Cryptocurrency miners based in the United States are facing a proposed tax by President Joe Biden’s budget for the fiscal year 2024. The tax would be equal to 30% of the cost of electricity used by crypto miners. The Digital Asset Mining Energy (DAME) excise tax “encourages firms to start taking better account of the harms they impose on society” and is expected to raise $3.5 billion in revenue over the next decade. However, the proposed tax has sparked debate on whether it would actually decrease global emissions and energy prices.
Cryptocurrency mining is a resource-intensive process used to solve increasingly complex equations to create new blocks that can be 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. Biden’s Council of Economic Advisors (CEA) argues that the tax would incentivize crypto miners to reduce their energy consumption, which should theoretically reduce emissions in the U.S.
However, opponents of the tax argue that it would 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. Leakage occurs when emissions are shifted from one location to another, rather than reduced overall. Nic Carter, co-founder of Coin Metrics, argues that countries with lower tax rates may have a much lower proportion of energy supplied by renewable sources, so emissions may even increase as crypto miners move offshore.
Greenpeace USA’s Bitcoin project lead, Joshua Archer, warns that regulations or taxes deterring crypto mining will likely be created wherever crypto miners move to and suggests that Bitcoin should transition to a proof-of-stake mechanism. In 2021, China banned crypto mining due to concerns about its electricity consumption and environmental impact. However, studies suggest that mining activity had simply moved to countries that use far less renewable energy and actually increased global emissions.
The CEA argues that crypto miner’s electricity usage drives up costs for other consumers and increases overall reliance on “dirtier sources of electricity.” 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.
Bitcoin miner Marathon Digital Holdings’s CEO, Fred Thiel, argues that Bitcoin mining incentivizes the production of renewable energy generation. Thiel notes that while Bitcoin mining incentivizes renewable energy production, Bitcoin miners in the U.S. are also drawn to renewable energy sources as the excess energy they produce is some of the cheapest energy available in the U.S. Thiel argues that if this excess energy was not used by Bitcoin mining firms, it would not be able to be used by consumers and would otherwise be wasted.
Thiel notes that the mutually beneficial relationship between renewable energy producers and Bitcoin miners is contributing to a shift towards more sustainable sources of electricity. The most recent survey by the Bitcoin Mining Council estimates that 58.9% of the electricity used in Bitcoin mining throughout the last quarter of 2022 was generated by renewable energy sources, a number that is increasing over time.
Thiel argues that the proposed DAME tax is “a shot at a specific industry, not at a specific practice or fuel source” and is intended to run Bitcoin miners out of business. He notes that the proposal will raise energy prices for consumers and reduce the feasibility of renewable energy development in the U.S. Thiel suggests that if the Biden Administration really wanted to reduce global emissions, it would target the ways electricity is generated – not arbitrarily target select industries that use it.
The proposed tax 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 approved by Congress, it may just be one more nail in the coffin.