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 impact of cryptocurrency mining by taxing their electricity consumption. Industry experts argue that these taxes could have unintended consequences, stifle energy development and distort market dynamics.

Harry Sudock, chief strategy officer at GRIID, argues that the DAME tax is not nuanced in addressing the complexities of energy consumption. He points out that the proposal fails to distinguish between peak and average electricity consumption, potentially deterring efficient energy consumption and investment in new power generation. Sudock notes, “This one-size-fits-all approach can discourage rational energy use and investment in new power generation.”

Texas offers a successful model for integrating bitcoin mining into its energy market. The state’s approach made it easy to build mining operations and obtain 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, keeps energy prices floating throughout the day. Reflects the duck curve, offering credits to companies that adjust their power consumption, such as bitcoin miners. In contrast, California’s market structure faces a projected energy shortage due to environmental regulations, which make it difficult to differentiate between new and old energy sources.

Sudock emphasized that the future of energy demand is a concern. With increasing electricity consumption, failure to build enough new generation capacity can lead to outages, shortages and rising prices. In the US, this demand is driven by the relocation of industrial capacity, the growing needs of large data centers, and the expansion of AI and bitcoin mining. He warns that bitcoin miners may be scapegoated for these issues, despite their contributions to stabilizing energy markets. Bitcoin Bitcoin miners often buy electricity that is not in high demand, effectively reducing ‘break damage’—unused electricity that might otherwise go to waste.

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

“The tax is bad public policy,” Sudock said. “This will not generate the intended revenue and will force bitcoin miners to relocate overseas where the electrical grid is not as clean as in the US. Instead, grid authorities should work with miners to develop pricing structures that take advantage of their unique operational flexibility to switch 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 because of its sophisticated pricing market. Sudock added, “The tax could hamper the ability to price power accurately and stop the construction of new power generation, mirroring Germany’s mistakes with nuclear power.”

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

Given the expert insights into the DAME tax’s potential effects, it is clear that, although intended to address environmental concerns, the tax may not effectively balance energy needs with economic growth. It is important for policymakers to work with industry stakeholders to develop strategies that mitigate environmental impacts without hindering innovation. An approach that takes into account the diverse effects of such policies can help ensure that the administration’s strategies promote rather than jeopardize progress toward sustainable energy solutions.