After Tesla’s CEO, Elon Musk’s announcement on May 12, stating that the world’s leading electric vehicle manufacturer will no longer accept bitcoin transactions due to carbon emissions emanating from mining, the cryptocurrency market went down, losing over 15% of its value.
Ever since then, speculations about the future of bitcoin has been on the rise, as losing Musk, one of its biggest cheerleaders, will have a long-term negative impact not only on bitcoin but also the entire Cryptocurrency market. Musk says Tesla is “looking for cryptocurrencies that use <1% of Bitcoin’s energy/transaction,” fueling the growth of some altcoins like Cardano that has relative sustainable mining energy.
But it seems there is more to Tesla’s decision than the environmental concern. On Friday, Greenidge Generation Holdings Inc., a New York-based bitcoin mining firm, announced that effective June 1, 2021, it will operate an entirely carbon neutral bitcoin mining operation at its facility in Upstate New York.
The firm said it will purchase voluntary carbon offsets from a portfolio of U.S. greenhouse gas reduction projects.
“In addition to offsetting 100% of its carbon emissions from bitcoin mining, Greenidge also intends to invest a portion of its mining profits in renewable energy projects,” the firm said.
While this beckons hope of sustainable energy in bitcoin mining, it also points to Musk’s ingenious strategy for the bigger picture.
About eight years ago, the University of California kicked off the “offsets” program as a way of mitigating the impact of carbon emissions on the planet.
“The whole purpose of offsets,” said University of California at Berkeley climate policy researcher Barbara Haya, “is to create a way for an individual or a company or a university to pay someone else to reduce emissions to cover emissions that they can’t reduce themselves.”
ClimateSeed defined it as “any activity that compensates for the emission of carbon dioxide (CO2) or other greenhouse gases (measured in carbon dioxide equivalents, CO2e) by providing for an emission reduction elsewhere.”
“In other words, carbon offsetting is a mechanism through which an individual or an organization can compensate for their CO2 emission through the support of certified emission reduction projects that absorb or reduce CO2 emissions. This action is realized through the purchase of carbon credits, where 1 carbon credit corresponds to 1 tonne of CO2 absorbed or reduced by the projects. The price of the carbon credit reflects not only the CO2 reduction capacity of the project but also other ecosystem services, the protection of biodiversity, social benefits, and the contribution to the UN Sustainable Development Goals that the emission reduction project achieves. It is important to specify that carbon offsetting here refers to “voluntary offsetting,” which includes “all the approaches adopted by actors who voluntarily choose the compensation method to limit their CO2 emissions.”
As part of efforts to fight global carbon emission and reach net-zero emissions at a global level, the regulated or the “compliance market” was established by the Kyoto Protocol and sees companies and governments, bound by law to account for their GHG emissions, trade allowances either to make a profit from unused allowances (CO2 that was not emitted) or to meet predetermined regulatory targets.
Therefore, a company that reduces its pollution can sell its emission credits to companies that fail to reduce their pollution: If a company fails to meet its emission-reduction target, it will need to buy additional emission credits to cover its excess emissions. The deals are usually approved by recognized Offset Project Registries, such as the American Carbon Registry (ACR), the Climate Action Reserve (CAR) and Verra, ensuring that any projects funded by responsible company reduce emissions or increase sequestration of greenhouse gas in a manner that is real, permanent, and verifiable.
Last year, Tesla raked in about $1.4 billion selling emission or carbon credit to fellow carmakers who produce combustible vehicles. Analysts believe the credit revenue probably will rise to $2 billion in 2021.
In the first quarter of 2021, emissions credits accounted for $518 million in Tesla’s revenue with a pretax income of $533 million and a net income of $438 million on a GAAP basis, according to data from Autoweek.
This means, the credits account for almost the entirety of Tesla’s profit for this quarter.
“Sales of emissions credits have been a major source of revenue for Tesla for quite some time, contributing to hundreds of millions in income for the past few quarters. The automaker accumulates regulatory credits because it produces only EVs and sells them for a profit to other automakers that are short of these credits,” Autoweek report said.
Could it be that Musk initiated Tesla’s abrupt divorce of bitcoin to sell more emission credits, knowing that cryptocurrency mining companies will scramble to switch to sustainable energy or to ameliorate the impact of fossil and coal powered mining through offsets?
The $2 billion revenue projection is based on expected carbon credit sales to carmakers, which means, the revenue will quadruple when the sales expands to cryptocurrency miners. Musk knows the short term consequences of his decision to quit bitcoin, but he also knows the long term benefits. Tesla will return to bitcoin as soon as there is a clear sign of sustainable energy in its mining, instigating another frenzy that will shoot the price up while making millions of dollars selling emission credit.