Tesla boss Elon Musk is a poster child of low-carbon technology. Yet, the electric carmaker’s backing of bitcoin this week could turbo-charge global use of a currency that’s estimated to cause more pollution than a small country every year.Tesla Inc revealed on Monday that it had bought $1.5 billion of bitcoin and would soon even accept it as payment for cars, sending the price of the cryptocurrency though the roof.So, what’s the problem, you may ask? Bitcoin’s virtual, so it’s not like it’s made from paper or plastic, or even metal.The digital currency is created when high-powered computers compete against other machines to solve complex mathematical puzzles, an energy-intensive process that currently often relies on fossil fuels, particularly coal, the dirtiest of energy sources.At current rates, such bitcoin “mining” devours about the same amount of energy annually as the Netherlands did in 2019, the latest available data from the University of Cambridge and the International Energy Agency shows.Bitcoin production is estimated to generate between 22 and 22.9 million metric tons of carbon dioxide emissions a year, or between the levels produced by Jordan and Sri Lanka, according to a 2019 study in scientific journal Joule.The landmark inclusion of the cryptocurrency in Tesla’s investment portfolio could complicate the company’s stated zero-emissions ethos, according to some investors, at a time when ESG—environmental, social and governance—considerations have become a major factor for global investors.“We are of course very concerned about the level of carbon dioxide emissions generated from bitcoin mining,” said Ben Dear, CEO of Osmosis Investment Management, a sustainable investor managing around $2.2 billion in assets that holds Tesla stock in several portfolios.“We hope that when Tesla’s bitcoin ventures are over, they will concentrate on measuring and disclosing to the market their full suite of environmental factors, and if they continue to buy or indeed start mining bitcoin, that they include the relevant energy consumption data in these disclosures.”Tesla did not respond to a request for comment.Green coinStill, it’s not all eco-doom and gloom, and Tesla’s bet on bitcoin comes amid growing attempts in the cryptocurrency industry to mitigate the environmental harm of mining. This movement could be advanced by billionaire entrepreneur Musk, who this week separately offered $100 million for inventions that could pull carbon dioxide from the atmosphere or oceans.The entrance of big corporations into the crypto market could also boost incentives to produce “green bitcoin” using renewable energy, some sustainability experts say. They add that companies could buy carbon credits to compensate too. Yet, in the shorter term, Tesla’s disclosure of its bitcoin investment, made in a securities filing, could indirectly serve to exacerbate the environmental costs of mining.Other companies are likely to follow its lead by buying into the currency, investors and industry experts say. Greater demand, and higher prices, lead to more miners competing to solve puzzles in the fastest time to win coin, using increasingly powerful computers that need more energy.Bitcoin has already jumped as much as 18% just over the past one week, breaking through the prior top of almost $42,000.Even before announcing Tesla’s bet on bitcoin, Musk said he was a supporter of bitcoin on a social audio app and made multiple tongue-in-cheek references on Twitter to Dogecoin—a Shiba Inu-themed crypto started as a joke—sending prices soaring.Mastercard Inc. is the latest mainstream firm to embrace digital assets this week, announcing plans to begin allowing cardholders to transact in certain cryptocurrencies. The company is also “actively engaging” with central banks around the world on their plans to launch new digital currencies, Mastercard said in a blog post on Wednesday.“Mastercard’s plans to integrate crypto payments represents another indicator of the deep structural shifts taking place in our financial infrastructure,” said John Wu, president of Ava Labs. “Incumbent payment platforms are embracing digital currency solutions that are more equipped for the borderless, internet-enabled economy.”Twitter Inc. has also done some “upfront thinking” around how to handle bitcoin, including if employees and vendors ask to be paid in the cryptocurrency and whether the firm needs to have the digital asset on its balance sheet, CFO Ned Segal said in an interview on CNBC.“These are just the early innings of corporate adoption, as digital currencies are beginning to play a larger role in robust balance sheet management,” said Nathan Cox, chief investment officer at Two Prime, an investment firm specialized in digital asset and derivative strategy management.Detractors, though, maintain that speculators are behind bitcoin’s rise and the bubble will once again burst. Besides, while Tesla’s $1.5 billion crypto investment does seem large, it is a drop in the ocean compared to the holdings of America’s blue-chip corporates. The purchase is worth just 0.05% of about $2.79 trillion of cash and cash-equivalents held on the balance sheets of S&P 500 members, according to data compiled by Bloomberg.Wall Street Bets, the popular Reddit forum at the center of the recent retail investor frenzy, is talking about cryptocurrencies as well. The unverified Twitter account “Wallstreetbets mod” posted a call this week to buy bitcoin and marijuana stocks.Experimental projects“It’s (bitcoin) not an (environmentally) sustainable investment and it’s hard to make it sustainable with the kind of system it is built on,” said Sanna Setterwall, a consultant at corporate sustainability advisory South Pole.Estimates on bitcoin’s reliance on fossil fuels versus renewables vary, with detailed data on the bitcoin mining industry’s energy mix hard to come by.Projects from Canada to Siberia are striving for ways to wean bitcoin mining away from fossil fuels, or at least to reduce its carbon footprint, and make the currency more palatable to mainstream investors.SJ Oh, a former bitcoin trader based in Hong Kong and a self-professed “tree hugger”, was aware that his passion for the environment was somewhat at odds with his day job. So, a year ago, he co-founded Pow.re, a firm that runs green bitcoin mining operations in the Canadian subarctic.Located in Labrador, Pow.re’s machines run on hydropower, with plans to repurpose the heat generated by the mining to serve local agriculture, heating and other needs, he said.“Overwhelmingly, I do think there will be a concerted effort by the bitcoin industry to be environmentally friendly,” said Oh, who believes Musk and his company can come up with better methods. “Tesla is one of the greenest companies on the planet so I’m sure they’ll figure it out.”Other projects aimed at reducing bitcoin’s carbon impact include that run by an arm of Russian gas producer Gazprom in the Khanty-Mansi region of Siberia.There, power generated by flare gas—a by-product from oil extraction usually burned off—is used for cryptocurrency mining. The process leaves a lower carbon footprint than coal power, said Gazprom Neft, the unit behind the project.In theory, blockchain analysis firms say, it is possible to track the source of bitcoin, raising the possibility that a premium could be charged for green bitcoin. Stronger climate change policies by governments around the world might also help.“It’s not so much bitcoin that is the problem,” said Yves Bennaim, the founder of 2B4CH, a Switzerland-based cryptocurrency think-tank. “People are saying it’s energy intensive, therefore, it’s polluting. But that is just the nature of the energy we are using today. As bitcoin goes up, there will be more incentive to make investments in renewable sources of energy.”Central bank scrutinyHowever, it is early days for such green projects, and some ESG experts say bitcoin could have a tough task being accepted by mainstream investors en masse in the foreseeable future.“I still think the big players will refrain from bitcoin for these particular reasons—one being very a negative climate angle to it, given the way it’s mined, and two, the compliance and ethical issues related to it,” said Sasja Beslik, head of sustainable business development at Bank J. Safra Sarasin in Zurich.Beyond the mounting ESG concerns, the most important wild card remains regulatory scrutiny from central banks. US treasury secretary Janet Yellen, speaking at a forum for financial sector innovation, warned that misuse of cryptocurrencies was a growing problem. Yellen has previously raised concerns about the use of cryptocurrencies in illicit financing.A top Bank of Canada official this week termed the recent spike in cryptocurrency prices as a “speculative mania,” and said such assets don’t have the qualities to become the money of the future.In a speech on payments innovation, Deputy Governor Tim Lane said costly, energy-intensive verification methods and unstable purchasing power makes cryptocurrencies like bitcoin a “flawed” method of payment.“The recent spike in their prices looks less like a trend and more like a speculative mania—an atmosphere in which one high-profile tweet is enough to trigger a sudden jump in price,” said Lane, according to prepared remarks provided to reporters.For several years, the Bank of Canada has been analysing which circumstances might lead Canada to decide to issue a digital currency as a sort of contingency should the need arise. In his speech, Lane said the shift to online activities caused by the pandemic is forcing the central bank to accelerate those efforts.“Our view remains unchanged: a digital currency is by no means a foregone conclusion,” said Lane. “That said, the world has been changing even faster than we expected.”The Bank of Canada is monitoring scenarios where it could decide to issue its own digital currency. For example, if the use of cash is restricted or eliminated or if private cash-like assets were to make serious inroads.Stablecoins—whose value is pegged to some external asset—can be more stable than cryptocurrencies, Lane said. But if demand for such cash-like securities does surface, it should be central banks who issue them, he said.“Only a central bank can guarantee complete safety and universal access, and with public interest—not profits—as the top priority,” according to Lane. “We will issue such a currency only if and when the time is right.”The China angleWhile regulation and central bank forbearance will remain tricky issues well into this decade, industry players and academics warn that the dominance of Chinese miners and the lack of motivation to swap cheap fossil fuels for more expensive renewables means that there aren’t any quick fixes to the emissions problem either.Chinese miners account for about 70% of bitcoin production, data from the University of Cambridge’s Centre for Alternative Finance shows. They tend to use renewable energy—mostly hydropower—during the rainy summer months, but fossil fuels—primarily coal—for the rest of the year.“Every miner’s objective is making a profit, so they don’t care about what kind of energy they use, if it is generated by hydro, wind, solar or burning coal,” said Jack Liao, CEO of Chinese mining firm LightningAsic, adding that government incentives for miners to favour renewable energy might help.Others are less optimistic that significant change is on the horizon. “Production of renewables is extremely volatile. It’s not ideal as a consistent form of power,” said Alex De Vries, the founder of research platform Digiconomist. “The problem is that the miners that will last the longest will be the ones using cheap fossil fuels, simply because it is the cheapest and more stable source.” reutersBloomberg contributed to the story.