The Carbon Footprint of the Target Instant Payment Settlement (TIPS) System: A Comparative Analysis with Bitcoin and Other Infrastructures

20 Pages Posted: 27 May 2021

Date Written: May 12, 2021

Abstract

Reducing the environmental impact of human activities has become a strategic objective of governments, institutions, companies and individuals. In this paper, we estimate the CO2 equivalent emissions of the TARGET Instant Payment Settlement (TIPS) system and compare it with that of Bitcoin and other infrastructures. The TIPS carbon footprint in 2019 was almost 40,000 times smaller than that of Bitcoin; the difference is only partially accounted for by the lower overall volume of TIPS transactions, as the marginal increase in emissions per additional transaction is very small: the difference would therefore persist even if TIPS worked at full steam. The huge discrepancy in the carbon footprints of TIPS and Bitcoin stems from the fact that the latter uses a large amount of energy to generate trust and consensus among Bitcoin network participants, whereas in the case of TIPS this trust is provided by the Eurosystem. The comparison is then extended, using publicly available data, to other infrastructures. The over-performance of TIPS, while less marked than in the case of Bitcoin, remains nevertheless considerable.

Keywords: TIPS, Carbon footprint, Bitcoin

Suggested Citation

Tiberi, Pietro, The Carbon Footprint of the Target Instant Payment Settlement (TIPS) System: A Comparative Analysis with Bitcoin and Other Infrastructures (May 12, 2021). Bank of Italy Markets, Infrastructures, Payment Systems Working Paper No. 5, Available at SSRN: https://ssrn.com/abstract=3854995 or http://dx.doi.org/10.2139/ssrn.3854995

Pietro Tiberi (Contact Author)

Bank of Italy

Via Nazionale 91
Rome, 00184
Italy

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