The DAME tax: making cryptominers pay for the costs they impose on others – CEA

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Last month, the President released his budget for fiscal year 2024, building on progress made over the past two years to make critical investments to grow the economy, reduce costs for families, protect and strengthen Medicare and Social Security and reducing the deficit.

A new proposal in this year’s budget, the Digital Asset Mining Energy Excise Tax (DAME), is an example of the President’s commitment to addressing both long-standing national challenges and risks. emerging in this case, the economic and environmental costs of the current practices for the exploitation of cryptographic assets (cryptomining, for short). After a transition period, companies would face a tax equal to 30% of the cost of the electricity they use for cryptocurrency mining.

Cryptomining is a process of validating transactions between holders of crypto assets to record and transfer crypto-secured assets to a distributed ledger, such as using computing equipment to perform calculations to select the validator (White House 2022). Currently, cryptomining companies don’t have to pay 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. greenhouse effect on the climate. The DAME tax encourages companies to better take into account the damage they cause to society.

Although crypto assets are virtual, the energy consumption associated with their compute-intensive production is very real and imposes very real costs, as highlighted in a chapter of this year’s President’s Economic Report (entitled Digital Assets: relearn economic principles). Recent reports from The New York Times highlighted the scale of energy consumption associated with 34 of the largest cryptomining operations, which they calculated to be equal to the energy used by the surrounding 3 million homes. . As shown in Figure 1, the amount of electricity used in cryptomining in the United States in 2022 was similar to that used to power all home computers or residential lighting in the country.

Figure 1: Residential and cryptomining electricity consumption in the United States (in billions of kilowatt hours in 2022)

The high energy consumption of cryptominers has a negative impact on the environment, the quality of life and the power grids where these companies are located across the country (OSTP 2022). Pollution from electricity generation disproportionately affects low-income neighborhoods and communities of color (Thind et al. 2019). The intensive and often volatile power consumption of cryptominers can also drive up electricity prices for consumers and can increase risks to local power grids that strain equipment, causing service interruptions and security risks. (Chelan County 2018). Yet, because cryptomining is geographically mobile and the stability of the business model remains uncertain, local utilities also face financial risks if they invest in upgrading capabilities that might not be needed if the activity mining ceases or moves away.

The environmental impacts of cryptomining exist even when miners use existing clean energy. For example, in the case of hydroelectric communities where cryptomining operations are often located, increased electricity consumption by cryptominers reduces the amount of clean energy available for other uses, raising prices and increasing the global dependence on more polluting sources of electricity.

Other than these known costs and risks, cryptomining does not generate the local and national economic benefits typically associated with businesses using similar amounts of electricity. Instead, the energy is used to generate digital assets whose broader social benefits have yet to materialize, as the president’s economic report explains. There is little evidence of benefits to local communities in the form of jobs or economic opportunities, and research has shown that minor increases in local tax revenue are more than offset by increased fuel prices. energy for businesses and households (Benneton, Compiani and Morse 2021).

Although the possibility of cryptocurrency mining moving overseas, for example to areas with dirtier energy production, is a concern, other countries are also increasingly trying to restrict mining. of cryptoassets. China completely banned such activity in 2021, as did eight other countries; three Canadian provinces have also announced or enacted moratoriums on cryptomining. Similarly, some US states and localities are now charging higher electricity prices or limiting activity.

To ensure that cryptocurrency mining is not simply pushed from one local community to another, a national policy is needed. Of course, the DAME tax is not a panacea, it is just one example of the efforts of administrations to fight climate change, reduce energy prices and increase access to electrified options for all Americans. Likewise, it’s just one example of the president’s broader efforts to ensure the responsible development of digital assets, modernize their tax treatment, and mitigate risks to financial stability. Estimated at $3.5 billion in revenue over 10 years, the main goal of the DAME tax is to start making cryptominers pay their fair share of the costs imposed on local communities and the environment.

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