Why It's Imperative That We Raise Energy Taxes

The argument is really fairly simple. Fossil fuel supplies are limited. World oil production will soon peak—if it has not already—beginning an inexorable decline in output and increase in cost. The same goes for natural gas, though its transition from plenitude to shortage may be even more abrupt.

The best way to extend the availability of oil and gas is to reduce demand, and the best way to reduce demand, I’m afraid, is to make fossil fuels more expensive—significantly more expensive.

Energy can become more expensive in two ways. The first is through the free-market laws of supply and demand, which affect the commodity price. That’s what we’ve witnessed the past few years as petroleum and natural gas prices have doubled, and that’s what experts predict will keep happening as reserves dwindle. When prices rise this way, the businesses and governments that control those resources reap the profits. In the case of petroleum, much of this future wealth will accumulate in the Middle East (Saudi Arabia and Iran together account for a third of world oil reserves), and a chunk of that money can be expected to continue funding the sort of terrorism we witnessed on 9/11.

The other way energy prices can rise is through taxation. Because a large tax on fossil fuels would decrease consumption, the rate of commodity price increase would slow down. The price of crude oil might even drop, slowing the flow of money into the politically unstable Middle East. We would have replaced the

natural price increases from supply and demand with artificial increases—but the effect on energy conservation would be the same. Consumers would demand more efficient cars—and manufacturers would supply them. Developers would build zero-energy houses. We would create walkable communities again.

Here’s what we need: a Btu-based tax on extracted fossil fuels. I propose something on the order of $5 per gallon of gasoline ($1.30/l), normalized on a Btu basis to other fossil fuels, including natural gas, propane, and coal. This tax should be implemented gradually (perhaps 50 cents per year for ten years) to ease the transition and allow industry (such as car manufacturers) to plan for it with new products. In this case, wealth is transferred not to foreign governments and a few huge corporations, but rather to our government to do with as we—through our legislators—deem appropriate. It could be a

floating tax that would rise or fall as the commodity prices for these fuels fluctuate—to keep energy costs consistent and predictable.

Since higher energy prices cause hardship, a significant part of this tax should pay for low-income programs—for example, helping low-income Americans replace their inefficient cars and appliances and insulate their homes. A portion of this tax should fund a mammoth, nationwide effort to ramp up research on energy conservation and renewables, while funding weatherization, public transit, and other programs needed to bring about energy independence. (See


Vol. 13, No. 3 for information on the Apollo Alliance, which seeks to do just that.)

If one accepts that fossil fuel production will soon reach a peak and that prices are bound to increase as availability is constrained, the choice is whether someone else—governments in the Middle East, for example—decides how the hundreds of billions of dollars to be collected get spent, or we—tax-paying and voting Americans—decide for ourselves.

In an earlier editorial, I referred to this as a Freedom Tax (see


Vol. 12, No. 4). That moniker still works for me. Instituting a $5/gallon Freedom Tax on energy would be a hard sell for a Congress whose members receive millions of dollars in campaign contributions from fossil fuel interests, but it is increasingly clear that such a tax would be good for our nation.

Published March 1, 2006

Wilson, A. (2006, March 1). Why It's Imperative That We Raise Energy Taxes. Retrieved from https://www.buildinggreen.com/op-ed/why-its-imperative-we-raise-energy-taxes

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March 2, 2006 - 12:13 pm

As a European living with far higher fuel and/or taxes than in the US, permit me to tell you that a carbon tax is not the answer. Feasta; Foundation for the Economics of Sustainability, a think tank based Ireland has conceived of another idea which borrows from successful policies of the war time past- an equal ration for every citizen of the scarce resource- but tradable. That way the poor are protected while business, which has to buy the rations from citizens, will be given clear price signals to conserve fossil fuel and/or switch to renewables. As fossil fuel grows in price for the reasons you list, people will return to coal - the dirtiest of fuels. A carbon ration as opposed to a levy or tax on oil and gas would prevent this damaging switch.

The carbon ration is starkly simple and equitable: everyone on earth has an equal but limited right to emit greenhouse gases. The total emitted must not exceed the capacity of the natural world to absorb it without harm.

During and after the Second World War there was an acute shortage of food in the UK. If the government had tried to reduce consumption by taxing it there would have been a public outcry. Rationing was accepted as necessary and desirable. The atmosphere can only receive a certain amount of carbon dioxide without harm - a third or a quarter of present emissions – so people’s right to emit must be limited.

At the same time the price of fuel is rising due to increasing demand and declining oil production. If the government tries to reduce emissions by yet higher taxes on fuel, lorry drivers will bring industry to a halt, country dwellers will march on parliament, the old and frail will die of hypothermia in their thousands while the super-rich continue to drive SUVs. Reducing demand for fossil fuel by increasing tax is no longer an option. The Carbon Ration is necessary.

There are two ways to move to a low energy economy. One is by top-down control through regulation. People will use their ingenuity to circumvent the rules, an army of bureaucrats and police will be required to enforce compliance, and politicians will eventually have to explain why it failed.

Alternatively we can set up a system in which individuals, communities, businesses and utilities will all use their imagination and creativity to achieve success because it is in their interest to do so. The Carbon Ration is the basis of such a system. A simple fuel ration is not the answer. It has to be tradable, otherwise there are no incentives. And a tradable carbon-fuel ration cannot be introduced as a panic response to a fuel crisis; it needs careful planning.

The Carbon Ration would be for carbon emissions. Emissions that come out of an exhaust or chimney are not usually visible and can’t be measured. But what comes out first goes in. We already measure what goes in as petrol, gas or electricity, and the carbon content of each fuel is known. It is therefore an easy system to administer because we already have the data. When emissions leave an exhaust pipe or chimney they mingle with air and become part of the atmosphere. Emissions are therefore synonymous with atmosphere. No one can claim to own the atmosphere - no individual, no company, no government, no country - the atmosphere a ‘common’ that either belongs to everyone equally or to no one. So everyone has the right to an equal share of the amount of carbon emissions the atmosphere can safely receive. Equity must be the principle on which any policy is based.

The Briefing paper can be found, in pdf format (520 K) at
http://www.feasta.org/. It starts as a critique of the current EU emission trading system but has global reference. It still a beta version - reliable data is difficult to get in consistent form. Feedback welcome.

Emer O'Siochru, Feasta