Two IMF officials advocated a steep electricity tax on crypto miners, recommending increasing their average global electricity costs by 85%.

The proposal essentially involves a significant increase in electricity taxes paid by cryptominers. This would drastically reduce the CO2 emissions from mining such cryptocurrencies, which are increasing and posing a threat to the environment.

IMF: Over $5 billion in taxes

According to the International Monetary Fund, a levy of $0.047 per kilowatt hour would raise about $5.2 billion annually and reduce global emissions by about 100 million tons, equivalent to the current emissions of Belgium.

However, the actual reduction in emissions from such a tax is debatable, as mining companies tend to relocate their operations to countries where electricity is cheap.

Here, IMF Directors Shafik Hebous and Nate Vernon-Lin have used a startling figure for the energy consumption used in cryptocurrency transactions. According to them, a single Bitcoin transaction uses as much electricity as the average person in Pakistan uses in three years.

Crypto mining data centers and total energy consumption for artificial intelligence will grow to levels comparable to Japan’s electricity consumption within three years.

While the proposed tax could incentivize mining companies to become more energy efficient, the IMF acknowledges that global coordination is needed to prevent mining companies from moving their operational bases to countries and jurisdictions with lower standards.

This complexity highlights the difficult decisions that must be made to implement effective environmental regulation in a rapidly changing crypto landscape.

Environmental impact of crypto mining

Environmental concerns therefore argue for regulation of crypto mining. The IMF’s decision shows a growing awareness of the need to intervene in a fast-growing polluter. Finding solutions is necessary because crypto mining and AI data centers are responsible for almost 1% of global carbon emissions and 2% of global electricity consumption. This tax could encourage miners to invest in greener technologies, making the sector more sustainable.

Economic considerations

While the tax revenue from this proposal is huge, it opens a Pandora’s box for the economic viability of crypto mining. Small miners, already hard hit by the drop in profits following Bitcoin’s halving in April, may not be able to survive if electricity costs rise even further.

That would mean consolidation in the industry, and only the larger, more efficient miners that can survive would do so. The IMF analysis estimates that the tax could further stimulate innovation in energy-efficient mining technologies, but the direct impact on smaller players could be quite destructive.

Rebuttal to New IMF Report on Bitcoin Mining Emissions

The IMF report says that “carbon emissions from AI and crypto are rising” and then goes into a detailed report on how regulators should impose a “cryptocarbon” tax.

Rebuttal:

First, Bitcoin advocates everywhere should pause for a moment and consider… photo.twitter.com/GClHEi0FvR

—Daniel Batten (@DSBatten) August 15, 2024

The need for international coordination

A tax on electricity for crypto miners is not so easy to accept. The IMF does point out that in the absence of global coordination, such measures could also involve jurisdictional arbitration: miners move to countries with less stringent regulations.

This could undermine the intended environmental benefit of such a tax. Therefore, establishing a uniform approach to taxing crypto mining electricity is key to meaningful reductions in carbon emissions. The IMF’s suggestion is in the right direction, but success will lie in international cooperation and a commitment to sustainable practices in the crypto industry.

Main image from Pexels, chart from TradingView