Two IMF officials have jointly proposed an 85 percent tax hike on crypto mining businesses to incentivise the adoption of cleaner practices.
Crypto mining and data centers together accounted for two percent of world electricity demand in 2022
Photo Credit: Reuters
The International Monetary Fund (IMF) has released a new report highlighting the rising carbon footprint of the crypto sector and stressing the need for control. To address this, the IMF has proposed a significant tax increase on crypto mining businesses to encourage the adoption of greener practices. According to the IMF's latest estimates, crypto mining alone could generate 450 million tons of carbon emissions by 2027, accounting for 1.2 percent of the global total.
Two IMF officials -- Shafik Hebous and Nate Vernon-Lin -- have collectively proposed that taxes for crypto mining businesses could need up to 85 percent hike to drive the crypto mining industry to adopt cleaner practices.
“According to IMF estimates, a direct tax of $0.047 (roughly Rs. 3.95) per kilowatt hour would drive the crypto mining industry to curb its emissions in line with global goals. If considering air pollution's impact on local health as well, that tax rate would rise to $0.089 (roughly Rs. 7.47), translating into an 85 percent increase in average electricity price for miners,” the officials said in a blog on August 15.
The process of BTC mining has been infamous for being very power intensive, so much so, that the electricity requirement for mining farms has been known to disrupt the power supply in neighbouring regions. As per the blog published on the IMF channel, one Bitcoin transaction requires roughly the same amount of electricity as the average person in Ghana or Pakistan consumes in three years.
Not just crypto mining, but crypto data centres also require high intensity machines to be plugged into an active power socket at all times, contributing to the sector's carbon emissions.
The blog claimed, “crypto mining and data centers together accounted for two percent of world electricity demand in 2022. And that share is likely to climb to 3.5 percent in three years, according to our estimates based on projections from the International Energy Agency. That would be equivalent to current consumption of Japan, the world's fifth largest electricity user.”
This environmentally concerning property of the Web3 industry, the blog said, diminishes its social and economic benefits. If the taxes linked to the power usage by crypto miners are, for example, rise by 85 percent – the annual emissions by the sector could be reduced by an estimated 100 million tons.
Not just for crypto, but the IMF has observed a spike in carbon emissions from increased AI activities as well. The report said that ChatGPT gobbles up ten times more electricity than one Google Search because of the massive amount of electricity that is required by AI data centres.
The IMF officials have asked regulators around the world to encourage companies working in crypto and AI to reduce the use of fossil fuels and look for greener resources for power generation. The blog says that nations could implement a global carbon price of around $85 (roughly Rs. 7,136) per ton by 2030.
“Complementing electricity taxes with credits for zero-emission, bilateral power purchase agreements, and potentially renewable energy certificates would also help,” the blog added.
The IMF officials have, however, emphasised that these pro-environment measures need to be deployed uniformly around the world otherwise these businesses would just relocate to regions with looser laws.
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