In the 2024 fiscal year budget released by U.S. President Biden not long ago, there is a new proposal-to levy a digital currency mining energy consumption tax (hereinafter referred to as energy consumption tax) to deal with the economic and environmental impacts of current cryptocurrency mining on society. cost.
The proposal shows that the energy consumption tax will be taxed at 30% of the cost of electricity used in the mining process. The proposal proposes to implement new taxation rules starting from January 1 next year. Cryptocurrency “miners” will be required to report the amount, type and value of electricity used. The tax rate for the first year is 10% of the electricity cost used in the mining process. The tax rate is 20% in the second year, and reaches the highest tax rate of 30% in the third year.
Cryptocurrency Mining: A Big Eater of Electricity
What is cryptocurrency mining? In layman’s terms, cryptocurrency mining is the process of creating and processing cryptocurrencies, essentially using computers to solve complex mathematical problems. The “miner” who solves the problem first will receive cryptocurrency as a reward, which is stored in the “miner’s” cryptocurrency wallet and enters the circulation process from then on.
Since cryptocurrencies are often valuable, cryptocurrency mining can be lucrative for “miners”. However, cryptocurrency mining requires a large number of computers to operate at full capacity for a long time, so it consumes a lot of power, which inevitably leads to excessive energy consumption. In fact, according to Cambridge University’s Center for Alternative Finance, the most popular activity, bitcoin mining, currently accounts for 0.55 percent of total global electricity consumption, roughly equivalent to the annual energy consumption of a country the size of Malaysia or Sweden.
At present, cryptocurrency mining companies do not have to pay for the negative costs they inflict on others, including local environmental pollution, rising energy prices and the impact on the climate of increased greenhouse gas emissions, the White House Council of Economic Advisers said. An energy consumption tax on the electricity used by cryptocurrency miners could prompt these mining companies to think more about the harm they do to society and the environment.
Negative impact: no one pays the bill
While cryptocurrencies are virtual, the energy consumption associated with mining is real. The White House cited a report from The New York Times, which stated that the 34 largest crypto mining companies in the United States use as much electricity as 3 million surrounding households. The electricity consumption of the U.S. crypto mining industry in 2022 is similar to that of all household computers or residential lighting in the country, the report added.
The high energy consumption of cryptocurrency mining has negative spillover effects on the local power grid and surrounding environment. Electricity consumption in areas where cryptocurrency mining is intensive will drive up local electricity prices and may increase the risk of service disruptions to local grid equipment and potential safety hazards. However, encryption mining can be moved geographically, and the business model is unstable. If the local power company increases its power production capacity, when mining activities stop or transfer, the power will be wasted. The power company face financial risk. Furthermore, the environmental impact of cryptocurrency mining remains even if “miners” use existing ones. For example, if cryptocurrency mining operations occur frequently in a community with hydroelectric power, it will lead to increased electricity consumption for cryptocurrency mining, reducing the amount of clean electricity available for other purposes, which will also increase energy prices and increase community trust. Overall reliance on unclean sources of electricity.
Tit for tat: Restrictions and prohibitions on the table
Beyond these costs and risks, cryptocurrency mining produces no relevant local and national economic benefits compared to other businesses of similar power consumption. As laid out in the proposal, there is little evidence that crypto mining is good for the local area in terms of jobs or economic growth. Moreover, some studies have found that the small increase in local tax revenue brought about by crypto mining will be offset by the decline in tax revenue from businesses and households due to rising energy prices.
Although it is possible to relocate cryptocurrency mining abroad, more and more countries have moved to restrict cryptocurrency mining. Nine countries have now completely banned such activities, and three provinces in Canada have also enacted moratoriums on cryptocurrency mining. Some U.S. states and localities have also charged higher electricity rates for cryptocurrency mining or restricted such activities.
In order to ensure that cryptocurrency mining does not simply move from one place to another, targeted national policies are needed. Of course, an energy consumption tax is not a panacea, it is just a government effort to combat climate change, lower energy prices, ensure the healthy development of the digital industry, and mitigate risks to financial stability. The proposal estimates the tax would generate $3.5 billion in revenue over 10 years.
