I hope you are all well and are having an excellent week, welcome to CryptoGod-1’s blog on all things crypto. In a bold move, the President of the United States, Joe Biden, has announced his administration is looking at imposing a 30% climate tax on cryptocurrency miners, in an effort to address climate change.
Council of Economic Advisers
As noted above, the White House is looking to target cryptocurrency miners for a new 30% tax, according to the Council of Economic Advisers (CEA,) an agency within the U.S. Executive Office of the President. This tax would be known as a Digital Asset Mining Energy Tax (DAME) and it has been stated that they will be trying to persuade Congress to pass a bill on the matter as part of the next federal budget.
Targeting the consumption of electricity is not exactly a bad thing when looking a tax efforts, but some interesting statements have been made on the matter. The CEA have noted that:
"cryptocurrency miners harm society by contributing to increased local pollution and greenhouse gas emissions while increasing energy costs while operating with impunity."
Their address to this apparent issue is the introduction of the DAME tax, which they feel would redress the harmful environmental and social consequences of crypto mining. The CEA put forth these arguments as part of a blog post on the White House website, which was released on Tuesday the 2nd of May 2023. The post lays out the CEA's case for the DAME tax, which they feel is an “example of the Administration’s efforts to fight climate change and reduce energy prices.”
With proof-of-work mining, especially that of Bitcoin, becoming a political issue in recent weeks, months, and even years, the CEA stated:
“Currently, cryptomining firms do not have to pay for the full cost they impose on others, in the form of local environmental pollution, higher energy prices, and the impacts of increased greenhouse gas emissions on the climate. The DAME tax encourages firms to start taking better account of the harms they impose on society.”
Push Back
As expected, the news did not exactly land well within the crypto community. Advocates of cryptocurrency mining were quick to push back against the latest government effort to curb the industry.
This is not the first, nor will it be the last, attempt by government to shackle the crypto industry, and in April the Texas Blockchain Council launched its “Don’t Mess With Texas Innovation” campaign. This aims to set out to block all and any bill's aimed at ending incentives for Bitcoin miners within the state, particularly against the SB 1751 Bill.
The director of energy policy at the Chamber of Digital Commerce also came out to state his disapproval at the proposed DAME tax. He stated how the mining industry is being unfairly targeted, and noted:
"This puts a clear line in the sand that they do not like the industry. They are looking for ways to hamstring it. This is just a way to go after the industry which they do not support.”
Environmental Impact of Proof-of-Work
While the narrative has often been the Proof-of-Work mining is energy consuming and has an awful impact on the environment, it is important to fully understand the process at hand. It is of course the most energy-intensive approach to mining, and is most famously known for being used by Bitcoin.
It works on the basis of computers competing to be the first to solve a mathematical puzzle, with the winner be rewarded with a block reward. These days it requires supercomputers to process the equations and be the first to solve the puzzle, and that is very power intensive work. Many people have multiple computers working together to complete their mining and it is understandable that the electrical requirement is massive in this regards.
The White House claimed in a report in September 2022 that cryptocurrency mining consumes more power than the entire country of Australia, and that in the U.S. it makes use of about 0.9% to 1.7% of all the country’s electricity use. It is important to note that roughly one third of the world's cryptocurrency miners are supposedly based in the United States. The energy consumption is expected to increase rapidly as the industry continues to grow.
In Texas, the cryptocurrency mining friendly state, there are ten large scale mining companies which draw their power from the local energy grid. It has been reported that the demand for electricity from those mining companies has lead to state grid operators increasing the electricty prices for all customers in an aim to ensure the supply and demand in the area is balanced, and thus avoiding blackouts. All in all there are apparently 34 of these large scale mining operations within the U.S. and their combined electricity usage is comparative to the usage of 3 million U.S. homes.
There have also been some big moves by cryptocurrency mining operations within the United States, many of which have not gone down well with the establishment. The Greenidge Generation bitcoin mining facility in Dresden, New York, is one such example. They purchased a disused natural gas power plant and put it back into operation, making use of the power for full time mining operation. In 2020 they began running full time, and aim to become an environmental leader in power generation and bitcoin mining. They claim to be advancing responsible bitcoin mining across the industry through the reduction of emissions from the plant by up to 75%. Greenidge also provided the electricity necessary to power up to 20,000 homes and businesses in the region in 2020 from their excess power being returned into the grid. They are going green with their mining, but that has not stopped the government intervening. Kathy Hochul, a Democrat, signed a bill late last year that would put a moratorium on licensing for any more fossil fuelled power plants to become cryptocurrency mining operations.
The DAME Tax
The feeling around the government is that state or local regulation is not enough, as it could just push the industry elsewhere. Therefore the White House feels the best solution is to let the federal government take charge of the (apparent) issue. When structing the DAME tax on cryptocurrency mining, they will look to phase it over a number of years. The first year would see a 10% tax introduced, the second year it would raise to 20%, and finally in the third year it would be set at 30% onwards.
They believe it could generate up to 3.5 billion over 10 years, while also pointing out the primary goal of the tax would not be for monetary gain, instead it would be making crypto miners pay their fair share of the costs imposed on local communities and the environment. An economist for the CEA stated:
“Where we see the strains emerging are in these places that are drawing off the grid, where this starts getting noticed at the level that communities are pushing back and are experiencing consequences of it. Localities are dealing with it, and they’re struggling to come up with solutions on their own.”
They were also quick to point out that while there are other industries which are considered energy-intensive, such as manufacturing of chemicals and steel, the government feels they add more to the economy and society than cryptocurrency mining does. This includes things such as creating jobs and supplying essential products. They also pointed to the volatility of crypto as an unstable and risk to the financial system. A spokesperson for the White House stated:
“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 risk to financial stability, and certainly the environmental concerns.”
While we can all see the undoubted benefits of cryptocurrency, such as the ability to bank without needing a bank, and transact money globally in an instant, the U.S. government clearly do not see the same benefit. It is interesting how they claim a lack of job creation and instability to the economy from cryptocurrency, considering the mining facilities are no different than the likes of data centres for largescale companies. The money gained via mining is likely funnelled back into the economy through being spent by the miners. However, if miners are forced to pay up to 30% in tax for their electricity, whether or not it is renewable, then likely most will reconsider if there is any benefit to the operations. Are the federal government and the White House looking to kill crypto in the United States? Is this the latest move in the war against crypto? Only time will tell, but certainly it will be worrying times for anybody heavily invested in the area. The only real upside I could plausibly consider would be the potential for the value of Bitcoin, and crypto, to rise to such a level that it not only counters the costs of this additional tax, it still earns decent profits for the miners.
Have a great day.
CryptoGod-1.
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