Is Biden’s DAME tax missing a trick?
Nothing is certain except death and taxes, as Benjamin Franklin once famously observed. And perhaps more certain than taxes, in general, was always going to be taxes on cryptocurrency.
One of the reasons cryptocurrency was likely to attract the eye of the taxman was due to its inherent PR problem. Conceived in 2008, long before the recent energy crisis, the original design of Bitcoin more or less stipulates the expenditure of ever-increasing amounts of electrical energy; this energy is consumed by computers crunching their mathematical mining problems required to validate the newly minted ‘coins’ or digital assets.
This energy comes from the grid, and in the United States, it is likely to have originated from combusting fossil fuels, thus creating carbon dioxide and maybe a little smog too.
None of that was ever going to play well with the Biden administration or any other administration concerned with CO2.
The growth of cryptocurrencies in recent years has been strong, with the electricity consumption up accordingly. Some estimates now put crypto-related CO2 emissions at 25 to 50 million tons each year, on par with the annual emissions from diesel fuel used by US railroads. Indeed, it is often and regularly likened to that of a small nation. But the energy and CO2 footprint was just a part of the issue.
The Wild West flavor of the crypto industry, and the fact that it stands as a symbol of defiance against strict banking and financial regulation, meant regulation was always in a Democratic administration’s sights.
Together with high profile crypto fraudsters like Sam Bankman-Fried filing for Chapter 11 bankruptcy and facing a potential prison sentence, and the perception that the pollution was falling “disproportionately on low-income neighborhoods and communities of color” as the White House communique puts it, DAME (Digital Asset Mining Energy), taxation was a matter of when, not if.
Of course, there are other electricity-hungry industries, like chemicals, aluminum and steel, which aren’t being targeted. But the Whitehouse says that crypto mining doesn’t necessarily generate the same job benefits, and it sees crypto as destabilizing to the financial system.
The DAME excise tax is an attempt to curb the environmental impact of crypto. DAME’s final result would be a massive 30 percent tax on the energy used for cryptocurrency mining.
But for many energy experts, the tax demonstrates a certain lack of understanding and they believe there is a huge opportunity being left on the table.
Given that cryptocurrency can do its mathematical problem crunching at an arbitrary time of the day or night, many crypto farmers are seeing the opportunity to pair or collocate with renewable generators, especially wind farms.
This is because there are two particular scenarios where crypto farms can help save costs for renewables and help regulate the grid.
The first is when a strong wind is blowing and the grid needs to take all that power away to some relatively distant location, but the grid is already congested and can’t transport the required amount of power away from the wind farm. So the crypto farm is eliminating the need for curtailment, or switching off the wind turbines.
The other scenario where crypto looks like a solution, and not a problem, is demand response; when the wind is very low and the grid is looking for some spare capacity it can call on the wind farm to power down in order to manage the low output.
Either of these two scenarios can be very useful from the grid’s point of view, and saves switching something else less convenient off.
In other words, using collocated crypto farms to help regulate the output of the wind farm in exchange for a lower cost per kilowatt hour of electricity is a win-win scenario.
It saves more costly forms of intervention such as batteries or ‘peakers’, and so helps bring down the cost of electricity for everyone, if done properly. This contrasts with the Whitehouse belief that it only pushes up prices.
Fred Theil, CEO of Marathon Holdings, owns just such a co-located crypto farm in Texas and is clear about the benefits his operation brings to balancing the grid. Not surprisingly, his view is that there should be a carrot for more people to do what he’s doing rather than a stick to prevent them from doing otherwise.
The Lone Star Wind Farm, TEXAS.
Getty Images
“People don’t realize that realistically you can’t send electricity for more than 800 miles, which is about the limit. Given that Texas spans two time zones, you need to think about electricity in a more nuanced way.”
And that perhaps is the problem with Biden’s taxation plan. Where China has outright banned crypto mining, Biden’s plan to give it its very own tax is both wrongheaded and missing a trick.
“DAME is more about eliminating crypto than meaningful action on climate change”, says Thiel. “Operations like ours in Texas are showing the value of harnessing crypto farming properly.
Innovation is about seeing problems as the starting point for solutions, not as tax opportunities. And crypto is the perfect way to make renewables work better.”
But in a world where death and taxes are certainties, and the President is approaching his 81st birthday, innovation and lateral thinking aren’t in plentiful supply.
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