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Cryptocarbon: How much is the corrective tax?

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  • Hebous, Shafik
  • Vernon-Lin, Nate

Abstract

With increasing awareness of past environmental damage from crypto mining, questions arise as to how persistent the problem will be in the future and how taxation can help in addressing this negative externality. We estimate that the global demand for electricity by crypto miners reached that of Australia or Spain, resulting in 0.28% of global CO2 emissions in 2022. Projections suggest sustained future electricity demand and indicate further increases in CO2 emissions if crypto prices significantly increase and the energy efficiency of mining hardware is low. To address global warming damages, we estimate the corrective excise on the electricity used by crypto miners to be USD 0.045 per kWh, on average. Considering also air pollution costs raises the tax to USD 0.085 per kWh. Country-specific estimates vary depending on their electricity sources. Other new electricity reliant technologies are also driving up CO2 emissions. In our calculation, the corrective tax on electricity used by data centers is USD 0.048, on average.

Suggested Citation

  • Hebous, Shafik & Vernon-Lin, Nate, 2024. "Cryptocarbon: How much is the corrective tax?," Energy Economics, Elsevier, vol. 138(C).
    • Handle: RePEc:eee:eneeco:v:138:y:2024:i:c:s0140988324005358
    DOI: 10.1016/j.eneco.2024.107827
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    Cited by:

    1. Hokkanen, Topi, 2023. "Externalities and market failures of cryptocurrencies," BoF Economics Review 4/2023, Bank of Finland.

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    More about this item

    Keywords

    Corrective taxes; Carbon tax; Mitigation policy; Crypto assets; Crypto mining; Bitcoin; AI; Data centers;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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