Crypto Assets and AI: The Growing Energy Dilemma

As the world increasingly embraces digital technologies, two sectors—cryptocurrency and artificial intelligence—are emerging as significant consumers of global electricity. The energy demands of these industries are raising concerns about their environmental impact, with crypto mining and AI data centers together accounting for 2% of the world’s electricity consumption in 2022, a figure projected to rise to 3.5% within the next three years.

The energy-intensive nature of these technologies is staggering. A single Bitcoin transaction consumes as much electricity as an average person in Ghana or Pakistan uses in three years. Meanwhile, ChatGPT queries—powered by advanced AI—require ten times more electricity than a standard Google search due to the energy demands of AI data centers.

These growing demands have serious implications for the environment. A recent study by the International Monetary Fund (IMF) projects that by 2027, crypto mining alone could contribute to 0.7% of global carbon dioxide emissions. When combined with emissions from data centers, this could amount to 450 million tons of CO2, or 1.2% of the world’s total emissions—a figure comparable to the current emissions of Japan, the world’s fifth-largest electricity consumer.

In response to these challenges, policymakers are exploring ways to mitigate the environmental impact of these technologies. The IMF suggests that a targeted tax on electricity usage could incentivize more sustainable practices. For example, a tax of $0.047 per kilowatt hour on crypto mining could align the industry’s emissions with global climate goals. If air pollution costs are included, this rate could rise to $0.089, significantly increasing the cost of electricity for miners but potentially reducing global emissions by 100 million tons annually.

For data centers, a slightly lower tax rate of $0.032 per kilowatt hour (or $0.052 with air pollution costs) could raise $18 billion annually, encouraging the adoption of greener practices. However, the current situation is quite the opposite: many data centers and crypto miners benefit from tax exemptions and incentives, despite their substantial environmental impact.

The IMF argues that the best way to curb emissions would be a globally coordinated carbon pricing system, which would encourage reduced fossil fuel consumption, cleaner energy sources, and greater energy efficiency. In the absence of such a system, targeted measures—including electricity taxes and incentives for renewable energy use—could help.

The window to address these challenges is rapidly closing. As the world grapples with the twin imperatives of technological advancement and environmental sustainability, it is clear that action is needed. Expanding renewable energy sources and adopting appropriate carbon pricing are urgent steps that can help mitigate the growing emissions from crypto mining and AI data centers, ensuring that these technologies contribute to a sustainable future.

Financial Desk