by Jim Rhodes
This is probably not the best time to be making a pitch for higher energy taxes. For one thing, gasoline prices are up significantly. The national political scene is currently focused on presidential politics and on whether the projected budget surplus should be used to pay down the national debt, shore–up social security, or just give more big tax cuts to the wealthy classes. However, there is this persistent thing called global climate change that just doesn’t seem to want to go away.
Global climate change is by now an established fact. Virtually every reputable scientific organization that has studied the problem is on record as being in agreement with this statement. If we want to avoid big problems in the century ahead, it is clear that the world must shift away from our heavy reliance on fossil fuels to less polluting and more sustainable sources such as solar, wind, and geothermal.
This will happen eventually anyway since fossil fuels are limited and these sources will become more expensive as they get scarcer. However, even though world petroleum production is expected to peak sometime in the next few decades, there are still substantial quantities of coal and natural gas that will be available well into the next century. Countries such as China are expected to increase their use of coal as they attempt to improve their living standards.
In order to prod the shift to renewable sources, governmental action is necessary. One way to cut fossil fuel use is to mandate energy efficiency standards such as the CAFE standards. CAFE stands for “Corporate Average Fuel Efficiency” and is the average gas mileage that fleets of vehicles sold in the United States must achieve. Now set at 27 miles–per–gallon for passenger cars, the Sierra Club and other organizations are pushing to get this standard increased to 45 miles–per–gallon. Also, SUVs and smaller pickup trucks now constitute over 50 percent of new vehicles sold in the U.S. and these vehicles are currently not required to meet the CAFE standards.
Another type of governmental strategy is to offer tax breaks for installing energy efficient measurements. The Clinton administration has chosen this route since tax incentives constitute a “carrot” approach in that they are voluntary instead of mandatory. In theory, the market will respond to these incentives and gradually the U.S. economy will move to higher energy efficiency.
However, energy taxes may be the ultimate “silver bullet” for slowing global warming. The Union of Concerned Scientists published “The Consumer’s Guide to Effective Environmental Choices” last year and in it they suggest that people ask the government to tax pollution as a strategy to improve environmental quality. Energy taxes are a form of pollution tax and authors state, “From an economist’s standpoint, a well–crafted tax is an easy and fair way to increase the price of a polluting activity so that it includes those external social costs that would otherwise be ignored. Economists also like the fact that even as taxes provide financial reasons to take better care of the environment, they ultimately leave the final decision on what to buy and do up to consumers acting through the free market. MIT economics professor Paul Krugman has observed that ‘virtually every card–carrying economist’ believes pollution taxes are a good idea.”
Ultimately, governments have to get their tax revenues from somewhere and there is no reason why an energy tax could not be coupled with a general reduction in income tax rates so that the whole package is revenue–neutral. Some economists have even advocated elimination of the income tax in favor of a graduated consumption tax. Cornell economics professor Robert Frank published the book Luxury Fever last year to advocate just such a tax. Such a tax could be easily implemented and has the potential to eliminate the annual task of preparing an income tax return.
Since climate change is a global problem, governments around the world must be able to agree on a strategy that is both fair and effective. This strategy will most likely involve a mix of mandatory and voluntary measures coupled with either tax incentives or an energy tax. From an ethical perspective, the United States has an obligation to lead the world in reducing fossil fuel consumption since we are the biggest consumers. Other countries are not going to take voluntary measures to reduce their own use of fossil fuels unless they see that the U.S. is also doing the same.