DAME Tax On Bitcoin Mining Threatens Energy Prices And Stability

The Biden administration’s proposed 30% tax on electricity used by bitcoin miners has sparked considerable debate in the industry. Known as the Digital Asset Mining Energy tax, this policy aims to mitigate the environmental and economic impacts of cryptocurrency mining by taxing their electricity consumption. Industry experts argue that this tax could have unintended consequences, stifling energy development and distorting market dynamics.

Harry Sudock, Chief Strategy Officer at GRIID, argues that the DAME tax lacks nuance in addressing the complexities of energy usage. He points out that the proposal fails to differentiate between peak and average electricity usage, potentially deterring efficient energy consumption and investment in new power generation. Sudock notes, “This one-size-fits-all approach could discourage rational energy consumption and investment in new power generation.”

Texas offers a successful model of integrating bitcoin mining into its energy market. The state’s approach has made it easy to build mining operations and fetch competitive prices on the open market. The distinction in the Texas market compared to other ICOs is that Texas only has a market for power, while others have markets for both power and capacity. Texas’ power grid, ERCOT, allows energy prices to float throughout the day. Reflecting the duck curve, and offers credits to companies that adjust their power consumption, such as bitcoin miners. In contrast, California’s market structure faces a projected energy shortfall due to environmental regulations, complicating the differentiation between new and old energy sources.

Sudock stressed that the future of energy demand is a concern. With increasing electricity consumption, failing to build enough new generation capacity could lead to brownouts, shortages and rising prices. In the USA, this demand is driven by the re-shoring of industrial capacity, the growing needs of large data centres, and the expansion of AI and bitcoin mining. He warns that bitcoin miners could be scapegoated for these issues, despite their contributions to stabilizing energy markets. Bitcoin
Bitcoin
miners often purchase electricity that is not in high demand, effectively reducing ‘breakage’—unused electricity that could otherwise go to waste.

The proposed tax could force businesses out of the U.S., pushing them to relocate to regions with non-discriminatory tax treatment. This would reduce potential revenue and hinder the development of robust, reliable, environmentally friendly energy infrastructure, such as nuclear energy and hydroelectric power.

“The tax is bad public policy,” said Sudock. “It won’t generate the intended revenue and will force bitcoin miners to relocate overseas where the electric grid isn’t as clean as it is in the U.S. Instead, grid authorities should work with miners to develop pricing structures that take advantage of their unique operational flexibility to turn on and off as the price of electricity naturally fluctuates.” He noted that rate structures have lagged behind reality, with Texas being a notable exception due to its sophisticated pricing market. Sudock added, “The tax could impede the ability to price power accurately and halt the construction of new power generation, mirroring Germany’s mistakes with nuclear power.”

Elliot David from Sustainable Bitcoin Protocol added, “The DAME tax was likely a signaling move from the administration, as sometimes lawmakers will propose or declare an intent on a particular policy even though it has little chance of becoming law, but it’s a nod to a part of their constituency. My guess is the administration miscalculated and believed the ‘anti-crypto’ cohort would be supportive of the tax but in fact, bitcoin/crypto adoption in the US is quite distributed across ethnicity, socioeconomic status, and political ideology,”

Given the expert insights on the DAME tax’s potential consequences, it is evident that while intended to address environmental issues, the tax may not effectively balance energy demands with economic growth. It is important for policymakers to collaborate with industry stakeholders to develop strategies that mitigate environmental impacts without hindering innovation. An approach that accounts for the diverse effects of such policies can help ensure that the administration’s strategies promote rather than compromise progress toward sustainable energy solutions.