I. Introduction: MiCAR and the Green Focus in Crypto
The European Union has established a harmonized regulatory framework for the crypto-asset market with the introduction of the Markets in Crypto-assets Regulation (MiCAR), officially known as Regulation (EU) 2023/1114 (1). This regulation applies to a wide array of entities, from traditional financial institutions to the emerging players within the crypto ecosystem. The primary objectives of MiCAR are to foster legal clarity within the crypto-asset space, encourage innovation, and ensure the protection of consumers, the integrity of markets, and overall financial stability (1). The regulation's scope is extensive, encompassing crypto-asset service providers (CASPs), issuers of e-money tokens (EMTs), issuers of asset-referenced tokens (ARTs), and those issuing other types of crypto-assets (1). Given this broad applicability, the stipulations within MiCAR are set to have a significant impact across the entire EU crypto market.
In parallel with the development of the crypto-asset market, there has been a growing global emphasis on sustainability and environmental responsibility. This increasing focus is permeating all sectors, including the financial industry, and crypto-assets are no exception (2). Recognizing this trend, MiCAR incorporates specific requirements for sustainability disclosures as an integral part of its regulatory framework (2). These disclosures mandate that entities within the crypto-asset market provide information concerning the environmental impact associated with the consensus mechanisms they employ (2). It is important to note that these sustainability requirements are not uniform but are structured in a tiered manner, with the level of disclosure depending on certain factors, most notably the annual energy consumption of the crypto-asset's consensus mechanism (2).
II. The Why Behind Sustainability in MiCAR
The inclusion of sustainability requirements within MiCAR is a direct reflection of the European Union's broader environmental policy objectives. These objectives are exemplified by initiatives such as the European Green Deal, which underscores the EU's commitment to actively combat climate change (3). By integrating environmental considerations into the regulation of crypto-assets, the EU aims to guide the development of this burgeoning market in a manner that is more environmentally responsible, aligning with its overarching agenda for a sustainable future (3). This proactive approach is evident in the EU's stated goal of fostering responsible crypto and blockchain activity within its borders (3).
A significant driver behind the sustainability focus in MiCAR is the well-documented concern regarding the substantial energy consumption associated with certain types of crypto-assets, particularly those that utilize Proof-of-Work consensus mechanisms (2). The disclosure requirements stipulated by MiCAR are intended to enhance transparency concerning these environmental impacts (2). By making the environmental costs associated with different crypto-assets more transparent to investors and consumers, the regulation seeks to empower them to make more informed choices (3). This increased visibility of environmental impact may, in turn, encourage a shift towards crypto-assets with more sustainable operational practices.
Furthermore, the inclusion of sustainability disclosures in MiCAR addresses the issue of "crypto-greenwashing." The regulation aims to ensure that disclosures are based on sound methodologies and verifiable evidence, thereby preventing misleading environmental claims (3). This emphasis on accuracy and reliability reflects a regulatory intent to foster trust and prevent unsubstantiated assertions about the environmental friendliness of crypto-assets. Ultimately, by providing clear and reliable information, MiCAR aims to empower investors and consumers to align their decisions with their own sustainability preferences and priorities (3).
III. The Key Indicator for Smaller Crypto-assets (≤ 500,000 kWh)
It is crucial to clarify that the threshold for the basic sustainability indicator under MiCAR is based on the annual energy consumption of a crypto-asset's consensus mechanism, specifically 500,000 kWh, and not on a monetary value of 500,000 EUR (2). For crypto-assets whose consensus mechanism has an annual energy consumption equal to or less than this threshold, the sole mandatory sustainability indicator is the total amount of energy used for the distributed ledger technology (DLT) effort in kilowatt-hours (kWh) per calendar year (2). This indicator must be included in the crypto-asset white paper for any public offering and must also be published by CASPs on their websites for the crypto-assets for which they provide services (2).
This mandatory energy consumption indicator serves to provide a fundamental understanding of the energy intensity associated with the operation of these smaller crypto-assets (2). Even for crypto-assets with a relatively lower energy footprint, this requirement ensures a baseline level of transparency regarding their environmental impact. By disclosing this information, stakeholders can begin to compare the energy consumption profiles of different crypto-assets, albeit in a simplified manner for those falling below the specified energy consumption threshold (3).
The regulatory framework mandates specific disclosure requirements for this key indicator. Issuers of crypto-assets are obligated to include this information within their white papers (2). Furthermore, CASPs are required to publish this data on their websites, ensuring it is readily accessible to the public free of charge and in a downloadable format (4). To maintain the relevance and accuracy of this information, it must be updated at least annually, with the date of the last review or update clearly indicated (4).
IV. Calculating the Energy Consumption Indicator
To ensure consistency in reporting, the European Securities and Markets Authority (ESMA) has provided a specific definition for energy consumption within the context of MiCAR. This definition states that energy consumption refers to the "Total amount of energy used for the validation of transactions and the maintenance of the integrity of the distributed ledger of transactions, expressed per calendar year" (5). This definition clearly outlines the scope of what must be accounted for when calculating the energy consumption of a crypto-asset's consensus mechanism.
Measuring energy consumption in the context of decentralized and often heterogeneous crypto networks presents significant methodological challenges (5). These networks can employ various consensus mechanisms, such as Proof-of-Work or Proof-of-Stake, and utilize different DLT architectures, including blockchains and Directed Acyclic Graphs (DAGs) (5). Recognizing this complexity, ESMA has specified the requirement for disclosure of the methodology used for calculation, acknowledging that different models may be necessary depending on the specific characteristics of the crypto-asset and its network (5).
Research indicates two primary approaches for calculating energy consumption in these diverse environments (5):
- Top-Down Model: This approach involves the analysis of empirical data at the overall network level. Key metrics such as the hash rate (for Proof-of-Work systems) and the total network energy consumption are used to estimate the overall energy usage. This method allows for a broad assessment of energy consumption by taking into account factors like the average efficiency of the hardware utilized within the network (5).
- Bottom-Up Model: This method focuses on identifying the individual active nodes within the network using crawlers and specialized software tools. The energy consumption is then calculated based on the specific hardware used by each identified node (5). By analyzing the energy usage of individual participants in the network, this approach can provide a more granular and detailed understanding of the energy consumption associated with specific consensus mechanisms.
Regardless of the model employed, the quality and transparency of the data used for calculation are paramount (5). The sources of data and the specific methodologies applied must be clearly documented and comprehensible. Any assumptions made or estimated values used in the calculation must be explicitly identified. Furthermore, to ensure compliance with regulatory requirements and maintain data integrity, it is recommended that certified measurement methods and calibrated instruments are utilized whenever possible (5). This emphasis on transparency and methodological rigor is crucial for fostering trust in the reported energy consumption figures and mitigating the risk of greenwashing.
V. Beyond the Basics: Sustainability Indicators for Larger Crypto-assets (> 500,000 kWh)
For crypto-assets whose consensus mechanism exhibits an annual energy consumption exceeding 500,000 kWh, MiCAR mandates the disclosure of additional supplementary indicators (2). Furthermore, these supplementary indicators become mandatory if the CASP providing services for the crypto-asset offers at least one of the following services: operation of a trading platform, exchange of crypto-assets for funds, or exchange of crypto-assets for other crypto-assets (2). This tiered approach acknowledges that crypto-assets with a higher energy footprint potentially have a more significant environmental impact, thus necessitating more detailed reporting (4).
The supplementary indicators that may be required under these circumstances include (2):
- Renewable Energy Consumption: This indicator measures the proportion of the total energy consumed by the DLT effort that is generated from renewable sources. It is expressed as a percentage of the total annual energy used (2).
- Energy Intensity: This metric aims to quantify the energy efficiency of the crypto-asset network. While the exact definition may be further specified in the Regulatory Technical Standards (RTS), it typically relates energy consumption to a measure of network activity or value (4). A lower energy intensity generally indicates a more efficient network.
- Scope 1 GHG Emissions – Controlled: This indicator measures the direct greenhouse gas (GHG) emissions that result from sources owned or directly controlled by the entity responsible for the crypto-asset (4).
- Scope 2 GHG Emissions – Purchased: This indicator accounts for the indirect GHG emissions that are associated with the generation of purchased electricity, heat, or steam consumed by the entity responsible for the crypto-asset's operations (4).
- GHG Intensity: This indicator reflects the amount of greenhouse gas emissions produced per unit of energy consumed (4).
In addition to these mandatory supplementary indicators, there are also optional indicators that entities may choose to disclose voluntarily (2). These can include information related to waste production, such as waste from electrical and electronic equipment, and the use of natural resources like water (2). Encouraging the voluntary disclosure of such additional environmental metrics can contribute to even greater transparency and promote more comprehensive sustainability reporting within the crypto-asset industry.
VI. Conclusion: Navigating MiCAR's Sustainability Landscape
In conclusion, MiCAR introduces significant sustainability disclosure requirements for crypto-assets, mandating the reporting of the energy consumption of their consensus mechanisms (2). The regulatory framework employs a tiered approach, with a threshold of 500,000 kWh of annual energy consumption determining the level of disclosure required (2). Below this threshold, a single mandatory indicator – total energy consumption – must be reported. For crypto-assets exceeding this threshold, and under certain conditions related to the services provided by CASPs, additional supplementary indicators related to renewable energy use and greenhouse gas emissions become mandatory (2). These requirements apply to both issuers of crypto-assets through the white papers they publish and to CASPs who must make this information available on their websites (2).
It is imperative for crypto-asset issuers and service providers to thoroughly understand and comply with these new sustainability disclosure requirements, which became fully applicable on December 30, 2024 (2). The European Securities and Markets Authority (ESMA) has played a crucial role in developing the specific Regulatory Technical Standards (RTS) that provide detailed guidance on the content, methodologies, and presentation of this essential information (2). Adherence to these regulations is not merely a legal obligation; it presents an opportunity for entities to build stronger relationships with stakeholders who are increasingly prioritizing environmental considerations in their decision-making.
While accurately measuring and reporting energy consumption and other sustainability indicators, particularly for complex and decentralized networks, may present initial challenges (5), the long-term implications offer significant opportunities (3). The regulatory push towards sustainability can incentivize innovation within the crypto industry, fostering the development and adoption of more environmentally friendly practices and technologies (3). Furthermore, the underlying blockchain technology itself holds potential for use in enhancing ESG reporting and management across various sectors (5). Looking ahead, it is important to recognize that the regulatory landscape concerning sustainability in the crypto-asset market is likely to continue to evolve. The EU Commission is expected to present a report on the environmental impact of crypto-assets and may introduce further rules in the future (11). Therefore, ongoing vigilance and adaptation will be essential for all participants in this dynamic and increasingly regulated space.
| Indicator Name | Description | Threshold for Mandatory Disclosure | Disclosure Location |
|---|---|---|---|
| Energy Consumption | Total energy used for DLT effort (kWh per calendar year) | All crypto-assets | White Paper & CASP Website |
| Renewable Energy Consumption | Share of energy from renewable sources (%) | > 500,000 kWh annual energy consumption AND CASP provides trading platform, exchange for funds, or exchange for other crypto-assets | White Paper & CASP Website |
| Energy Intensity | Energy consumption per unit of network activity/value (definition may vary) | > 500,000 kWh annual energy consumption AND CASP provides trading platform, exchange for funds, or exchange for other crypto-assets (Confirmation needed from final RTS on exact definition) | White Paper & CASP Website |
| Scope 1 GHG Emissions | Direct greenhouse gas emissions | > 500,000 kWh annual energy consumption AND CASP provides trading platform, exchange for funds, or exchange for other crypto-assets (Confirmation needed from final RTS) | White Paper & CASP Website |
| Scope 2 GHG Emissions | Indirect greenhouse gas emissions from purchased energy | > 500,000 kWh annual energy consumption AND CASP provides trading platform, exchange for funds, or exchange for other crypto-assets (Confirmation needed from final RTS) | White Paper & CASP Website |
| GHG Intensity | Greenhouse gas emissions per unit of energy consumed | > 500,000 kWh annual energy consumption AND CASP provides trading platform, exchange for funds, or exchange for other crypto-assets (Confirmation needed from final RTS) | White Paper & CASP Website |
Works cited (Linked Sources)
- Markets in Crypto-Assets (MiCA/MiCAR) - CSSF
- ESG transparency meets crypto: sustainability disclosures in the EU market | IFLR
- MiCA Readiness Report: are CASPs ready for ESG disclosures? - Zumo
- The EU's Markets in Crypto-Assets (MiCA) regulation – sustainability disclosures
- MiCAR and ESG: Requirements and implementation for crypto asset service providers
- Regulation - 2023/1114 - EN - EUR-Lex - EUR-Lex.europa.eu
- Crypto Meets ESG – Is the Future Looking Green? - PayTechLaw.com
- The Regulation on Markets in Crypto-Assets Becomes Fully Applicable in All Member States of the EU - K&L Gates
- Level 2 and 3 texts - Status Tracker Key Complete - Hogan Lovells
- Markets in Crypto-Assets Regulation (MiCA) - ESMA
- MiCAR: An Overview of Everything Important About the Crypto Regulatory Framework
