Carbon emissions are overheating the planet, and Americans are feeling it this summer, with unprecedented wildfires, heat waves, floods and droughts. The largest source of planet-warming carbon emissions is the burning of fossil fuels for energy.
Lawmakers seeking to reduce emissions are turning their attention to cryptocurrency mining (validating cryptocurrency transactions on a blockchain network that stores a mind-boggling amount of data), which requires enormous energy. bitcoin, for example, requires between 67 and 121 terawatt-hours per year. By comparison, the entire country of Germany needs just over 500 terawatt-hours a year. Much of the energy used by crypto miners is carbon-based, about 60 percent globally and 34 percent in North America. bitcoin generates an estimated 22 million metric tons of carbon emissions each year, which is equivalent to the total emissions of the country of jordan.
Reading: Bitcoin mining tax our electrical
Consider the extent of crypto mining in the United States, where 35 percent of bitcoin is mined, more than any other nation. New York, Kentucky, Georgia, and Texas are home to roughly 70 percent of the nation’s crypto mining operations. Last month, a congressional investigation found that seven of the largest bitcoin mining companies in the United States use almost as much electricity as all the homes in Houston, Texas.
Meanwhile, researchers at the University of California at Berkeley found that US crypto mining could cost residents and businesses $1 billion in energy bills a year due to electricity rates that rise with demand.
prohibitions, special taxes or incentives?
Should cryptocurrency miners in the us? uu. face stricter regulation of their energy use, pay a tax on their electricity use, or receive tax incentives for using renewable energy?
Around the world, 15 countries have restricted or banned crypto mining. China used to be home to the world’s largest mining activity, but it banned the use of cryptocurrencies in financial transactions in 2021, in part due to bitcoin’s carbon footprint. however, the ban did little to reduce crypto mining. instead, it has moved mining operations to other countries, including those that use even less renewable energy.
China’s ban led to a crypto mining boom in Kazakhstan, where renewable energy accounts for less than 1% of its electrical installations. subsequently, crypto miners overloaded kazakhstan’s power grid. In response, starting in 2023, Kazakhstan will increase taxes on crypto miners based on their electricity usage. If a crypto miner uses electricity generated from non-renewable sources, their tax per kilowatt hour will be ten times the tax paid by miners using renewable sources.
neighboring uzbekistan is taking a similar approach. crypto mining that uses fossil fuels during the busiest hours of the day will face excise taxes on their electricity use. The country also offers tax breaks to crypto miners who purchase solar panels for their electricity needs and will charge them lower electricity prices than miners using non-renewable energy.
in the united states, states now face similar problems. New York lawmakers have chosen to use regulation, with the state assembly passing a two-year moratorium on some crypto mining. If the kathy hochul government signs the legislation, the state will ban new carbon-based mining operations. mining that uses renewable energy would not be affected. The bill has been on the governor’s desk for weeks and it is unclear if she will sign it, given the political pressures of an election year.
but as seen in china, if the new york bill passes, the miners can simply go to other states like kentucky or texas. instead, those states are offering tax incentives for crypto mining, hoping to generate economic growth that offsets higher electricity bills, if not the effects on the climate. kentucky offers tax incentives to cryptocurrency miners who set up operations in the state, and much of their energy use is unlikely to be renewable, as most bitcoin mining operations in kentucky use the state power grid with high carbon content.
texas offers comparable incentives to crypto miners who can at least access a mix of carbon-based, less carbon-intensive and renewable energy. but its cheapest energy is still carbon-based.
There is another option.
Given the competition to attract crypto miners in these states and others, it is hard to imagine that many states would be like Kazakhstan and tax the industry. Not to mention the mixed signals the industry is receiving from national lawmakers, who are considering tax subsidies for certain cryptocurrency activities.
U.S. lawmakers will soon need to address crypto mining and its energy needs. University of New Mexico economics professor Ben Jones and his colleagues found that $1 of bitcoin value created in 2018 generated 49 cents in climate and health damage in the United States.
that’s hard. but it is not crypto mining that is harming us. are carbon emissions. If only there was fiscal policy that could help limit the damage from climate change, reduce the budget deficit, and even finance refunds to Americans. any ideas?
The Tax Hound, publishing once a month, helps make sense of tax policy for those outside the tax world by connecting tax issues to everyday concerns. Have a question or an idea? Send Renu an email.