Hypothetical scenario: a hardfork of Bitcoin is developed that maintains all of these wonderful properties — impossible for any one party to control, bypasses financial choke points, impossible to censor — but requires orders of magnitude less energy. It utilizes a variety of clever mechanisms to achieve the same goals without using Proof of Work calculations to secure the network. This sort of thing is what the exactly what the MIT team in the article is attempting to accomplish, it's not an intractable problem.
Would you support switching over to the new fork? I would. It does all the things I like about Bitcoin without this big carbon footprint. No downside.
But do you know who will never support the fork? Bitcoin miners. They've invested millions in custom hardware to let them process proofs of work as quickly as possible. They have a massive economic incentive to continue to use PoW. Forever. Even if there exists a better way.
Maybe in this world the price of BTC would go down as people moved to alternatives. I'd like to think people would be ashamed to use an unnecessarily inefficient currency. But when I hear Bitcoin advocates dismiss environmental concerns as irrelevant or shift the blame onto government tax policy, it doesn't make me terribly optimistic.
... You know, when you put it that way, there's another problem with this argument. "Bitcoin is good because governments shouldn't be interfering with my ability to give money to Julian Assange. They shouldn't even know that I'm paying him. And if it hurts the environment, well, that's the fault of governments not taxing energy usage appropriately. They should be paying close attention to what people spend money on and dissuading uses that have harmful effects for society, as determined in their sole opinion."
So I don't think there's a comparison in how the economy correlates. As long as gold is mineable in the earth, a growing economy mines more gold. But a growing economy demands more energy, which can go either to the economy or to Bitcoin. Bitcoin has no way of saying "I want this portion of the energy in the world, and no more," the way that mines are naturally filled with resources other than gold; all it can say is "I want all the energy possibly available."
(If you could store energy and use it as the basis of a Bitcoin-style network, such that your limited resource was energy itself and not loss-of-energy-per-unit-time, it would kill basically all of these arguments. There would be other arguments about the fairness of OilFuturesCoin, but it wouldn't be these, and it would basically be the arguments about any natural-resource standard.)
And yes, the benefit of Bitcoin is a permissionless network, but the entire question is whether this energy-monster property of Bitcoin is required to have a permissionless network. You could donate to Wikileaks just fine with, say, Stellar's consensus protocol, could you not?
You're right that a core part of its design is making sure real computational resources are spent on it. That means the (total, social) cost network as such will scale with the size of the economy, not the number of transactions. So, in a sense, there's (something that looks) like an arms race going on, where more resources spent on it don't mean more transactions. Point taken.
But that doesn't mean there's zero net benefit. The benefit is a permissionless network that no one can control unless they produce more computation than the rest of the network. So, the benefit of each miner coming on is raising the attack threshold and increasing your confidence that it won't be attacked. At equilibrium, the cost will be some fraction of the economy, not all available growth or energy (like a gas). That amount of energy that this involves will decrease as energy is taxed.
That's pretty much the dynamic of gold mining under a gold standard: the larger the economy, the more money being spent mining (literal) money.
I agree that it's a high price to pay, but I don't think the benefits should count as zero. Being able to bypass financial choke points so you can donate to Wikileaks is definitely a positive.