power issue associated with Bitcoin “mining,” is relatively minor because Bitcoin miners are incentivized to seek out cheap electric power, and patterns shifted as COVID-19 changed U.S. electricity consumption across sectors.

Thomas Philippon, also a financial economist at NYU, has done important work characterizing the impact of technology on the resource requirements of the financial sector. He has argued that historically, the financial sector has comprised about 6-to-7% of the economy on average, with variability over time. Unit costs, as a percentage of assets, have consistently been about 2%, even with technological advances. In respect to Bitcoin, he writes in his correspondence with me that Bitcoin is too energy inefficient to generate net positive social benefits, and that energy crisis pressures on U.S. electricity and fuels complicate the picture, but acknowledges that over time positive benefits might be possible.

Emin Gün Sirer is a computer scientist at Cornell University, whose venture AVA Labs has been developing alternative blockchain technology for the financial sector. In his correspondence with me, he writes that he rejects the argument that Bitcoin will spur investment in renewable energy relative to other stimuli. He also questions the social value of maintaining a fairly centralized ledger largely created by miners that had been in China and are now migrating to other locations such as El Salvador.

Bob Seeman is an engineer, lawyer, and businessman, who has written a book entitled Bitcoin: The Mother of All Scams. In his correspondence with me, he writes that his professional experience with Bitcoin led him to conclude that Bitcoin is nothing more than unlicensed gambling, a point he makes in his book.

David Gautschi is an academic at Fordham University with expertise in global energy. I asked him about studies that compare Bitcoin’s use of energy with that of the U.S. financial sector. In correspondence with me, he cautioned that the issues are complex, and noted that online technology generally consumes a lot of power, with electricity demand during COVID-19 highlighting shifting load profiles.

My question to David Gautschi was prompted by a study undertaken by the cryptocurrency firm Galaxy Digital. This study found that the financial sector together with the gold industry consumes twice as much electrical power as Bitcoin transaction processing. The claim by Galaxy is that Bitcoin’s electrical power needs are “at least two times lower than the total energy consumed by the banking system as well as the gold industry on an annual basis.”

Galaxy’s analysis is detailed and bottom up based. In order to assess the plausibility of its claims, I did a rough top down analysis whose results were roughly consistent with the claims in the Galaxy study. For sake of disclosure, I placed the heuristic calculations I ran in a footnote.1 If we accept the Galaxy numbers, there remains the question of understanding the outputs produced by the electrical consumption associated with both Bitcoin mining and U.S. banks’ production of financial services. I did not see that the Galaxy study addresses the output issue, and it is important.

Consider some quick statistics which relate to the issue of outputs. The total market for global financial services was about $20 trillion in 2020. The number of Bitcoin transactions processed per day was about 330,000 in December 2020, and about 400,000 in January 2021. The corresponding number for Bitcoin’s digital rival Ethereum during this time was about 1.1 million transactions per day. In contrast, the global number of credit card transactions per day in 2018 was about 1 billion.2

Bitcoin Value Falls
LONDON, ENGLAND - NOVEMBER 20: A visual representation of the cryptocurrencies Bitcoin and Ethereum ... [+] GETTY IMAGES
These numbers tell us that Bitcoin transactions comprise a small share, on the order of 0.04%, of global transactions, but use something like a third of the electricity needed for these transactions. That said, the associated costs of processing Bitcoin transactions relate to tying blocks of transactions together in a blockchain, not to the number of transactions. Nevertheless, even if the financial sector does indeed consume twice as much electrical power as Bitcoin, the disparity between Bitcoin and traditional financial technology is striking, and the experience of Texas grid reliability underscores system constraints when it comes to output relative to input.  This, I suggest, weakens the argument that Bitcoin’s electricity demand profile is inconsequential because Bitcoin mining uses slack electricity.

A big question is how much electrical power Bitcoin mining would require, if Bitcoin were to capture a major share of the transactions involved in world commerce. Certainly much more than it does today; but how much more?

Given that Bitcoin is a high sentiment beta asset, there will be a lot of disagreement about the answers to these two questions. Eventually we might get answers.

At the same time, a high sentiment beta asset is ill suited to being a medium of exchange and a store of value. This is why stablecoins have emerged, such as Diem, Tether, USD Coin, and Dai. Increased use of these stable alternatives might prevent Bitcoin from ever achieving a major share of the transactions involved in world commerce.

We shall see what the future brings. Certainly El Salvador’s recent decision to make Bitcoin its legal tender, and to become a leader in Bitcoin mining, is something to watch carefully. Just keep in mind that there is significant downside to experiencing foreign exchange rate volatility. This is why global financial institutions such as the World Bank and IMF do not support El Salvador’s decision; and as I keep saying, Bitcoin is a very high sentiment beta asset.

In the past I suggested that Bitcoin bubble would burst when Bitcoin investors conclude that its associated processing is too energy inefficient. Of course, many Bitcoin investors are passionate devotees, who are vulnerable to the psychological bias known as motivated reasoning. Motivated reasoning-based sentiment, featuring denial,3 can keep a bubble from bursting, or generate a series of bubbles, a pattern we can see from Bitcoin’s history.

I find the argument that Bitcoin is necessary to provide the right incentives for the development of clean alternatives for generating electricity to be interesting, but less than compelling. Are there no other incentives, such as evolving utility trends, or more efficient blockchain technologies? Bitcoin does have a first mover advantage relative to other cryptocurrencies. I just think we need to be concerned about getting locked into an technologically inferior solution because of switching costs.

There is an argument to made that decisions, such as how to use electric power, are made in markets with self-interested agents properly evaluating the tradeoffs. That said, think about why most of the world adopted the Windows operating system in the 1980s over the superior Mac operating system offered by Apple. Yes, we left it to markets to determine the outcome. People did make choices; and it took years for Windows to catch up with the Mac’s operating system.

My experience as a behavioral economist has taught me that the world is far from perfect, to expect to be surprised, and to expect people to make mistakes. We shall see what happens with Bitcoin going forward.

As things stand now, Bitcoin is well suited as an asset for fulfilling some people’s urge to engage in high stakes gambling. Indeed, many people have a strong need to engage in gambling. Last year, per capita expenditure on lottery tickets in Massachusetts was the highest in the U.S. at over $930.

High sentiment beta assets offer lottery-like payoffs. While Bitcoin certainly does a good job of that, it cannot simultaneously serve as an effective medium of exchange and reliable store of value, even setting aside the issue at the heart of the electricity debate.

Related News

• Electricity Forum News

• Energy Policy News