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Sweden, the last remaining stronghold of bitcoin miners in Europe, is abolishing tax incentives for data centers in July – potentially putting the last nail in the coffin for the industry in the region.

Energy prices in Europe have spiked in the past year largely in part due to the war in Ukraine, driving out bitcoin miners. The northernmost regions of Norway and Sweden were some of the last areas where the industry was still profitable and operating – although the crowd had thinned out – as they offer an ideal environment for data centers; cool and home to cheap hydroelectricity.

But not even these remote parts of Europe remained unaffected from the energy crisis, which caused prices to increase and some miners to turn off their operations, at least partly, in 2022.

Energy prices started to normalize in 2023, but the upcoming tax will likely stop any new investment in Sweden, which is currently home to about 150 megawatts (MW) of mining. The tax will increase from SEK 0.006 ($0.0006) to SEK 0.36 ($0.035) per kilowatt hour (kWh) starting July of this year, according to the financial budget published in November 2022.

Based on the average electricity prices last year, the tax hike could bring the all-in energy cost to $0.093/kWh, said Jaran Mellerud, senior analyst at mining services firm Luxor Technologies. A MicroBT Whatsminer M30s, a moderately efficient and commonly used machine, would be at break-even point given current market conditions, he said.

Hive Blockchain (HIVE), a Canada-based miner with 25% of its energy capacity in Sweden as of the end of 2022, declined to comment on this story. CoinDesk couldn’t find an instance where Hive disclosed the tax hike explicitly in any of its filings. The firm has discussed its disagreement with Swedish Tax Authorities over $32.4 million in VAT that it thinks it should recover.

Norway, which hosts 250-300 MW of mining, also increased its taxes from $0.0086 to $0.015 per kWh in January, said Mellerud.

Not all hope is lost for Norway, as its energy is overall cheaper and the tax hike is more modest, Mellerud said. The industry will continue developing there, said Denis Rusinovich, co-founder of mining consulting firm Cryptocurrency Mining Group.

Sweden’s tax hike makes mining in the region “prohibitively expensive in Sweden and could ultimately destroy the industry,” said Mellerud, so bitcoin miners are looking for solutions.

Many miners are looking to diversify elsewhere, as the new tax will drastically reduce their profitability, said Enerhash CEO Daniel Jogg, who operates a site in Sweden. The tax also requires companies to pay in advance for a few months, which creates some serious cash constraints at a difficult time for the industry, he said.

Some miners could try to get through the tax hike by switching to self-mining instead of hosting others’ machines, said Rusinovich.

Others are looking at ways to get around the tax by reusing the heat produced in the data centers such that they are taxed as heat producers, Mellerud said.

Those packing up are also facing an uphill battle, said Rusinovich: “The market of potential buyers has completely dried up and there are only less than a handful of real buyers left.”

It is unclear whether Sweden’s new taxes were intended towards miners or the entire data center industry. The tax hike was proposed by the Swedish Ministry of Finance, which was also pushing for a ban on bitcoin mining in the European Union last year, Mellerud pointed out.

“This could be viewed as an attack on bitcoin mining,” he said.

In 2017, Sweden enacted a 98% tax cut for data centers, looking to attract businesses. Four years later, the industry hasn’t created the jobs the country was hoping for, and the macroeconomic environment has changed, said the budget report.

The energy crisis has increased electricity rates for households, and the tax cuts currently in place might actually be taking away energy from other, more job-creating industries in the manufacturing sector, said the budget.

Miners are disappointed by how the tax hike was rolled out, with what seemed like little notice or communication. Firms like Hive tout Sweden as a “stable” jurisdiction, where they don’t worry about abrupt unilateral changes in the regulatory regime.

Microsoft (MSFT), which also operates data centers in the region, has protested the measure’s abruptness, particularly given that the government had commissioned a report on the energy impact of data centers that wasn’t finished at the time of the tax hike decision, according to the budget.

There has been no official communication to the bitcoin miners active in the region, only a page on the tax authority’s website that was updated to show the change, said Rusinovich.

That, plus the fact that the tax will be implemented in the middle of the calendar year, making it hard to plan ahead, has rubbed miners the wrong way. Companies can request a refund for any taxes levied before the start of July, a spokesperson for the Swedish tax agency said.

Enerhash will keep its operations in Sweden because they are still profitable, particularly given its geographic diversification, but they will not be investing additionally. Why would you invest there when the legal framework can change so abruptly, Jogg asked.