Proposal to Tax Cryptocurrency Mining for Climate Action

Recently, at a United Nations climate conference in Baku, Azerbaijan, a proposal to combat climate change by levying crypto taxes on cryptocurrency mining has amassed significant attention.

As per the proposal, if a levy of $0.045/kilowatt-hour (kWh) is imposed for crypto mining for electricity usage, it could generate $5.2 billion a year, according to a Global Solidarity Levies Task Force report led by Barbados, Kenya, and France.

This guide will examine the proposal’s key highlights, global context and precedents, and implications for the crypto industry. Let’s begin.

The Proposal: Key Highlights

Objective

• Incentivize cleaner mining practices.
• Fund transitions to renewable energy in less affluent nations.
• Mitigate the environmental impact of mining activities.

Rationale

• The Bitcoin network uses a lot of electricity—more electricity than some small countries—which results in substantial greenhouse gas emissions.
• According to research by the International Monetary Fund (IMF), a tax of $0.045/kWh could help address negative impacts on the climate. The institute also suggested that increasing it to $0.085/kWh can help cope with air pollution from fossil fuels.

Potential Impact

• This decision could drive miners to use hardware that consumes less electricity or adopt renewable energy sources.
• This could also lead the Bitcoin network to transition into a more energy-efficient transaction verification method, like Ethereum, which transitioned into the Proof-of-Stake (PoS) consensus mechanism.

Global Context and Precedents

Current Examples

• In 2022, Kazakhstan imposed a crypto mining tax, which collected $7 million in just a year.
• Under the Biden administration, the U.S. proposed a 30m percent tax on crypto miners’ power consumption. However, this support is doubtful under the forthcoming Trump administration.

Challenges

• Implementing such a huge task of imposing global taxes requires a bulletproof mechanism.
• How the funds would be collected and distributed would be an even bigger task.

Future Steps

• A task force will present a detailed proposal at Work Bank and IMF meetings in April 2025. Broader implementation discussions will take place in November 2025 at the UN Climate Summit.

Broader Scope

Initially, the task force only focused on aviation, fossil fuel companies, and maritime shipping; however, it has now also included billionaires, crypto mining and plastic production companies. Its Coalition for Solidarity Levies now includes 17 countries and organizations like the African Union and the European Commission.

The European Climate Foundation CEO Laurence Tubiana believes environmental justice cannot exist without financial equity. Those with the most resources and the largest environmental impact must contribute proportionally. Similarly, IMF Research Insight says that a single Bitcoin transaction can consume as much electricity as a Ghanaian household uses in three years or a German household in three months.

Implications for the Cryptocurrency Industry

The increased regulatory costs may lead to a substantial shift in crypto-mining practices. However, increasing Bitcoin value and favorable expectations under Trump’s presidency could lead to further mining.

This proposal is an important intersection of the cryptocurrency industry’s growth and environmental responsibility. However, its success depends on navigating complex geopolitical and economic challenges and on international cooperation.

FAQs

1. What is cryptocurrency mining?

Cryptocurrency mining is how new coins are created, and transactions are verified on a blockchain. Miners use powerful computers to solve complex puzzles, which helps keep the network secure and decentralized. In return, they earn cryptocurrency as a reward for their efforts.

2. Is crypto mining illegal?

Cryptocurrency mining is legal in many places as long as miners follow the rules, like paying electricity and taxes. However, some countries, like China and Algeria, have banned it because of concerns over its environmental impact or illegal activities. It’s important to check the rules in your area before getting started.