Carbon Emissions from AI and Crypto Are Surging and Tax Policy Can Help
IMF Blog, August 15, 2024
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- Authors: Shafik Hebous, Nate Vernon-Lin
- Published: August 15, 2024
Key findings: scale, trends, and emissions
- Crypto mining and data centers together accounted for 2 percent of world electricity demand in 2022.
- That share is likely to climb to 3.5 percent in three years, based on estimates using International Energy Agency projections.
- One Bitcoin transaction requires roughly the same amount of electricity as the average person in Ghana or Pakistan consumes in three years.
- ChatGPT queries require 10 times more electricity than a Google search.
- An IMF working paper found crypto mining could generate 0.7 percent of global carbon dioxide emissions by 2027.
- Extending the analysis to data centers, their carbon emissions could reach 450 million tons by 2027, or 1.2 percent of the world total.
Policy analysis: taxation as a tool and current tax treatment
- Many data centers and crypto miners currently receive tax exemptions and incentives on income, consumption, and property.
- Given environmental damage, limited employment effects, and pressures on electrical grids (which may raise household prices and reduce demand for other low-emissions goods such as electric vehicles), the net benefits of these special tax regimes are unclear.
Tax-based mitigation scenarios and estimated impacts
- Crypto mining:
- A direct tax of $0.047 per kilowatt hour would drive the crypto mining industry to curb its emissions in line with global goals.
- Including air pollution’s impact on local health raises the rate to $0.089 per kilowatt hour, translating into an 85 percent increase in average electricity price for miners.
- Such a levy would raise annual government revenue of $5.2 billion globally and reduce annual emissions by 100 million tons (around Belgium’s current emissions).
- Data centers:
- A targeted tax on their electricity use would need to be set at $0.032 per kilowatt hour, or $0.052 including air pollution costs.
- Because data centers tend to be in locations with greener electricity, the required tax is slightly lower than for crypto.
- This tax could raise as much as $18 billion annually.
Broader policy recommendations and complementary measures
- A broad carbon price coordinated across countries is the preferred policy because it would encourage reduced fossil-fuel consumption, cleaner power sources, and improved energy efficiency.
- To limit global warming to 2 degrees, countries would need to introduce additional measures equivalent to a carbon price rising to $85 per ton by 2030.
- In the absence of a global carbon price, targeted measures can:
- Encourage more energy-efficient equipment for crypto miners and data centers.
- Motivate adoption of less energy-intensive crypto mining methods.
- Be complemented with credits for zero-emission bilateral power purchase agreements and potentially renewable energy certificates.
- Cross-border coordination is important to prevent relocation to jurisdictions with lower standards.
- Expanding renewable energy sources and adopting an appropriate carbon price are urgently needed; in the interim, targeted measures, including taxation, can help mitigate increasing emissions from crypto mining and data centers.
Source: IMF Blog — "Carbon Emissions from AI and Crypto Are Surging and Tax Policy Can Help" (August 15, 2024).
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