US government wants to tax bitcoin to reduce its environmental impact

The US government has proposed a tax on cryptocurrency miners in an effort to reduce the industry’s sizeable environmental impact, but experts warn that the move could simply shift the problem elsewhere.

Cryptocurrencies such as bitcoin are kept secure through a process called mining, which involves intense computation and high electricity consumption – the latest data from the University of Cambridge suggests bitcoin accounts for 0.69 per cent of all electricity used worldwide.

In the US, the government estimates that up to 2.3 per cent of the nation’s electricity use in 2023 was due to just 137 mining operations, while a 5 per cent rise in electricity costs in Texas has been directly linked with increased demand caused by miners. President Joe Biden’s proposed budget for the fiscal year 2025 points out that cryptocurrency mining has “negative environmental effects and can have environmental justice implications as well as increase energy prices for those that share an electricity grid with digital asset miners”.

As such, the budget proposes a 30 per cent tax on miners’ total energy costs, applying to both power from the grid and any electricity generated by the miners themselves. It would be phased in, with a 10 per cent charge starting in 2025, a 20 per cent charge in 2026 and, finally, a 30 per cent charge in 2027. An identical tax was proposed by Biden last year, but it failed to pass the House of Representatives and Senate and become law – hurdles that this second attempt now faces.

The move, which comes as bitcoin has surged to an all-time high above £56,000 in recent weeks, has attracted fierce criticism from the cryptocurrency industry. Dennis Porter at the Satoshi Action Fund tweeted that it was a “back door ban” on mining and promised: “We will aggressively oppose this attempt at targeted discrimination without hesitation!”

New Scientist approached several large bitcoin mining companies for comment on the proposed tax. Block Mining, Frontier Mining and HIVE Digital Technologies didn’t respond, while TeraWulf declined to comment.

But taxing the industry could have unintended consequences, says Alex de Vries at VU Amsterdam in the Netherlands. When China banned bitcoin mining in 2021, it led to companies moving their operations to countries like Kazakhstan, where fossil fuels including coal produce more than 90 per cent of the nation’s electricity supply.

“It probably wouldn’t really solve anything,” says de Vries, as mining operations are highly mobile and can be based anywhere, moving from country to country to find better regulatory environments or cheaper power. “Climate change is a global problem and if you’re moving emissions from one country to the next, if you make the power source worse, you’re actually exacerbating the global problem.”

“Ideally, you want to tackle this at a global level,” says de Vries. “You want to cut down the emissions of these miners.” De Vries has long advocated for bitcoin to follow the cryptocurrency Ethereum, which changed the way it operates, doing away with mining and slashing its power consumption by 99.99 per cent. But he says that most bitcoin developers have shown no interest in change.