Biden Administration Proposes Bitcoin Energy Tax Amid Nationwide Disputes Over Mining Operations

As Bitcoin prices soar to unprecedented heights over the past months, a contentious debate intensifies across the United States regarding the cryptocurrency’s energy consumption and its environmental consequences.

The Biden administration is pressing the cryptocurrency industry to reveal the amount of electricity utilized by mining operations. Meanwhile, groups advocating for cryptocurrencies are lobbying for laws that would protect mining activities from local regulations designed to curb their growth.

Bitcoin Mining Operations And Its Environmental Impact

On April 19, Bitcoin experienced a halving event, reducing the rewards for cryptocurrency miners by half and subsequently increasing the cost of introducing new bitcoins into circulation. This change could potentially influence both the production of bitcoin and its associated energy consumption, though the full implications remain uncertain. Nevertheless, in anticipation of heightened competition, miners have ramped up their acquisition of necessary equipment.

The environmental impact of these developments has raised concerns. Mandy DeRoche, an attorney with the environmental advocacy group EarthJustice, expressed worries that continuing to encourage high levels of electricity consumption for Bitcoin mining will derail efforts to achieve clean energy targets. EarthJustice has actively sought legal avenues to obstruct the permitting of new mining facilities.

On the other hand, the cryptocurrency industry maintains that it should be regarded like any other energy consumer. Tom Mapes, founder of the Digital Energy Council, which includes major bitcoin miners, questioned the fairness in selecting “winners and losers” in energy utilization.

Further complicating the landscape, the Biden administration, in its March budget proposal, suggested imposing a 30% excise tax on the energy used by bitcoin mining. Wyoming Senator Cynthia Lummis, an advocate for the mining sector, criticized the tax proposal, arguing it could devastate the industry within the United States.

Meanwhile, environmental data points to a concerning trend in emissions from Bitcoin mining. A model from the Cambridge Blockchain Network Sustainability Index projected a significant increase in greenhouse gas emissions—from 48 million metric tons in 2022 to 61 million in 2023, potentially reaching up to 90 million tons in 2024.

There Is No Reliable Data Yet On Exactly How Much Electricity Mining Operations Use

Although some publicly traded bitcoin mining companies disclose their energy consumption, obtaining accurate data on the industry’s total electricity usage remains elusive. The U.S. Energy Information Administration estimates that digital currency mining in the United States consumes between 0.6% and 2.3% of the nation’s total power supply.

However, this estimate isn’t derived from direct reports from mining facilities, which can use as much energy as entire towns. For instance, a Riot Blockchain facility in Rockdale, Texas, uses enough energy to power 300,000 homes, a statistic environmental groups frequently cite to criticize the sector’s energy consumption.

Despite such criticism, bitcoin mining companies argue that they help balance energy demand by participating in “demand response” programs. These programs allow miners to shut down their operations temporarily to alleviate grid stress during peak periods. “We are a tool in the tool chest to balance our energy system,” stated Mapes, underscoring the sector’s role in supporting grid stability.

The industry saw a significant influx of investment in January when the Securities and Exchange Commission approved a Bitcoin-ETF fund, channeling several billion dollars into bitcoin mining. This development drew criticism from environmental groups concerned about the sector’s energy use.

In response to growing scrutiny, the Department of Energy issued notices to 82 bitcoin miners in February, demanding they report their energy usage. However, Riot Blockchain and the Texas Bitcoin Council successfully challenged these demands in court, temporarily halting the government’s survey.

Disputes Over Mines Across The Country

Across the United States, conflicts are escalating over the establishment and expansion of Bitcoin mining operations as the government seeks deeper insights into the industry, according to DeRoche from EarthJustice. This organization is currently involved in a lawsuit aimed at preventing the issuance of permits for a mining facility in New York. Similarly, earlier this year, communities in Arkansas filed nuisance lawsuits citing the disruptive noise generated by these facilities.

In response to such disputes, the Arkansas legislature, in April, moved forward with two new bills designed to introduce stricter licensing and noise regulations for mining operations within the state. New York has taken a more stringent approach, becoming the first state to impose a temporary moratorium on new Bitcoin mining operations that rely on fossil fuels last year.

Amidst these legal battles, a community group in Pennsylvania launched a lawsuit in March against both a local Bitcoin mine and the government regulators who sanctioned it. They argue that the operation violates a state constitutional right that ensures citizens a clean environment. Linda Christman, president of Save Carbon County, the nonprofit behind the lawsuit, expressed concerns about increased air and water pollution from Marathon Digital Holdings’ mining activities, which involve burning coal waste and tires for power.

Despite these controversies, some Bitcoin industry advocates are pushing for state-level legislation that would restrict local governments’ ability to regulate mining activities independently. The Satoshi Fund, a proponent of such measures, known collectively as the Blockchain Basics Bill, has seen these proposals introduced in several states. However, the fund has not commented on these legislative efforts.

Contrary to this push for deregulation, Mapes from the Digital Energy Council argues that mining companies must endeavor to gain the support of the communities where they operate. He highlights that there are exemplary companies within the industry that manage to act as stewards of their communities, showing that responsible operations are possible. Despite the ongoing lawsuit, Marathon Digital Holdings has opted not to comment.