Will Biden’s plan to tax crypto mining reduce emissions? Critics say no

Cryptocurrency miners based in the United States could soon face a tax equal to 30% of the cost of electricity they use if President Joe Biden’s proposed budget for the fiscal year 2024 is approved by Congress, but the proposal has sparked debate about whether it would actually decrease global emissions and energy prices.

Cryptocurrency mining is a resource-intensive process that attempts to solve increasingly complex equations in order to create new blocks which can then be validated and added to the blockchain.

This process consumes a significant amount of energy, with some estimates placing the global energy consumption of Bitcoin (BTC) mining alone at around 0.59% of the world’s energy usage, which is roughly equivalent to the energy usage of Malaysia, according to Worldometer.

Biden’s  Council of Economic Advisors (CEA), argues that the tax — dubbed the Digital Asset Mining Energy (DAME) excise tax — “encourages firms to start taking better account of the harms they impose on society,” adding:

“Estimated to raise $3.5 billion in revenue over 10 years, the primary goal of the DAME tax is to start having cryptominers pay their fair share of the costs imposed on local communities and the environment.”

By imposing a tax on electricity usage crypto miners will have a financial incentive to reduce their energy consumption, and with electricity generation making up such a large proportion of carbon emissions, this should theoretically reduce emissions in the U.S.

This idea is similar to the thinking behind carbon taxes, which are intended to disincentivize emitters by forcing them to pay the full social cost of their emissions after attempting to factor in costs associated with polluting.

Leakage

However, opponents of the tax argue that it will simply drive miners offshore to countries with lower tax rates and less stringent environmental regulations, where they will continue to emit large amounts of carbon dioxide. This situation is known as “carbon leakage,” whereby emissions are simply shifted from one location to another, rather than reduced overall.

As Coin Metrics co-founder Nic Carter points out, these countries may also have a much lower proportion of energy supplied by renewable sources, so emissions may even increase as crypto miners move offshore.

Hey @hboushey46 /CEA/White House – when you try to ban Bitcoin mining here in the U.S., this is who you directly empower. Unplug them here, plug them into the much dirtier Kazakh grid. Great policy proposal, you’ve really thought this one through https://t.co/M4uSSHSxqa

— nic carter (@nic__carter) May 3, 2023

Carter was scathing in his critique of the policy, arguing that it would decrease tax revenue contrary to what the Biden administration suggests, increase carbon emissions, and empower “geopolitical enemies.”

Ever sat down and thought: how can I direct more money to my geopolitical enemies, lose tax revenue domestically, AND pump more CO2 into the atmosphere?

Well the DAME tax does that

— nic carter (@nic__carter) May 3, 2023

In its blog post, the CEA noted that “the potential for cryptomining to relocate abroad — such as to areas with dirtier energy production — is a concern” but suggested that other countries are also moving to restrict crypto mining, and cited nine countries that already had banned the activity.

Speaking to Cointelegraph, environmental group Greenpeace USA’s Bitcoin project lead Joshua Archer warned that regulations or taxes deterring crypto mining will likely be created wherever crypto miners move to, and argued that Bitcoin should eliminate its proof-of-work consensus mechanism.

The climate activism group has been calling for Bitcoin to transition to a proof-of-stake mechanism as part of its ongoing “change the code, not the climate” campaign which began early last year. 

One of the countries referred to by the CEA, China, banned crypto mining in 2021 after citing concerns about its electricity consumption and environmental impact. However, studies on the effect of the ban suggest that activity had simply moved to countries that use far less renewable energy, and actually increased global emissions.

The CEA also argued that crypto miner’s electricity usage drives up costs for other consumers, and increases overall reliance on “dirtier sources of electricity.”

Cryptominers’ intense and volatile power consumption can also push up electricity prices and make local electrical grids riskier as a result of increased strain on equipment, service interruptions and safety hazards. 6/ https://t.co/dN4vtqjHch

— Council of Economic Advisers (@WhiteHouseCEA) May 2, 2023

While this makes sense according to economic theory, as an increase in demand within a market leads to higher prices, it may overlook some important nuances of the crypto-mining industry and its effect on the electricity market in the U.S.

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