The White House's Council of Economic Advisors (CEA) has published a blog post expanding on the new Digital Asset Mining Energy (DAME) excise tax, which is included in President Biden's proposed fiscal year 2024 budget.
Josh Hendrickson, a senior fellow at the Bitcoin Policy Institute and the chair of the economics department at the University of Mississippi, said the Biden administration's DAME Tax demonstrates a lack of understanding of how crypto mining affects the energy grid. Hendrickson asserted that, rather than taxing Bitcoin mining, the activity should actually be subsidized, because Bitcoin miners help to justify intermittent electricity sources like wind and solar and minimize energy waste.
"This isn’t serious economics," Henrickson wrote on Twitter. "If there are particular ways of generating electricity that create environmental externalities, then you address this by taxing these forms of electricity generation. You don’t tax particular types of electricity use."
Demand for electricity fluctuates over time in both predictable and unpredictable ways, Henrickson wrote.
"Some electricity is wasted," he said. "Having a buyer of last resort for electricity — as is the case with bitcoin miners — helps to balance the grid and limit the amount of waste. Electricity generated by wind and solar power is intermittent. You could build a ton of windmills, but if the wind doesn’t blow, there’s no electricity. As a result, it’s difficult to build this out at scale. Buyers of last resort can justify these types of investment. Stranded natural gas is burned. Bitcoin miners will pay for the right to capture this stranded gas and use it to generate electricity to run their miners. This prevents the gas from being burned. Economic theory says this behavior should be *subsidized*"
The CEA called the President's proposed 30% tax on energy usage for cryptominers "an example of the President’s commitment to addressing both long-standing national challenges as well as emerging risks – in this case, the economic and environmental costs of current practices for mining crypto assets (cryptomining, for short)."
In the blog post, the CEA said that cryptominers are not adequately paying for "the full cost they impose on others," such as environmental pollution and greenhouse gas emissions. The CEA dismissed the notion that Bitcoin has any positive economic or social impact.
The CEA acknowledged the concern that the DAME Tax could result in cryptominers moving abroad, but said that some other countries have restricted or banned crypto mining, including China, which banned the practice in 2021.
After China banned cryptomining, the U.S. became the largest global hub for the practice. DailyCoin suggested that Biden's DAME Tax could cause a similar "exodus" in the U.S.
Andrew Bailey, a fellow at the Bitcoin Policy Institute, said in a tweet that it is "incoherent" for the administration to want to tax certain types of energy usage, rather than targeting certain types of energy production. "This is a mess of an argument," Bailey said of the CEA's blog post.
A study conducted by ERCOT in 2021 found that flexible load data centers such as Bitcoin mining operations actually result in a decrease in emissions, even if total electricity generation increases, because flexible load data centers can be turned off at times of high energy demand and can act as buyers of last resort, using up energy that would otherwise be wasted.
Gregory Gosson wrote for Bitcoin News that the Dame Tax's environmental argument fails to hold up, because it would prevent cryptominers from participating "in the grid-stabilizing programs they currently partake in." He highlighted the fact that cryptominers would be taxed even for energy that would otherwise be wasted. Gosson quoted Satoshi Action Fund CEO and co-founder Dennis Porter, who said of the proposed tax, “The White House’s proposed 30% tax would result in the United States losing its position as the global leader on bitcoin mining. We would lose out on the future growth of this evolving tech industry.”
The Blockchain Association has previously criticized the Biden administration's anti-crypto position, saying it will cause the U.S. to miss out on innovation and force an exodus of entrepreneurs, Federal Newswire reported. In response to this year's Economic Report of the President, in which the administration asserted that cryptocurrency has not achieved any of its potential benefits, Blockchain Association CEO Kristin Smith said that the Biden administration is at risk of being remembered as a "roadblock to a global tech revolution" rather than a "leader of profound innovation."
"While other countries are increasingly receptive to the burgeoning crypto industry, some in government appear increasingly allergic to its promise, sending companies and innovators offshore," Smith said.
