In an effort to mitigate the potential damage that the nascent cryptocurrency industry may cause to the environment, the White House is lobbying Congress to include a tax of thirty percent on the cost of the electricity used to mine cryptocurrencies in the upcoming federal budget.
“Cryptominers’ high energy consumption has negative spillovers on the environment, quality of life, and electricity grids where these firms locate across the country,” the president’s Council of Economic Advisers (CEA) says in a blog post that will be published on the White House website on Tuesday. The piece will be available for public viewing. This post will discuss the rationale behind the Digital Asset Mining Energy (DAME) excise tax, which, according to the CEA, is “an example of the Administration’s efforts to fight climate change and reduce energy prices.” The post will also provide an overview of the proposed legislation.
The Cryptocurrency Environmental Alliance (CEA) states in a post that “currently, cryptocurrency mining firms do not have to pay for the full cost they impose on others,” which includes “local environmental pollution,” “higher energy prices,” and “the impacts of increased greenhouse gas emissions on the climate.” “The DAME tax incentivizes businesses to begin taking better account of the harms that are caused to society as a result of their actions.”
When fossil fuels are burned to generate electricity, damaging air pollutants such as nitrogen oxides and particulate matter are released into the atmosphere. This process accounts for 25% of the annual greenhouse gas emissions in the United States.
The cryptocurrency mining business is being unfairly targeted, according to those who oppose the planned tax. “This draws a bright line in the sand and makes it quite plain that they dislike the industry. Tom Mapes, the director of energy policy at the Chamber of Digital Commerce, said that they are looking for methods to make it more difficult. “This is just another way for them to go after the industry, which they do not support.”
Massive supercomputers compete with one another in order to be the first to solve a mathematical riddle in the process of “proof-of-work” cryptocurrency mining. This technique is the most energy-intensive method of mining, and it is the one employed by bitcoin, which is by far the most popular cryptocurrency. This procedure calls for a significant amount of electrical current. According to a report published by the White House in September of last year, the mining of cryptocurrencies consumes more electricity than the entire nation of Australia. An estimated 0.9% to 1.7% of all of the nation’s electricity consumption is attributable to cryptocurrency mining in the United States, which is home to approximately one-third of all cryptocurrency mining operations.
As the cryptocurrency business develops, the amount of electricity consumed is continuously increasing. According to the New York Times, there are 34 large-scale bitcoin miners in the United States, and together they consume as much electricity as roughly 3 million homes in the country. The United States leads the world in the mining of cryptocurrencies. There are ten of these mines that are connected to the energy grid in Texas, and because of the high demand for electricity from these mines, the operators of the energy grid in Texas have had to raise prices for all of their customers in order to maintain a healthy balance between supply and demand and prevent blackouts.
In New York, where one cryptocurrency mining company bought and reactivated a decommissioned natural-gas-fired power plant to power its operation, Governor Kathy Hochul, a Democrat, signed a bill at the end of last year that would put a moratorium on licensing for any more fossil-fuel-powered cryptocurrency mining facilities. This bill would prevent the state from granting licenses to any new cryptocurrency mining facilities that are powered by fossil fuels.
According to the White House, state or municipal legislation may just cause the business to relocate to another location. As a result, the White House feels that the federal government should step in and offer some national regulation that represents the social cost of cryptocurrency mining. The tax rate would gradually increase over the course of three years, beginning at 10% the following year, then rising to 20%, and ultimately reaching 30%.
“Where we see the strains emerging is in these places that are drawing off the grid,” one economist working for the CEA said under the condition of anonymity. “This starts getting noticed at the level that communities are pushing back and are experiencing consequences because of it,” the economist added. “The issue is being addressed at the local level, and communities are working hard to develop solutions on their own.”
The proposed tax on cryptocurrency mining would result in the generation of an estimated $3.5 billion in revenue over the course of ten years. But according to the CEA, revenue isn’t the point. In a post that will be published soon, the CEA writes that “the primary goal of the DAME tax is to start having crypto miners pay their fair share of the costs imposed on local communities and the environment.” The goal of the DAME tax is to start having crypto miners pay their fair share of the costs imposed on local communities and the environment.
The plan has been opposed by economist James Broughel, who argued in Forbes that it would make more sense to charge for the greenhouse gas emissions that are produced as a result of cryptocurrency mining rather than the amount of electricity that is consumed. In other words, there is no good reason to punish cryptocurrency mining companies that favor green energy.
The White House retorts that any increase in electricity demand makes it more difficult to green the system since it implies that much more renewable energy is required to achieve the same level of environmental benefit.
There are, of course, other energy-intensive industries that are not being targeted with a tax on their power use. Some examples of these industries are the production of chemicals and steel, respectively. However, according to the White House, crypto mining does not necessarily generate the same benefits as those other sectors of the economy. These benefits include the creation of jobs as well as the supply of essential products. At the same time, the price volatility of cryptocurrencies—during the past year, the price of one bitcoin has ranged anywhere from $15,000 to $40,000—could potentially present hazards to the global financial system.
The White House economist stated that the economic benefits of bitcoin are still unclear at this time. “It’s not yet clear what the economic benefits of this activity are,” “At the same time that the benefits have not been fully documented, there are concerns about the risk to financial stability, and there are most certainly environmental concerns.”
Users of cryptocurrencies, according to proponents of the cryptocurrency sector, do stand to benefit from using the technology.
“Millions of people are using this to transact around the world,” said Mapes. “It is a way to send money across borders without having to pay a middleman, and it is an opportunity for those who are unbanked or underbanked to become bank customers.”
Mapes contends that the White House is playing favorites within various industries by picking winners and losers at random.
He stated, “It seems as though there is a disproportionate focus on us.”