Europe’s Oil Embargo, its Energy Woes and Cryptomining in the Region

End of May 2022, the European Union’s heads of states agreed on an oil embargo on Russian oil that would halt 75 % of all Russian oil imports to stop the large finance for Russia’s war that comes from payments for oil imports. These concern oil shipments by sea, whereas those that are transported by pipelines continue to flow, at least for a while until Europe has managed to make other plans to cover their energy needs. It was also decided, that until the end of 2022, the import of Russian oil will be curbed by 90 %.

This will have an enormous impact on many of Europe‘s countries, especially those that rely heavily on these imports to cover their energy needs. Hungary, for example will continue to import via pipelines as they cannnot cover their energy needs with alternative sources.

Regarding future sanctions that will include Russian gas, countries such as Austria, which depends heavily on Russian gas, would not be able to find alternative energy sources in the foreseeable future.

What these energy crises mean for Europe in general and in regard to achieving the Paris Climate Agreement, is yet to be seen. In some countries, energy prices will be capped to cushion the worst impact. Over the next few years, Europe wants to become independent from Russian oil and gas. However, achieving this will need swift and effective planning and, foremost, implementation of workable plans.

The European Union intends to move away from oil and gas and thus makes clean energy even more of a priority. Phasing out gas should reduce the reliance on fossil fuels faster than was originally planned, and an acceleration of the implementation of green energy projects is to be expected. In the meantime, a shortage of oil and gas drives energy prices skyhigh, and governments are trying to cushion the effects on their economies.

What will a reduction of oil and gas as energy sources mean for cryptomining in Europe? Currently, mining in Europe uses to a large degree hydropower. And only recently, Bitcoin was spared a mining ban in Europe that was planned because of its energy-intensive consensus mechanisms, the Proof-of-Work (PoW). Cryptomining’s inclusion in the EU taxonomy will put pressure on miners to transition to more eco-friendly alternatives and push the use of renewable energy sources even more.

According to the Bitcoin Mining Council Survey, the estimated sustainable energy mix worldwide was 58.4% in the first quarter of 2022. In some European countries, the percentage of renewable energy usage is much higher, such as in Norway whose electricity generation comes 100% from renewable sources, i.e. mostly hydropower, wind and thermal energy.

The majority of Europe's miners are located in Northern Europe, and most of them use renewable energy, such as hydropower. Furthermore, the large mining companies secure electricity prices for longer periods of time. Therefore, the effects of high energy prices due to the embargo are more moderate in cryptomining than in other industries.

Germany produces currently 40.9% of its energy from renewable sources and is aiming to achieve 80% by 2030 and nearly 100% by 2035. Ireland uses its vast offshore wind energy capacity to achieve a 80% renewable energy target by 2030 and currently gets 53% of its energy from wind. Sweden (together with Norway) is under the worldwide top-10 countries that lead the switch to renewable energy. Iceland also already gets almost 100% of its energy from renewable sources. Renewable energy covers aproximately 70% of Switzerland’s annual energy demand, whereas Finland’s renewable energy percentage is around 25%.

According to the Bitcoin Mining Council’s Report, Bitcoin mining’s sustainable energy mix as well as its technological efficiency have improved in the first quarter of 2022. Further, mining companies are looking to adopt sustainable energy and actively build mining farms next to green energy sources.

With a reduction of oil and gas and a rise in renewable energy sources, the percentage of Bitcoin mining’s use of renewable energy is also bound to rise proportionally. However, there are some cautionary voices stating infrastructure project problems and cost overruns due to the impact of high inflation, which can have a negative effect on the timeframes in which the transition to green energy sources is supposed to be implemented.

References:

• https://www.theverge.com/2022/3/8/22967244/european-union-russia-clean-energy-transition-gas
• https://orf.at/stories/3268652/
• https://www.businesstoday.in/crypto/story/earth-day-how-much-renewable-energy-does-bitcoin-mining-use-330875-2022-04-22
• https://bitcoinminingcouncil.com/bitcoin-mining-council-survey-confirms-year-on-year-improvements-in-sustainable-power-mix-and-technological-efficiency/