A proposed climate tax on cryptocurrency mining is gaining momentum, with a potential annual revenue of $5.2 billion to support renewable energy and climate change adaptation. The idea, which was floated during a United Nations climate conference, involves imposing a levy on energy-hungry crypto mining operations to raise funds for climate action.

The proposal, led by Kenya, Barbados, and France, suggests a tax of $0.045 per kilowatt-hour (kWh) of electricity used, which could generate significant revenue to support less affluent nations in their transition to renewable energy and adaptation to the effects of climate change. According to a report by the Global Solidarity Levies Task Force, the Bitcoin network alone uses more electricity annually than most countries do individually, making it a significant contributor to greenhouse gas emissions.

The task force, formed last year, was initially focused on levies on fossil fuel companies, aviation, and maritime shipping, as well as a levy on financial transactions. However, its latest report broadens the scope to include possible taxes on billionaires, plastic production, and crypto mining. The report cites research by the International Monetary Fund (IMF) that suggests a corrective tax of $0.045 per kWh to account for the climate impact of crypto mining, which could rise to $0.085 per kWh when considering other air pollutants from burning fossil fuels.

The idea behind the tax is to incentivize crypto miners to clean up their operations by increasing the cost of pollution. According to Shafik Hebous, lead author of the IMF research, "the fundamental idea of the correction is to increase the cost of pollution so that [those emitters] internalize the cost they impose on others." By charging more for dirty sources of energy, the levy could push miners to use more renewable energy and reduce their carbon footprint.

The proposal is still in its early stages, with many questions remaining about how the tax would be collected and used. The task force plans to present concrete proposals at the spring meetings of the IMF and World Bank in April 2025, with the aim of garnering support for the levies and pushing for their implementation during the next major UN climate summit in Brazil in November 2025.

While there are no concrete details on how the tax would work, there are precedents for such a levy. Kazakhstan, a major hub for Bitcoin mining, implemented a tax on crypto miners' electricity use in 2022 and collected around $7 million that year. In the US, the Biden administration has proposed a 30% tax on crypto miners' electricity consumption, although President-elect Donald Trump is unlikely to support a climate levy.

The proposal comes at a critical time, as the price of Bitcoin has soared to new heights since Trump's election, incentivizing more mining and increasing energy consumption and greenhouse gas emissions. The report's release during the UN climate summit in Baku, Azerbaijan, highlights the urgent need for climate action and the potential for innovative financing mechanisms to support it.

As Laurence Tubiana, co-lead of the Global Solidarity Levies Task Force Secretariat and CEO of the European Climate Foundation, noted, "there can be no climate justice without fiscal justice, as all countries are facing the same challenge: how to fund the transition while ensuring that those with the greatest means and the highest emissions pay their fair share." The proposed climate tax on crypto mining is a step in the right direction, but its success will depend on international cooperation and a commitment to addressing the climate crisis.