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, Pa., 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.

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.

Cryptocurrency 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.

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 House Bill 1282, which would preclude proof of work coin mining operations 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.

Such crypto mining “is a substantial user of energy, and it’s a very inefficient use of energy,” said Rep. Greg Vitali (D., Delaware), H.B. 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.”

Vitali said he has asked House leadership to pass it as part of a larger budget bill, as budget proceedings drag on. Lawmakers are not scheduled to return to the Capitol until September.

H.B. 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, H.B. 1476, would place 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 H.B. 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 designed to be wasteful, 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 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.

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

Nautilus is powered without burning fossil fuels 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.

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 such as Vitali’s that could “deter [crypto] organizations from coming to Pennsylvania.”

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.

“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 Charles McPhedran, senior attorney in the clean energy program at Earthjustice.

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

This article was produced by the nonprofit journalism publication Capital & Main. It is copublished here with permission.