Inner Mongolia plans to clear out cryptocurrency mining. What impact will the carbon neutrality commitment have on the mining industry?

On February 25, the official website of the Inner Mongolia Development and Reform Commission announced that in accordance with the work arrangements for dual control of energy consumption, the Autonomous Region Development and Reform Commission, together with the Autonomous Region Industry and Information Technology Department and the Energy Bureau, has drafted the "Several Guarantee Measures to Ensure the Completion of the "14th Five-Year Plan" Energy Consumption Dual Control Target Tasks (Draft for Comments)" and is now soliciting public opinions. The deadline for soliciting opinions is from February 25, 2021 to March 3, 2021.

The ninth measure is to speed up the elimination of backward and excess production capacity, and the last one emphasizes: virtual currency mining: comprehensive cleanup and shutdown of virtual currency mining projects, all of which will be withdrawn by the end of April 2021. And in the part on controlling the capacity scale of high-energy-consuming industries, it is emphasized: "Reasonably and orderly control the scale of data center construction, and strictly prohibit the construction of new virtual currency mining projects."

Industry insiders revealed that some mines in Inner Mongolia have been shut down and mining machines have begun to be transferred to other mines. The person in charge of a Sichuan hydropower consumption park said that they have recently received many requests for mining machine transfers from Inner Mongolia.

Industry insiders generally recall that at the end of 2019, the Chinese government website released the "Guidelines for Industrial Structure Adjustment (2019 Edition)" issued by the National Development and Reform Commission, which deleted the "virtual currency 'mining activities' (the production process of virtual currencies such as Bitcoin)" that were originally in the elimination industry. In the previous draft for comments, "virtual currency mining" was an item without an elimination deadline or elimination plan, and it was clearly eliminated or immediately eliminated by national industrial policy.

Will the above changes appear again in the draft for soliciting opinions in Inner Mongolia? The possibility is probably not high.

First, Inner Mongolia itself is relatively suppressive and negative towards the cryptocurrency mining industry. Xinjiang and Sichuan relatively recognize the role of emerging industries in absorbing abandoned water and electricity and improving local fiscal employment. The mining industry in Inner Mongolia has already been relocated.

On August 24, 2020, the Ministry of Industry and Information Technology of Inner Mongolia suddenly designated 21 mining companies and required them to suspend their participation in the listing and trading of featured industries. Exclusive: Inner Mongolia suddenly designated 21 mining farms to suspend their participation in multilateral electricity trading. Electricity charges may increase by 1/3. The suspension of trading will not be fully implemented. It is believed that the implementation of this withdrawal will be similar, and each county and city still has different countermeasures.

Second, and more importantly, China will begin to fulfill its commitment to "carbon neutrality". At the 2020 United Nations General Assembly, China made its first carbon neutrality commitment in history, promising to peak carbon dioxide emissions by 2030 and strive to achieve carbon neutrality by 2060. Carbon neutrality has become one of China's top political tasks.

What is carbon neutrality? Carbon neutrality means that by 2060, the total amount of greenhouse gases directly or indirectly generated by the national economy and social development in 2060, plus the carbon emissions reduced through measures such as afforestation, carbon reduction or purchase of carbon credits, will reach zero net emissions. Reaching the peak before 2030 means that there will only be reductions after that.

So what impact will this have on the cryptocurrency mining industry?

1. It is not conducive to thermal power mining. Mining in Xinjiang, Inner Mongolia and other places, as well as using thermal power for mining, will generate increasing costs. Data show that coal combustion once accounted for 60% of China's carbon emissions. Therefore, the first task to achieve carbon neutrality is to reduce the use of thermal power energy, mainly coal. According to this logic, cryptocurrency mining using thermal power will be subject to increasingly severe restrictions for a long time in the future.

2. More mining equipment will be transferred to Sichuan and Yunnan. Sichuan and other places have relatively supportive policies and are mainly based on hydropower energy. Data show that the carbon emissions of hydropower per unit of electricity generated are only 1/5 of those of thermal power. Since China promised carbon neutrality, the approval of hydropower projects has begun to accelerate. Under the carbon neutrality goal, the proportion of non-fossil energy in energy consumption needs to exceed 80% in 2050. In addition, wind and solar power generation and mining will also account for a larger proportion.

3. The stable mining electricity in mainland China will become less and less throughout the year, and many large miners have begun to choose to go overseas for mining. For example, the daily electricity bill in Texas, the United States can be as low as 3 cents (0.2 yuan), and Kazakhstan is also an important area for the current migration of mining farms. The demand for domestic hydropower consumption parks with complete and stable electricity throughout the year will increase, and the current price has reached 60 cents per kWh. Due to the high price of coins and the limited increase in the computing power of the entire network, the current increase in electricity prices does not put much pressure on miners.