If Not an Energy Tax, What Instead?

Article excerpt

AN energy tax to raise revenue is an excellent means of reducing the budget gap while encouraging energy efficiency, addressing environmental problems, and improving our energy security.

President Clinton set his revenue target at between $20 billion and $30 billion a year (depending on how the calculation is made), taxing oil at twice the rate of other sources. Given the risks of importing oil and the problems of using it for transportation, this differential is defensible.

In all, this tax would raise the energy bill by between 5 percent and 7 percent, depending on how much energy users improve their efficiency in response to price changes. Compared to the oil-price increases exacted by OPEC in the 1970s and early 1980s, or the energy tax proposed recently by the European Common Market, the administration's goal is modest.

The energy efficiency that results reduces emissions of carbon dioxide (C02) from burning fossil fuels and heavy reliance on oil imports.

A broad-based energy tax is far less regressive than just taxing gasoline or household fuels, because this tax reaches the 65 percent of United States energy used to make goods and services. The largest part of the tax is raised from businesses, which pass these costs on to consumers and improve their own energy efficiency to reduce the costs.

How many know that the equivalent of four gallons of oil are used to make one gallon of maple syrup, the most energy-guzzling product at the supermarket? While the energy tax is slightly regressive, so is nearly any way of raising revenue - or making large budget cuts.

Will higher energy prices hurt the US economy? Industries that consume the most energy (steel, cement, chemicals, paper) actually produce a small share of output with an even smaller share of employment, and have enormous potential to save energy by adopting new technologies.

Energy taxes are the rule in Europe. To minimize trade impacts, governments tax household fuels more than industrial energy, but few users escape the tax man, the gasoline and road diesel are hit heavily. Taxing energy used directly by consumers more than energy used by industry is politically difficult in the US. This is unfortunate because the scope for improving energy efficiency of cars and appliances or fixing homes and commercial buildings to save energy is much greater over the long run than that of industry. …