- Crypto mining and data centers are now responsible for 2 percent of global electricity consumption and nearly 1 percent of worldwide emissions, with their environmental impact continuing to grow.
Both crypto assets and artificial intelligence share a significant demand for electricity.
Due to the energy-intensive nature of crypto mining, one Bitcoin transaction consumes an amount of electricity equivalent to what the average person in Ghana or Pakistan uses over a span of three years. Likewise, data centers powering AI queries, such as ChatGPT, consume ten times more energy than a typical Google search.
Recent statistics indicate that crypto mining and data centers collectively accounted for 2 percent of global electricity demand in 2022, with projections suggesting this could rise to 3.5 percent in the next three years, equating to the current electricity consumption of Japan, the fifth-largest global consumer of energy.
The environmental ramifications of these sectors, regardless of their economic benefits, are concerning. A recent analysis indicates that crypto mining could contribute to 0.7 percent of global carbon dioxide emissions by 2027. Including data centers in this evaluation suggests carbon emissions could reach approximately 450 million tons by 2027, which would represent 1.2 percent of the global total.
Implementing a tax system could serve as an effective strategy to reduce emissions. Estimates suggest that a direct tax of $0.047 per kilowatt-hour could prompt the crypto mining sector to align its emissions with global climate goals. If the impact of air pollution on local health is factored in, this tax rate would increase to $0.089, resulting in an 85 percent rise in average electricity costs for miners. Such a measure could generate around $5.2 billion in annual global revenue while decreasing annual emissions by 100 million tons, roughly equivalent to the current emissions of Belgium.
For data centers, a specific tax rate of $0.032 per kilowatt-hour, or $0.052 when accounting for air pollution costs, would be required. This rate is lower compared to crypto mining due to data centers often being powered by cleaner electricity sources. This approach could yield up to $18 billion annually.
Currently, many data centers and crypto miners benefit from substantial tax exemptions and incentives, raising questions about the net benefits of these policies given their environmental consequences, minimal employment contributions, and the stress they place on the electrical grid, which could lead to increased household prices and reduced demand for low-emission alternatives like electric vehicles.
Policy Approaches
Conversely, AI technologies may promote smarter and more efficient energy use, potentially alleviating electricity demands. Proper policy frameworks could incentivize the development of AI applications that yield positive societal benefits while mitigating environmental impacts.
A comprehensive carbon pricing strategy, coordinated across nations, would be a pivotal measure in curbing emissions, promoting reduced reliance on fossil fuels, cleaner energy sources, and enhanced energy efficiency. To restrict global warming to 2 degrees, countries would need to adopt measures equivalent to a carbon price of $85 per ton by 2030.
In the absence of a global carbon price, targeted initiatives could encourage crypto miners and data centers to adopt more energy-efficient technologies and explore less energy-intensive mining alternatives. Furthermore, complementing electricity taxes with incentives for zero-emission energy purchases and renewable energy certificates could be beneficial.
Cross-border coordination is also crucial, as stringent regulations in one location could lead to a shift to regions with more relaxed standards.
As the urgency to combat rising global temperatures grows, it is essential to expand renewable energy resources and adopt suitable carbon pricing measures. In the meantime, targeted strategies such as taxation can play a significant role in curtailing rising emissions from crypto mining and data centers.
