Tesla to Reconsider Bitcoin Amid Renewable Energy Spike?

It has been four years since Tesla suspended the acceptance of Bitcoin for its transactions, citing environmental concerns. Although the Bitcoin mining sector has reportedly increased its reliance on renewable energy, Tesla does not seem inclined to resume Bitcoin payments in the foreseeable future. On February 8, 2021, Tesla made a significant $1.5 billion investment in Bitcoin and disclosed this transaction in a filing with the United States Securities and Exchange Commission (SEC). CEO Elon Musk also integrated the cryptocurrency into the company’s treasury and began accepting it as a payment method for the company’s electric vehicles.

This arrangement was short-lived. By May 13, 2021, Tesla announced it would no longer accept Bitcoin due to increasing concerns over the use of fossil fuels, particularly coal, for Bitcoin mining and transaction processing. Tesla asserted that it would reconsider Bitcoin payments once the cryptocurrency’s mining process became more environmentally sustainable. A month later, on June 13, 2021, Musk announced that Tesla would greenlight Bitcoin transactions once it could confirm that at least half of the energy utilized by miners was derived from clean sources with favorable trends for future sustainability.

Since then, the Bitcoin landscape has undergone considerable change. The industry has witnessed indirect institutional adoption through Bitcoin exchange-traded funds (ETFs), legal status in various jurisdictions, technological advancements, and improved renewable energy usage metrics for mining operations. According to a model designed by climate tech venture capitalist Daniel Batten and data analyst Willy Woo, Bitcoin mining’s adoption of sustainable energy has reached an all-time high of over 55%, marking a steady positive trend since mid-2021. Given these improvements, questions arise about whether Tesla and Musk will honor their promise and reinstate Bitcoin payments.

One of the main obstacles to such a decision is the reliability of data concerning Bitcoin miners’ energy consumption. Major business decisions, like accepting a cryptocurrency for payments, require robust and verifiable data. Yet, Alex de Vries, a data analyst and researcher at Vrije Universiteit Amsterdam, has criticized the Bitcoin mining sector for its lack of transparency. He pointed out the shortcomings in the disclosures provided by Bitcoin miners, noting that regulations like the European Markets in Crypto-Assets Regulation (MiCA) could expose these gaps in transparency. For instance, the US Energy Information Administration (EIA) faced resistance from Bitcoin miners like Riot Platforms and the Texas Blockchain Council when it tried to gather energy usage data, leading to a legal battle that the EIA lost in 2024.

Accurate data collection in the Bitcoin mining industry remains a complex challenge. Researchers often face biases and conflicting data points. Alexander Neumüller from the Cambridge Centre for Alternative Finance (CCAF) emphasized that while data retrieval methods are improving, they still rely on multiple assumptions. The CCAF uses a combined approach to estimate Bitcoin’s electricity consumption and provides metrics like the Cambridge Bitcoin Electricity Consumption Index (CBECI). Despite improvements, estimating the specific energy sources used by miners remains complicated, with coal usage decreasing slightly from 40% to 36% according to the CBECI.

The research conducted by the Bitcoin Mining Council (BMC), which relies on surveys rather than estimates, reported a 59.9% global adoption of sustainable electricity by mid-2023. Although this data seemingly supports claims of increased sustainability, it is essential to consider the research’s context. The BMC is an industry body representing miners, whereas the CCAF is an independent research entity, which Batten argues lends more credibility to its findings. Despite the CCAF’s scientific methodology, it still struggles with gaps in data on off-grid mining operations that utilize renewable sources like solar, wind, and hydroelectric power.

The Bitcoin mining sector has seen drastic changes following regulatory interventions, such as China’s pseudo-ban on coal-based crypto mining. This shift forced miners to relocate to other countries, including the U.S., which now hosts 37.84% of the global Bitcoin hashrate. The migration has altered the global electricity mix used in Bitcoin mining. In the U.S. and other developed countries, renewable energy is becoming more cost-effective, partially due to governmental subsidies to meet the United Nations’ Sustainable Development Goals.

Yet, stable regulations are critical. Fluctuating regulatory landscapes in different countries can significantly influence the proportion of renewable energy used by miners. Recently, the U.S. has been debating how to regulate the crypto industry, with differing views from current and former presidents. Inconsistent regulations could affect Tesla’s decision on whether or not to reintroduce Bitcoin as a payment option, depending on how these rules impact the stability and availability of renewable energy for mining.

Musk’s decision on Bitcoin is complex, considering Tesla’s branding as an environmentally conscious entity. The CEO is known for his bold decisions, irrespective of public opinion, as seen in his confrontations with high-profile figures and organizations. Relying on current claims about Bitcoin mining’s renewable energy usage could pose a PR risk for Tesla. Some experts argue that resuming Bitcoin payments could lead to public backlash, especially from environmentalists who view the cryptocurrency as wasteful.

Musk faces a challenging decision. Renewing Bitcoin payments could disappoint some who feel he broke his promise, while taking this step might yield unpredictable results and attract scrutiny from regulators and environmental advocates. As CEO, Musk has the final say and must prepare for potential ramifications, whether Tesla resumes Bitcoin payments or maintains its current stance.