Society is now witnessing the implementation of digital
currencies, AI and blockchain technology worldwide. These new digital
technologies, necessitate very high consumption of electric energy,
currently produced with coal and fossil fuels with adverse environmental
effects. A global shift towards green energy will require the removal
of the technological/infrastructure, financial and regulatory/tax policy
barriers. In a series of articles, we will evaluate the tax, digital
technology and solar policies (including space power satellites) of the
top CO2 emitting countries.
The United States is at the forefront of blockchain and artificial intelligence
(AI) technology adoption — both the government and private industry.
And Bitcoin’s volatility recovery is fueling this process.
According to reports,
the United States government spending on blockchain is expected to
Increase by 1,000% between 2017 and 2022, while U.S. investors are expected
to increasingly invest in digital assets to add diversity to their
investment portfolios and resume cryptocurrency mining as it once again
becomes profitable.
Blockchain transformation
The announcement by Facebook — with 2.7 billion users — that it will be issuing a new cryptocurrency named Libra to
compete with China’s blockchain-based mobile payment system — with 1.5
billion users — has put pressure on the largest U.S. financial
institutions for a quick blockchain transformation. Already, JPMorgan
Chase has announced that it will be issuing an utility settlement
cryptocurrency (USC) coin called JPM Coin.
BNY Mellon, Nasdaq and State Street, on the other hand, are backing the
development of USCs denominated in five major fiat currencies: the U.S.
dollar, the Canadian dollar, the British pound, the Japanese yen and
the euro.
Blockchain applications not limited to
fintech and are being adopted across various industries in the U.S. For
example, the shipping-focused blockchain TradeLens, developed by IBM
and Maersk, recruited two major marine cargo carriers to help usher in
the digital transformation of the global supply chain. Separately, IBM
piloted a blockchain and internet of things sensor solution to track
sustainable groundwater usage. Pfizer Inc. and other leading American
pharmaceutical companies joined a project to build a blockchain network
for the health and pharmaceutical industries.
In the
aerospace industry, blockchain technology is being implemented in myriad
ways, including flight recorders, airspace management, cyber security,
tracking parts during the manufacturing process and in establishing
secure, efficient and prioritized data as well as command communication
pathways among ground and space-based sources. In addition, U.S. energy
companies Brooklyn Microgrid, Clearway Energy Group and Grid are
developing applications for trading renewable energy credits on a
blockchain.
These new digital technologies will replace
many jobs and necessitate a very large consumption of electric energy
that is currently produced with coal and fossil fuels — which has
adverse environmental effects, according
to the United Nations World Meteorological Organization. Cryptocurrency
mining alone generates about 22 megatons of carbon dioxide emissions
each year, based on a study by the Technical University of Munich and Massachusetts Institute of Technology.
A report
issued by LUT University in Finland and the Energy Watch Group in
Germany states that transitioning to green energy — 69% solar — can be
accomplished globally in an economically competitive way in order to
reduce greenhouse gas emissions in the energy system to zero by 2050.
Among other important options, solar power satellite (SPS) systems
remain one of the most promising but is currently a largely undeveloped option to accomplish this goal.
Solar power satellites
Paul
Jaffe, an electronics engineer who has investigated SPS systems for the
U.S. Naval Research Laboratory (NRL), explained that “anything we can
do to wean away from coal and fossil fuels is a step in the right
direction. Implementing SPS might result in a clean, constant, and
globally distributable energy supply — unmatched by any earth-bound
source.”
The SPS transmission idea — in which energy
captured from the sun is transmitted via microwave beams to nearby
planets from a space station — was first mentioned in a short story in
1941 titled “Reason” by Russian-born, U.S. science fiction writer Isaac Asimov.
In 1968, the concept for SPS technology emerged when aerospace engineer Peter Glaser published the first technical article, “Power from the Sun: Its Future,”
in the journal Science, in which he described collecting solar power in
outer space via solar cells on a satellite system at geosynchronous
orbit, where sunlight is available almost continuously (more than 99.8%
of the time each year), that would be capable of converting sunlight
directly into electricity and distributing it to Earth via a wireless
transmission system to a receiver.
There are two
potentially viable options: laser and microwave beams. According to an
NRL research report from 2009, SPS systems offer one of several possible
solutions to the energy independence and dominance of our country and
our military, but that there remain significant system risks in many
areas. For example, safe power densities for wireless energy
transmission generally restrict applications to large, relatively
immobile receiver sites. Jaffe explained:
“While
safety is a concern, wireless power transfer can be implemented to stay
below existing safety limits. In general, microwave transmission
requires larger diameter transmitters and receivers than laser.”
Unlike
land-based solar power, which has been inefficient due to the
atmospheric, day/night light interference, a SPS system could
continuously harnesses the sun’s energy, working not only when there is
daylight but also at night, during rain or snow and even on cloudy days —
24 hours a day, 365 days a year. For these reasons, the concept of SPS
initially attracted a lot of attention during the 1970s, when NASA
technical reports indicated that the SPS concept was technically
feasible but economically unrealistic — and thus, the U.S. government
and its agencies cut funding for solar cell research during the 1980s.
According to Jaffe:
“For space solar to
work, it will almost certainly need to offer some compelling advantage
in a given application before it can compete on cost. There are several
segments involved: launch, manufacture of the space and ground portions,
and the industries associated with each. The logistics will be
challenging.”
The International Academy of
Astronautics completed the first international assessment of SPS during
2008-2011, involving diverse subject matter experts from some 10
countries concluding that it is technically feasible and that it might
be realized in as little as 10-15 years. “Space solar is an enabling
technology that could leapfrog the electric-power transmission grid on
Earth, and have a similar effect that previous satellites have had on
communications,” Jaffe said, but it has yet to electrify U.S.
terrestrial grids. Instead, ground-based solar energy has been making an
important contribution of one-sixth to the U.S. energy mix.
The world’s largest renewable energy company, Nextera, forecasts
solar energy costs at $30 to $40 per watt, post 2023. While,
utility-scale solar farms in India already generate solar energy for
$0.03-$0.04 a watt according to Greg Nemet, a professor at the
University of Wisconsin-Madison's La Follette School of Public Affairs,
who has written a new book on global policy and market forces that
combined to make solar electricity one of the cheapest forms of energy,
said “It’s possible solar prices could have bottomed out a decade or two
sooner had the U.S. not slashed funding in the 1980s” — or had the U.S.
environmental tax policy been more favorable toward solar energy and
SPS by including it in government incentive programs as opposed to
heavily subsidizing fossil fuels since the enactment of the U.S. tax
code in 1873.
U.S. environmental tax policy
Environmental
tax is used as an economic instrument to address environmental problems
by taxing activities that burden the environment (e.g., a direct carbon
tax) or by providing incentives to reduce the environmental burden and
preserve the environmentally friendly activities (e.g., tax credits,
subsidies). It is used as part of a market-based climate policy that was
pioneered in the U.S., which also includes cap-and-trade energy
emission allowance trading programs that attempt to limit emissions by
putting a cap on and price on them.
Environmental taxes
are designed to internalize environmental costs and provide economic
incentives for people and businesses to promote ecologically sustainable
activities, to reduce carbon dioxide emissions, to promote green growth
and to fight climate change via innovation. Some governments make use
of them to integrate climate and environmental costs into prices to
reduce excessive emissions while raising revenue to fund vital
government services.
Carbon Tax: Under
a carbon tax regime, the government sets a price that emitters must pay
for each ton of greenhouse gas emissions they emit so that businesses
and consumers will take necessary steps — such as switching fuels or
adopting new technologies — to reduce their emissions in order to avoid
paying the tax, as taxes have distortionary effects that influence
free-market decisions. Carbon taxes are favored because administratively
assigning a fee to CO2 pollution is relatively simple compared to
addressing climate change by setting, monitoring and enforcing caps on
greenhouse gas emissions as well as regulating emissions of the
energy-generation sector. Four subsets of environmental taxes are
distinguished: energy taxes, transport taxes, pollution taxes and
resource taxes.
The U.S. is the world’s number two
in CO2 emission, owing 84% of its greenhouse gas emissions to fossil
fuels. Currently, it does not impose a federal carbon tax. However, the
congress in a bi-partisan effort is aiming to introduce a carbon tax in the US. Because, according
to the Organization for Economic Cooperation and Development (OECD),
greater reliance on environmental taxation is needed to strengthen
global efforts to tackle the principal source of both greenhouse gas
emissions and air pollution.
A carbon price/tax of
between $50-$100 per ton will be needed to be implemented by
signatories to deliver on Paris Agreement commitments by 2030 according
to a report titled “High-Level Commission on Carbon Prices”, written by Nobel Laureate Economist Joseph Stiglitz and Nicholas Stern.
Tax Credits:
Through tax credits, subsidies and other business incentives,
governments can encourage companies to engage in behaviors and develop
technologies that can reduce CO2 emissions. Just as tax credits for
fossil fuel energy sources has enabled growth and development, renewable
energy tax credits are incentives for the development and deployment of
renewable energy technologies.
According to an International Monetary Fund (IMF) report,
subsidies to hydrocarbon industry accounted for 85% of global subsidies
of $4.7 trillion (6.3% of global GDP) in 2015, which were projected at
$5.2 trillion (6.5% of GDP) in 2017, with the U.S. ranking number two in
subsidies to the hydrocarbon industry, at $649 billion. In stark
contrast, during 2016, subsidies for renewable energy totaled $6.7
billion — dropping 56% from 2013 levels, according to a report
prepared by the U.S. Energy Information Administration. About 80% (or
$5.6 billion) of the 2016 renewables subsidies came in the form of tax
breaks, half of which went to biofuels like ethanol and biodiesel and
the other half benefited wind and solar in the form of tax credits,
which are set to expire at the end of 2021, though a permanent 10%
investment tax credit for solar and geothermal installations will
remain.
According to the IMF as well as the International Energy Agency,
the elimination of fossil fuel subsidies worldwide would be one of the
most effective ways of reducing greenhouse gases and battling global
warming.
Conclusion
Increased digital
technology adoption in the U.S. and around the world, will continue to
push CO2 emission to its highest levels in history, if the electricity
used to fuel it is largely produced with hydrocarbon energy. To cut down
on CO2 emission during the height of the cryptocurrency bull market in
2017, the use of an SPS system was proposed to electrify crypto currency mining.
Transitioning
to clean energy has become inevitable, a survival concern, so much so
that investment advisors who manage nearly half the world's invested
capital, of more than $34 trillion in assets are urging the G20 for
compliance with the Paris Agreement to save the global economy $160
trillion. Because the alternative, will result in damages of $54
trillion.
Nevertheless, switching to solar energy will
likely necessitate — among other issues — adjustments to the U.S.
environmental tax policy, which currently heavily favors fossil fuels.
Selva Ozelli, Esq.,
CPA is an international tax attorney and CPA who frequently writes
about tax, legal and accounting issues for Tax Notes, Bloomberg BNA,
other publications and the OECD.
