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 equivalent to 30% of the cost of electricity they use if President Joe Biden’s proposed fiscal year 2024 budget is approved by Congress, but the proposal has sparked debate over whether it would actually reduce global emissions and energy prices.

Cryptocurrency mining is a resource-intensive process that attempts to solve increasingly complex equations to create new blocks that 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 world energy consumption, roughly equivalent to the energy use of Malaysia, according to Worldometer.

Biden’s Council of Economic Advisors (CEA) argues that the tax – called the Digital Asset Mining Energy (DAME) Excise Tax – “encourages companies to start paying better attention to the harm they are inflicting on society,” adding:

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

By imposing a tax on electricity use, cryptominers would 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 US

This idea is similar to the thinking behind carbon taxes, which aim to disincentivize emitters by forcing them to pay the full social cost of their emissions after trying to take into account costs associated with pollution.

Leak

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”, where emissions are simply moved from one place to another, rather than reducing overall.

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

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

In its blog post, the CEA noted that “the potential for cryptomining to move abroad — for example, to areas with dirtier energy production — is a concern,” but suggested that other countries are also moving to limit cryptomining, citing nine countries that had already banned the activity.

Speaking to Cointelegraph, environmental group Greenpeace USA’s Bitcoin project manager Joshua Archer warned that regulations or taxes that deter cryptomining are likely to be created wherever cryptominers move to, and argued that Bitcoin should eliminate its proof-of-work consensus mechanism.

The climate activism group has called for Bitcoin to move 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 referenced by the CEA, China, banned crypto mining in 2021 after citing concerns about its power consumption and environmental impact. However, studies of the effect of the ban suggest that the activity had simply moved to countries that use far less renewable energy, and in fact increased global emissions.

The CEA also argued that the cryptominer’s electricity use increases costs for other consumers, and increases overall reliance on “dirtier power sources.”

While this makes sense according to economic theory, as an increase in demand in a market leads to higher prices, it may overlook some important nuances of the cryptomining industry and its effect on the US electricity market

“Bitcoin’s Beauty”

Bitcoin miner Marathon Digital Holdings CEO Fred Thiel told Cointelegraph that “The beauty of Bitcoin mining is that it naturally stimulates the generation of renewable energy.”

Thiel elaborated that “In many cases, green energy sources – such as solar and wind farms – are only feasible if there is consistent demand for that energy when it is produced,” adding:

“While most consumers’ energy needs fluctuate, miners act as consistent baseload energy consumers. They help to stabilize the grid, and make new green energy projects financially feasible.”

According to Thiel, while Bitcoin mining stimulates the production of renewable energy production, Bitcoin miners in the United States are also attracted to renewable energy sources, as the excess energy they produce that cannot be returned to the grid is some of the cheapest energy available. in the United States

Thiel added that if this excess energy was not used by Bitcoin mining companies, it would not be usable by consumers and would otherwise be wasted.

Thiel noted that this mutually beneficial relationship between renewable energy producers and Bitcoin miners contributes to an already ongoing shift towards more sustainable sources of electricity, pointing to the latest Bitcoin Mining Council (BMC) survey.

Based on the results of the survey, BMC estimated that 58.9% of the electricity used in Bitcoin mining through the last quarter of 2022 was generated by renewable energy sources, a figure that increases over time.

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Thiel was also very scathing about the DAME tax, arguing that “it’s a shot at a specific industry, not at a specific practice or fuel source,” adding:

“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.”

He said the proposal “is intended to drive Bitcoin miners out of business” and “will both increase energy prices for consumers and reduce the opportunity for renewable energy development in the United States,” concluding:

“Either the administration is completely misguided, or this proposed tax is nothing more than a move to stifle this industry for political reasons, because it is not in the interest of the people, the energy grid or the environment.”

The proposal comes amid calls that a lack of regulatory clarity and access to banking services in the US is killing the crypto industry, and if the DAME tax is approved by Congress, it could just be another nail in the coffin.