Think BTC is a Dirty Business? Consider the Carbon Cost of a Dollar

Susan Su
11 min readFeb 22, 2021
Cleaning up an oil spill in Koh Samet, Thailand

Note: This was originally published in Climate Money, a Substack where I share shorter updates alongside longer dispatches like this one. If you find this valuable, I hope you’ll consider subscribing!

As the price of BTC has soared over the past couple of weeks, some have started looking more closely at its carbon footprint.

This is an important discussion, with valid arguments on both sides. But, we can’t really put into context the carbon cost of crypto without understanding the carbon cost of its current best alternative — the US dollar.

Since this ended up being a long post, let’s start with a clickable Table of Contents.


What’s a Petrodollar?

All life feeds on life, as Joseph Campbell said, and everything has to come from some energy, somewhere.

As I started to explore this, I realized I had a huge gap in my own understanding of how our financial and monetary system intertwines with the fossil fuel economy, through what is known as the Petrodollar System.

A petrodollar is a US dollar paid to any oil-exporting countries in exchange for oil. The Petrodollar System describes the complex web of diplomatic, monetary and economic relationships connecting the oil & gas industry with the US monetary system, and ensuring the US dollar as the world’s reserve currency.

Through a process known as Petrodollar Recycling, all US dollars are essentially Petrodollars. Within our current global economic order, the USD is a currency that’s inextricably tied to the extraction, production and sale of petroleum.

If we take the Petrodollar System as a whole into account, it turns out that the carbon cost of a dollar is very high (Skip to the Carbon Cost of a Dollar section below for some napkin math). In fact, the dollar would not be the dollar we know and idolize today without the complex system of resource extraction and GHG emission that enables it.

It is important to note here that this connectivity between the dollar and oil is not an abstraction. The US Dollar literally owes its continued reserve currency status, and resulting global economic hegemony, to oil, via a series of implicit and explicit agreements that make up the Petrodollar System.

Today I’m sharing some of learnings on the Petrodollar System. I hope it sparks thought and new ideas for how we tackle the complexity of an energy transition.

The origins of the Petrodollar System

The 1944 Bretton Woods conference established the US dollar as the world’s reserve currency, shifting that status away from gold but also pegging the dollar to gold’s value. We won’t go into the historical details of why the United States was able to pull this off, but suffice it to say, Bretton Woods was huge, not only because it established the IMF and the World Bank, but because it established the United States as the preeminent global economic superpower by the USD reserve currency status. This gave the US the ability to print dollars and define the world economy in terms of US dollars. Going forward, 43 signatory countries agreed to peg and redeem their currencies for US dollars, with one catch — they would still retain the option to trade their dollars in for gold.

Fast forward to 1971. Our second-greatest president ever (after Donald Trump of course), faced an economic recession and a heavily indebted nation following a combination of Lyndon B. Johnson’s ‘Great Society’ welfare programs plus the US’ failed intervention in Vietnam during an inconveniently timed reelection cycle. As we know, Nixon went to great lengths to try to win reelection.

Watergate aside, Nixon’s 1972 presidential reelection campaign rested on three policy promises that he believed would bring the country out of recession:

  1. A 90-day freeze on wages and prices
  2. A 10% tariff on imports aimed at lowering the trade deficit and protecting domestic production
  3. Decoupling the US from the gold standard (background: as US inflation started growing going into this recession, several major countries had tried to redeem their USD for gold. To stop this, Nixon abandoned the gold standard altogether.)

Nixon’s policies, like his election interference, ended up having the opposite effect of what he intended, and US inflation skyrocketed throughout the 1970s (like a good politician though, he made sure he was well out of office by the time it hit a peak of 13.3% in 1979).

Meanwhile in 1973, a coalition of Arab states and Israel reignited preexisting bad blood and became embroiled in the Yom Kippur War. Against a backdrop of Cold War dynamics (the USSR was supplying weapons to Arab states, and the US was on high nuclear alert), the US aided Israel in a number of ways, angering the Arab states and causing OPEC to halt oil shipments to the US. The price of oil quadrupled and aggravated the inflation, unemployment and general economic pain that the US was already in.

As a way out of this mess, in 1974 Saudi Arabia and the US began talks to broker a deal that would lay the foundation for the Petrodollar — a US dollar paid to oil-producing countries for the purchase of oil.

Source: The Decline and Fall of the Petrodollar — Seeking Alpha


The quid pro quo of the Petrodollar System: Petrodollar Recycling

Here are the basic exchanges that make up the Petrodollar System:

  • The Saudis agreed to price oil in dollars and reinvest those dollar proceeds in US Treasuries (i.e., debt) — a win for the US as it increases global demand for the dollar and drives dollar values up;
  • In return, the US would sell advanced weapons and technologies to Saudi Arabia — a huge win for Saudi Arabia who wanted weapons, but also a decent win for the US who was trying to offload a glut of weapons that were a result of overproduction during the Vietnam War;
  • Saudi Arabia also agreed to ‘recycle’ these dollars back into the US via a number of avenues:
  • 1) Fossil fuel extraction requires costly technology and infrastructure; US corporations get contracted for big infrastructure project development and service contracts in oil rich nations, and get paid in USD — thus bringing dollars back into the US banking system;
  • 2) US banks use these Petrodollars to extend loans to emerging markets in Latin America, Asia, and Africa to spur demand for oil, as well as for US and European exports.
  • 3) Most importantly, Saudis put the rest of their Petrodollars into sovereign wealth funds, which they’ve since used to primarily invest in US Treasuries (thus, trading their USD for US debt — another win for the United States), as well as in non-petroleum businesses (including enormous holdings in Citi, Facebook, Uber, Disney, Activision, EA, Bank of America, Marriott, SoftBank’s Vision Fund, Total, Suncor Energy, and even Lucid Motors and Tesla).

Like a game of geopolitical Go, each one of the moves above leads to a branching multitude of consequences — from the rise of certain terrorist groups to the ballooning US debt, to US-Cuba relations, to the age of Trump and misinformation.

Source: Herb Block, archived at The Library of Congress

But the overall system benefits the US economy, at least in the short term:

  • As the ‘owners’ of the world’s reserve currency, whose currency all other countries need in order to purchase oil, the US gets to call the shots on global trade because oil-importing nations all need dollars to buy oil, and thus need to hang on to a surplus to fund their energy consumption.
  • Even more importantly, if the US government needs to raise money for any reason, it can print money without worrying about hyperinflation, as there will always be a global market for dollars thanks to the Petrodollar System.

Napkin math on the carbon cost of a dollar

Ok, so everything is entangled, and the world is complex. But what does this translate to in terms of actual emissions?

While it’s impossible to precisely quantify the carbon footprint of USD, we do know from US history that it takes effort to maintain reserve currency status. Let’s look at just one pillar of US system that helps to maintain the dollar’s reserve currency status: the US military.

  • The US military is the world’s largest institutional consumer of oil, using more than 100 million barrels per year for its ships, vehicles, aircraft, and various ground operations.
  • This generates the equivalent of 59 million tonnes of CO2 emissions, more than some countries.
Source: The U.S. Military Emits More CO2 Than Many Industrialized Nations — Forbes

There’s a direct human cost, too:

  • Over 64,000 of the approximately 160,000 troops reported to be deployed worldwide are stationed in the Middle East.
  • That’s 40% of actively deployed US military forces dedicated to monitoring and managing the heartland of the Petrodollar System.
  • Transporting liquid fuel is dangerous, resulting in tens of thousands of US military deaths from fuel convoys that get ambushed or run into other trouble: the US military suffers 1 casualty for every 24 fuel resupply convoys.
Source: US Military Personnel Deployments by Country — Visual Capitalist

This doesn’t take into account:

  • the carbon costs associated with running the global banking system, which is a tall stack of services built to support fiat currencies, or
  • the carbon costs associated with printing and maintaining physical currency (even the bills have to be manufactured, sometimes literally from crude oil)

Regardless, we can start to see that there are externalities beyond the energy it takes to run servers and machines.

In other words:

The carbon cost of a dollar, is the sum total of all of costs associated with establishing and maintaining the Petrodollar System — everything from past and present US military interventions undertaken to defend the primacy of our currency to the energy required by our global financial stack to the energy expended in the specific extractive industrial activities that underpin the dollar’s value.

All of this led me to a greater understanding of what’s on the line in our energy transition:

Telling the truth about climate change suddenly looks a lot more costly when the primacy of a nation state, a reserve currency, and an entire global economic system, are on the line.

What if dollars reflected Climate Value instead of carbon cost?

Petrodollars have enabled an enormous amount of technological advancement that benefits many people (but crucially, not all people) around the world. Extractives paid for and powered the railroads that paid for my university that gave me a scholarship so that I could be sitting here today, criticizing extractives. We who enjoy electricity and development are all participants in this system.

But maybe it’s time for a new Bretton Woods — ushering in new world order based on a global drawdown of atmospheric greenhouse gases. What would that look like?

Author Kim Stanley Robinson has proposed a system of Carbon Quantitative Easing, otherwise known as printing money to fund decarbonization efforts.

“What might this look like in practice? All around the world, anyone from individuals to nations would be paid to sequester carbon in the ground for an agreed-upon time.

Once certified, a carbon coin would be paid out. These coins would trade on currency-exchange markets, and the central banks would set a floor value, perhaps by issuing long-term bonds for investors. With the proper arrangement, the value of the carbon coin could be defended, and everyone on Earth could then be paid for doing good work for the biosphere and the generations to come.

A petro-state such as Venezuela or Saudi Arabia or Russia or the U.S. could declare it was going to sequester its fossil fuels, leaving proven reserves in the ground and getting paid in carbon coins instead. These payments could be made on a timetable matched to how quickly the countries would have extracted and sold the fuels.

Cities could change infrastructures and get paid. Mass-transit projects, electric car recharging stations, infill construction, city agriculture, de-suburbanization efforts, clean power generation — anything that kept carbon in the ground would earn carbon coins.

Individuals could do what individuals do: some could start kelp beds, if they live by the right kinds of coasts; some change their farms to no-till agriculture, and compensate for the smaller yields by getting paid for growing soil itself; others can winnow down cattle herds; or create a peat bog; or swap out any carbon-burning machine for a cleaner one.

The opportunities would be endless. People could devote their working lives to decarbonization and make a living at that, and the biosphere that is our only home would be better for it.”

I love Robinson’s future-vision, and some would say it’s fitting that he’s a science fiction author.

But, we shouldn’t dismiss this. After all, the United Nations itself is essentially the brainchild of science fiction writer H.G. Wells.

Before we can build, we have to imagine. What would a world divorced from the Petrodollar (or Petroyuan or Petroruble) System look like?

What if our dollars represented a climate value, instead of a carbon cost like they do today?

From value capture to value creation

I started the Climate Money newsletter in order to write about the big movers and shakers in the clean energy economy to motivate smart people to start working on climate (there’s gold in them thar hills, I swear!), not to be a deepthink on geopolitics.

But, as I dug deeper into how our global economic system works, I started to see that many of the solutions we talk about are surface-level fixes to a system whose fundamental structure is sitting on the wrong predicates for a climate-forward future. Even the carbon cost of Bitcoin is a byproduct of the extractive economy where coal and natural gas power the grid. At the most basic layer, we have to change how we make money, and we also have to rethink what money itself is based — less extractive and finite, and more additive and truly sustainable.

In this century, I believe we have an enormous opportunity to rebase our global economic system on a different kind of value creation, much of which still needs to be fed and funded by energy — the ultimate ‘dollar’ of the universe. I see us swapping in smart energy technologies for 19th century ‘plunder and burn’ methods, and I also see us shifting from immediate-term value capture to long term value-creation.

Well, I see the potential for all of this. Whether it happens or not depends on what you and I do next!

With that, thanks for being interested in this journey and please share your thoughts and comments below or on Twitter.

If you enjoyed this read, I hope you’ll consider subscribing to the Climate Money newsletter for shorter posts alongside longer essays like this. Thank you for reading!



Susan Su

Investing in a climate-positive future at Toba Capital. Ex Sound Ventures, Stripe, Reforge, 500 Startups.