Old Wells: A New Frontier for Crypto-Mining and Complaints

April 26, 2023

Cryptocurrency mining is an emerging industry that must overcome the watchful eyes of communities and regulators. This unique process uses computers to solve complex math problems on a blockchain, which rewards miners with cryptocurrency but also requires considerable energy resources. Crypto-mining companies face praise and scrutiny as they seek energy input from older sources, such as coal mines, steel plants and natural gas wells.

On March 1, 2023, for example, the Pennsylvania Department of Environmental Protection (DEP) discovered that a company had allegedly placed cryptocurrency mining computers and equipment on an old pad that housed four wells — even though its permit for mining operations was still pending. Although the DEP determined that the site was not operational the day of its visit, the township that housed the site in Elk County, Pennsylvania, alleged that operations had commenced, as they had recently complained about the noise disturbance and nuisance of the engines.

Similar fact patterns likely will continue. Well mining, which involves using natural gas wells to power mining operations, is gaining popularity. Methane gas — often released into the atmosphere during the drilling process — may be captured and used to power the mining equipment. This not only generates revenue but also can reduce the amount of methane released into the atmosphere.

On the positive side, the use of older energy sources to power cryptocurrency mining operations can effectively rely on abandoned resources. For example, previously closed coal mines and steel plants can be repurposed for mining cryptocurrency. This generates revenue and might revitalize communities that were affected by these closures.

But the use of older energy sources for well mining also raises potential concerns. As demonstrated in the Elk County dispute, the noise the mining equipment generates can allegedly disrupt local communities. The loud hums and vibrations can allegedly affect the quality of life of nearby residents, which can lead to complaints of noise pollution. There are also possible environmental concerns associated with the use of older energy sources for cryptocurrency mining. For example, allegations of violations of air pollution control laws can occur if the equipment used in the mining process are proven to emit pollutants into the air. Additionally, if the well miner cannot carry out the necessary cleanup and plugging operations, taxpayers may be left to foot the bill. Regulations and permitting guidelines seek to mitigate these issues, but they have only gone so far with this newer application of technology.

Regulators are starting to focus much more on the impacts of cryptocurrency mining:

  • Regulatory Disclosures. On March 3, 2023, U.S. Sen. Ed Markey (D-Mass.) and Rep. Jared Huffman (Calif.-02) reintroduced the Crypto-Asset Environmental Transparency Act, which would require crypto-mining companies to disclose their emissions and energy use. Markey said crypto-mining is allegedly “sucking megawatt after megawatt from our public grids and emitting skyrocketing greenhouse gasses,” while Huffman asserted that “granting this industry impunity to run rampant is a risk to the health and safety of our communities and planet.” This bill is scheduled for a vote in the Senate.
  • Air Quality Permits. In June 2022, the New York Department of Environmental Conservation (DEC) denied Greenidge Generation LLC’s application to renew an air quality permit related to cryptocurrency mining. Greenidge’s permit had allowed it to use a facility as a natural gas-fired “peaker” plant, and it sought to increase its power generation to support its crypto-mining operations. The DEC found that Greenidge’s plans allegedly conflicted with New York’s Climate Leadership and Community Protection Act, which aimed to reduce greenhouse gas emissions.
  • Mining Moratoriums and Tax Incentives. In November 2022, New York’s governor signed Senate Bill S6486D to temporarily ban fossil fuel-powered, cryptocurrency mining operations for two years. The legislation sought to restrict the use of carbon-based mining operations, while allowing permits for operations that used alternatives for power, such as hydro or wind. In contrast, in May 2022, the Oklahoma Senate sought to introduce the Commercial Digital Asset Mining Act (SB590) to provide tax exemptions for the sale of crypto-mining equipment.
  • Economic Input. In April 2023, the World Economic Forum released a video that appeared to promote the use of cryptocurrency mining to reduce flaring. The video was viewed by many as a signal of growing support for using crypto-mining to reduce emissions while generating a new source of revenue.

The regulation of cryptocurrency mining is a complex and evolving issue. Energy, technology and crypto-mining companies can continue to monitor new developments in this field, including environmental issues, regulatory oversight and disclosure requirements, potential investor and community scrutiny, and tax implications.

As shown above, companies should comply with environmental and permitting regulations, as the failure to do so may result in potential legal action or financial penalties. Regulators and communities often seek to enforce these regulations to ensure that mining operations are conducted in a responsible and sustainable manner. They also may pursue energy companies who knowingly sell their older assets to crypto-mining operators, especially where the buyer has a proven history of noncompliance.