In this, the second of a three-part series, Danny Bradbury explores the impact the bitcoin network is having on the environment. Part One uncovered exactly how many pounds of carbon each bitcoin produces. Here, this figure is compared to the broader financial sector.

Yesterday, we explored how much carbon the average fossil fuel-using miner emits when they produced a bitcoin. 16 gallons of gasoline sounds a lot, but in the broader context, just how bad is it, and how can we frame that argument?

As some people pointed out in the comments, it's all relative.

Bitcoin advocates are quick to defend the high carbon output from mining bitcoin. For one thing, it can only be 'high' if it's compared to something else, points out Bitcoin Foundation chief scientist Gavin Andresen, who this week stepped down as lead developer on bitcoin. "High compared to what?" he asks.

Another core developer, Jeff Garzik, says that a proper comparison would at a minimum determine the carbon cost of securing the US dollar, including "all those data centers and secret service agents and high-technology, anti-counterfeiting printers," he points out.

The closest entity we can think of that manages those things is the US Treasury, which calls itself "the steward of US economic and financial systems". According to the EPA, the US Treasury uses 60,454,100 kilowatt hours (kW·h) of green power each year (that is, the equivalent of 60,454,100 kilowatts of power, running for an hour). That represents 18% of its energy usage, which means that it uses 335,520,255 kW·h of energy each year.

Yesterday, institutional bitcoin miner Dave Carlson said that it takes 240 kW·h of energy to produce a bitcoin. So if we divide that into the US Treasury's fossil fuel-based energy usage, that gives us 1,398,000 bitcoins. The bitcoin network spits out 150 coins an hour on average. So if we took the annual fossil fuel used by the US treasury in a year, it would produce bitcoins at the current difficulty for around 9,320 hours, or 388 days.

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In other words, if we took the entire US treasury's (self-)reported carbon emissions, they would keep the bitcoin network running for just over a year.

But the US Treasury isn't the entire financial system. "On top of that, add the carbon footprint/cost of all the data centers involved in running a US dollar payment network," says Garzik.

"And what about all the other stuff?" asks Andresen. "Using coins?" he says. "Printing paper money? Using a credit card and getting mailed a statement and sending in a paper check every month? Traditional electronic banking?" And so on. There are many ways to ask that question. Like this one:

@polemitis @dannybradbury What's the carbon footprint of a Visa transaction?

— Ken Tindell (@kentindell) April 7, 2014

Before you even get to what's involved in processing a transaction made with your credit card, even the physical plastic has a carbon footprint. The production and transport of the plastic alone in that card could account for between 20g and 50g of carbon emissions, said a 2009 report from sustainability consulting firm TruCert.

20 grams of carbon output per credit card may not seem like a lot, but there were 14.4bn of them in circulation globally in 2012. At the lowest estimate, then, there are 317,466 tons of carbon emissions tied up purely in the manufacture and delivery of all the credit cards out there, which is enough to make just over two million bitcoins, according to our figures from yesterday.

Extrapolating out to broader financial institutions, we can see large carbon emissions from the banking sector. Just one single bank, HSBC, emitted 963,000 tons of CO2 in 2012, according to its 2012 corporate sustainability report.

That reporting focused purely on the energy usage and business travel, for a single bank. One problem with measuring the footprint of an entire financial system is that there are so many constituent parts to it, which is perhaps why not much seems to have been written about it. In a 2008 report analysing the carbon footprint of banking products, French social and environmental business thinktank Utopies pointed out that there are different categories of carbon emission.

Many companies analyse their own direct emissions. These are the emissions produced by their own factories (where applicable), boilers, and so on. They might if they're enlightened, take into account the indirect emissions, from the electricity that they purchase.

But there are also induced emissions, including everything from the employees' trips to work, through to the energy used to produce the ATMs that the bank uses, and even the carbon emissions made by the companies they invest their customers' money in. Utopies believes that induced emissions could drive up a bank's carbon footprint by a factor of 1,000. Should we include those in the study?

What about more broadly speaking, for the whole financial sector? Carnegie Mellon's Economic Input-Output Life Cycle Assessment model (EIO-LCA) offers an analysis of the carbon produced by various sectors in finance, one of which - "Nondepository credit intermediation and related activities" - seems most related to banking.

According to that model, every $1m in activity contributes 14.2 metric tons (which are around 10% heavier than the short tons used by other sources in this article). Studies suggest that the size of the banking sector relative to GDP differs from country to country, but a good overall average for the contribution of the overall financial system to GDP is around 5%, according to this study.

The bottom line is that rising difficulty rates are pushing up bitcoin's environmental impact, and we have a pretty good shot at estimating that impact, because the bounds of the argument are relatively well defined.

The bounds for assessing the environmental impact of the fiat banking and payment system are less well defined, because they include many different physical aspects of maintaining those institutions and their assets. But working with the figures we have, we know that they outclass the bitcoin network manyfold.

So, is bitcoin is worth the carbon emissions it is producing? That's a judgement each person will make individually. One factor that might affect that judgement is whether bitcoin is really likely to replace or mitigate the operation of the current conventional banking system.

But in the meantime, there is another discussion to be had: tomorrow, in the third and final article in the series, we will look at potential ways to mitigate the problem of bitcoin's rising environmental impact.

Carbon footprint image via Shutterstock

Part one of this series: What is the Carbon Footprint of a Bitcoin?