The International Monetary Fund (IMF) has released a report expressing concern over the growing carbon footprint of the cryptocurrency industry and emphasizing the urgent need for regulatory action.
In response, the IMF has suggested a substantial tax increase on crypto mining operations as a means to promote the adoption of more environmentally friendly practices.
According to the IMF's projections, crypto mining alone could produce 450 million tons of carbon emissions by 2027, representing 1.2 percent of the global total.
IMF officials Shafik Hebous and Nate Vernon-Lin have proposed an 85 percent tax increase on crypto mining businesses as a key measure to incentivize greener operations.
In their blog post dated August 15, they explained that a direct tax of $0.047 (approximately Rs 3.95) per kilowatt hour could push the crypto mining industry to align with global emission reduction goals. If the impact of air pollution on local health is also considered, this tax could rise to $0.089 (around Rs 7.47), resulting in an 85 percent increase in electricity costs for miners.
Bitcoin mining, notorious for its high energy consumption, has been known to strain electricity supplies in neighboring areas due to the massive power requirements of mining farms. The IMF blog highlights that a single Bitcoin transaction consumes as much electricity as an average person in Ghana or Pakistan uses in three years.
Beyond mining, crypto data centers also contribute significantly to the industry's carbon emissions, requiring powerful machines to run continuously.
According to the IMF's estimates, in 2022, crypto mining and data centers together accounted for two percent of global electricity demand. This share is projected to increase to 3.5 percent within three years, equivalent to Japan's current electricity consumption, the world's fifth-largest user.
The blog notes that this environmental impact undermines the social and economic benefits of the Web3 industry. If power-related taxes on crypto miners were increased by 85 percent, the sector's annual carbon emissions could be reduced by an estimated 100 million tons.
The IMF also notes that carbon emissions are rising due to the increasing use of artificial intelligence (AI). For instance, running ChatGPT requires ten times more electricity than a single Google Search because of the substantial energy demands of AI data centers.
The IMF officials urge global regulators to encourage companies in the crypto and AI sectors to minimize fossil fuel use and seek greener energy sources. They suggest that nations implement a global carbon price of about $85 (roughly Rs 7,136) per ton by 2030 to combat emissions effectively.
Additionally, the blog recommends complementing electricity taxes with incentives for zero-emission energy, bilateral power purchase agreements, and potentially renewable energy certificates. However, the officials stress that these environmental measures need to be applied consistently across the globe, as businesses might otherwise relocate to regions with more lenient regulations.