White House proposes 30 percent tax on electricity used for crypto mining
The excise tax will be phased in over three years.
The Biden administration wants to impose a 30 percent tax on the electricity used by cryptocurrency mining operations, and it has included the proposal in its budget for the fiscal year of 2024. In a blog post on the White House website, the administration has formally introduced the Digital Asset Mining Energy or DAME excise tax. It explained that it wants to tax cryptomining firms, because they aren't paying for the "full cost they impose on others," which include environmental pollution and high energy prices.
Crypto mining has "negative spillovers on the environment," the White House continued, and the pollution it generates "falls disproportionately on low-income neighborhoods and communities of color." It added that the operations' "often volatile power consumption " can raise electricity prices for the people around them and cause service interruptions. Further, local power companies are taking a risk if they decide to upgrade their equipment to make their service more stable, since miners can easily move away to another location, even abroad.
It's no secret that the process of mining cryptocurrency uses up massive amounts of electricity. In April, The New York Times published a report detailing the power used by the 34 large scale Bitcoin miners in the US that it had identified. Apparently, just those 34 operations altogether use the same amount of electricity as three million households in the country. The Times explained that most Bitcoin mining took place in China until 2021 when the country banned it, making the United State the new leader. (In the US, New York Governor Kathy Hochul signed legislation that restricts crypto mining in the state last year.) Previous reports estimated the electricity consumption related to Bitcoin alone to be more than some countries', including Argentina, Norway and the Netherlands.
As Yahoo News noted, there are other industries, such as steel manufacturing, that also use large amounts of electricity but aren't taxed for their energy consumption. In its post, the administration said that cryptomining "does not generate the local and national economic benefits typically associated with businesses using similar amounts of electricity."
Critics believe that the government made this proposal to go after and harm an industry it doesn't support. A Forbes report also suggested that DAME may not be the best solution for the issue, and that taxing the industry's greenhouse gas emissions might be a better alternative. That could encourage mining firms not just to minimize energy use, but also to find cleaner sources of power. It might be difficult to convince the administration to go down that route, though: In its blog post, it said that the "environmental impacts of cryptomining exist even when miners use existing clean power." Apparently, mining operations in communities with hydropower have been observed to reduce the amount of clean power available for use by others. That leads to higher prices and to even higher consumption of electricity from non-clean sources.
If the proposal ever becomes a law, the government would impose the excise tax in phases. It would start by adding a 10 percent tax on miners' electricity use in the first year, 20 percent in the second and then 30 percent from the third year onwards.