Cryptocurrency miners in the United States may face a 30% tax on the cost of electricity they use if President Joe Biden’s proposed budget for the fiscal year 2024 is approved by Congress. The proposal has sparked debate over whether the tax could help reduce global emissions and energy prices.
Cryptocurrency mining is an energy-intensive process that involves solving complex equations to create new blocks, which can then be validated and added to the blockchain. According to some estimates, the energy consumption of Bitcoin (BTC) mining alone is around 0.59% of the world’s energy usage, roughly equivalent to the energy usage of Malaysia. This immense energy consumption has led to concerns about the environmental impact of cryptocurrency mining.
President Biden’s Council of Economic Advisors (CEA) argues that the proposed Digital Asset Mining Energy (DAME) excise tax would encourage cryptocurrency mining firms to take better account of the environmental harms they impose on society. The tax is expected to raise $3.5 billion in revenue over 10 years and is intended to make cryptominers pay for the costs they impose on local communities and the environment.
By imposing a tax on electricity usage, crypto miners could be incentivized to reduce their energy consumption. With electricity generation making up a significant proportion of carbon emissions, the tax could, in theory, help reduce emissions in the U.S. This idea is similar to carbon taxes, which aim to disincentivize emissions by forcing emitters to pay the full social costs associated with their pollution.
However, critics of the DAME tax argue that it could lead to “carbon leakage,” where emissions are relocated from one country to another rather than being reduced globally. They contend that the tax could drive miners away from the U.S. to countries with lower tax rates and less stringent environmental regulations, where they might continue to emit large amounts of carbon dioxide.
Coin Metrics co-founder Nic Carter points out that countries where cryptocurrency mining could potentially relocate to may have a lower proportion of renewable energy sources. Consequently, emissions might increase as crypto miners move their operations offshore. Carter criticizes the policy for potentially decreasing tax revenue, increasing carbon emissions, and empowering geopolitical rivals.
The CEA acknowledges that the potential for cryptocurrency mining to relocate to countries with dirtier energy sources is a concern. However, they point out that other countries are also moving to restrict or ban cryptocurrency mining activities. Environmental group Greenpeace USA’s Bitcoin project lead, Joshua Archer, also notes that regulations or taxes deterring crypto mining could emerge wherever miners move to, and he argues that Bitcoin should eliminate its energy-intensive proof-of-work consensus mechanism in favor of a more sustainable mechanism like proof-of-stake.
Supporters of cryptocurrency mining say that the industry can encourage a shift toward renewable energy. Marathon Digital Holdings CEO Fred Thiel, for example, asserts that Bitcoin mining naturally incentivizes renewable energy generation. Thiel explains that miners can act as consistent base load energy consumers, stabilizing the electricity grid and making new renewable energy projects financially viable.
Thiel also argues that the proposed DAME tax unfairly targets the cryptocurrency mining industry rather than addressing the ways electricity is generated. He believes the tax would ultimately raise energy prices for consumers and reduce the feasibility of renewable energy development in the U.S., suggesting that the proposal may be driven by political motives rather than genuine concern for the environment.
If the DAME tax is approved by Congress, it could have significant implications for cryptocurrency mining and renewable energy development in the U.S. As the debate continues, it remains to be seen whether the tax will ultimately help reduce global emissions or merely displace them to other countries.