Cryptocurrency miners in the United States may soon be subject to a tax equivalent to 30% of their electricity costs if President Joe Biden’s proposed budget for fiscal year 2024 is approved by Congress. However, the proposal has sparked a debate over whether it will actually reduce global emissions and energy prices.
Cryptocurrency mining is a process that requires a lot of resources and aims to solve increasingly complicated equations to create new blocks that can then be validated and added to the blockchain. This process consumes a considerable amount of energy, with some estimates suggesting that global energy consumption for Bitcoin (BTC) mining alone is around 0.59% of the world’s energy usage, which is roughly equivalent to the energy usage in Malaysia according to Worldometer.
The Digital Asset Mining Energy (DAME) excise tax, dubbed by Biden’s Council of Economic Advisors (CEA), aims to «encourage firms to start taking better account of the harms they impose on society.» The tax is estimated to raise $3.5 billion in revenue over the next ten years and aims to make cryptominers pay their fair share of the costs imposed on local communities and the environment.
The imposition of electricity usage tax on crypto miners will provide a financial incentive to reduce their energy consumption. This should reduce emissions in the U.S, as the generation of electricity makes up a significant portion of carbon emissions. Similar to carbon taxes, this idea intends to disincentivize emitters by forcing them to pay the full social cost of their emissions after factoring in costs associated with polluting.
However, critics of the tax argue that it will encourage miners to move to countries with lower tax rates and less stringent environmental regulations. This carbon leakage situation shifts emissions from one location to another, rather than reducing them. Moreover, countries to which miners move may have a lower proportion of energy from renewable sources. Therefore, emissions may increase further.
The CEA acknowledged in its blog post that «the potential for cryptomining to relocate abroad — such as to areas with dirtier energy production — is a concern.» However, the CEA emphasized that other countries are also moving to restrict crypto mining.
Biden’s move is part of the effort to reduce carbon emissions. Environmental group Greenpeace USA’s Bitcoin project lead, Joshua Archer, warned that regulations or taxes deterring crypto mining will likely emerge wherever they relocate. He argued that Bitcoin should eliminate its proof-of-work consensus mechanism and transition to a proof-of-stake mechanism as part of its ongoing «change the code, not the climate» campaign.
Bitcoin miner Marathon Digital Holdings CEO, Fred Thiel, said that «The beauty of Bitcoin mining is that it naturally incentivizes renewable energy generation.» Green energy sources such as solar and wind farms require consistent demand. Bitcoin miners act as consistent base load energy consumers, which help stabilize the grid and make new green energy projects financially feasible. The excess energy produced, which is too much to return to the grid, is some of the cheapest energy available in the U.S. Bitcoin mining incentivizes renewable energy sources.
Thiel criticized the DAME tax proposal arguing that «it is a shot at a specific industry, not at a specific practice or fuel source.» The tax proposal intends to run Bitcoin miners out of business. He claims that it will raise energy prices for consumers and reduce the feasibility of renewable energy development in the U.S. instead of targeting the real problem, which is how electricity is generated. Thiel added that the proposal is either misleading or a move to hamper the industry for political reasons.
The proposal comes amid calls that a lack of regulatory clarity and access to banking services in the U.S. is killing its crypto industry. If the DAME tax is passed by Congress, it might be yet another blow to the industry.