Electricity Shortage! IMF Report: AI and Cryptocurrency Carbon Emissions Soaring, Taxing Mining Could Bring Change

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Surging Power Demand: Common Ground Between AI and Cryptocurrency

Driven by data centers and cryptocurrency mining activities, global electricity consumption is sharply on the rise. These power-intensive industries currently account for 2% of the world's electricity usage and contribute to nearly 1% of global carbon emissions. With technological advancements, this proportion is expected to continue climbing.

Estimates show that by 2022, cryptocurrency mining and data centers combined consumed 2% of the world's electricity, equivalent to the electricity usage of Japan, the world's fifth-largest electricity consumer. This figure is projected to increase to 3.5% within three years, highlighting the significant demand for electricity resources in this industry.

Environmental Cost: Significance of Carbon Emissions Impact

While AI and cryptocurrency technologies bring certain benefits at the economic and societal levels, their environmental impacts raise concerns. A study by the International Monetary Fund (IMF) indicates that by 2027, cryptocurrency mining alone could account for 0.7% of global carbon emissions. When factoring in data centers, carbon emissions could reach 450 million tons, representing 1.2% of global carbon emissions.

The environmental impact of these activities is evident, suggesting that tax policies may play a role in curbing emissions.

Mining's Energy Intensity Prompts IMF Taxation Recommendation

IMF's analysis suggests that levying a tax of $0.047 per kilowatt-hour on cryptocurrency mining activities could align emissions from the crypto industry more closely with global targets. Considering the health impacts of air pollution, the tax rate should be increased to $0.089 per kilowatt-hour, leading to an average 85% increase in mining electricity costs. These tax measures are estimated to generate $5.2 billion in revenue for governments annually while reducing 100 million tons of carbon emissions, equivalent to Belgium's annual emissions.

For data centers, which are typically located in regions with cleaner energy sources, a slightly lower tax rate is proposed at $0.032 per kilowatt-hour, or $0.052 per kilowatt-hour when accounting for air pollution impacts. Such taxation could yield $18 billion in revenue annually.

However, the reality is quite the opposite. Currently, many data centers and cryptocurrency mining activities enjoy various exemptions from income, consumption, and property taxes. These special tax incentives have negative implications on the environment, employment, and strain on the power grid, casting doubt on their overall benefits.

IMF: AI Electricity Use Contributes to Power Efficiency Improvement

On the other hand, the application of AI technology may help improve electricity usage efficiency, thereby alleviating power demand. Implementing appropriate policies can promote AI applications with positive societal impacts while mitigating their environmental harm.

For policymakers, globally coordinated carbon pricing is the optimal pathway to emission reduction, as it can incentivize reductions in fossil fuel consumption, promote clean energy development, and enhance energy efficiency. To limit global warming to within 2 degrees Celsius, carbon pricing needs to gradually rise to $85 per ton by 2030.

In the absence of global carbon pricing, measures to improve energy efficiency and tax incentives for cryptocurrency mining and data centers can promote the use of more energy-efficient equipment and potentially drive lower-energy mining methods. Moreover, combining electricity taxes with bilateral power purchase agreements and renewable energy certificates can also contribute to emission reductions.