Marlo Lewis:
It was inevitable. As soon as consumers and the economy start to enjoy significant relief from a decade of pain at the pump, the political class clamors for higher gas taxes and new carbon taxes.
The recent reduction in energy costs is remarkable. The U.S. Energy Information Administration (EIA) reports a 43% decline in the energy component of the Goldman Sachs Commodity Index during 2014. According to EIA, the drop in fuel prices was not due to “strong underlying trends in global economic growth” but rather to “supply-side factors unique” to energy-related commodities.
Fuel prices are down because the revolution in unconventional hydrocarbon production increased crude oil and natural gas supplies, and Saudi Arabia has failed to persuade other OPEC members and Russia to behave like a cartel and cut output. Crude oil spot prices recently dipped below $54 per barrel.
As a result, regular gasoline is now selling for about $2.20 a gallon – roughly one-third less than in Jan. 2014.
Credible estimates of the direct and indirect consumer benefits vary, but they’re all substantial.
AAA: Americans saved $14 billion on gasoline in 2014 compared to 2013, with many drivers saving $15-$30 every time they fill up, compared to a year ago. As of Dec. 31, 2014 gas prices declined a record-breaking 97 days in a row, with further decreases predicted “as retail prices catch up with the steep declines in the cost of crude oil.”
Bloomberg: “Plunging fuel prices will free up as much as $60 billion over the next year that the consumer can spend on a fall jacket, a movie ticket or just more groceries.” That was in October, when gas prices were still north of $3.00/gal.
WSJ: Falling gas prices will give consumers the equivalent of a $75 billion tax cut. The tax cut is progressive because low-income households pay a larger share of earnings on energy. “Households earning less than $50,000 annually spent around 21% of their after-tax income on energy in 2012, up from 12% in 2001, according to analysts at Bank of America Merrill Lynch.”
NPR: If current gas prices continue, the typical household will have an extra $1,500 to save or spend in 2015. Already, “The average American is seeing a much bigger boost from falling gas prices than from pay raises. Cheap energy could finally put the U.S. economic recovery over the top.”
So naturally, ‘progressives’ now claim that, more than ever, a carbon tax is an idea whose time has come. Harvard economist Lawrence Summers, for example, argues in theWashington Post that “Oil’s swoon creates the opening for a carbon tax.” Does it? More importantly, should it?
Is carbon energy a tax haven?
Summers begins by declaring that although there is “room for debate about the size of the [carbon] tax and about how the proceeds should be deployed, . . .there should be no doubt that, given the current zero tax rate on carbon, increased taxation would be desirable.”
A strange argument. If there is currently a zero tax rate on something, then increased taxation is undoubtedly desirable. How far is Summers willing to push that? Somehow I doubt he would support China’s one-child tax policy, or taxes on educational achievement, even though emissions derive from consumption, and consumption tends to increase with population and human capital formation.
Although there is no federal carbon tax rate, companies that mine, process, and utilize carbon-based energy pay lots of taxes. ExxonMobil, for example, paid $31 billion in corporate income taxes in 2012 and more than $1 trillion in total taxes during 1999-2011, paying $3 in taxes for every $1 in profits.
Oil, gas, and coal companies also incur substantial implicit taxes in the form of regulatory compliance expenditures, as do companies that combust fossil fuels to generate power or manufacture products. For example, EPA estimates that its Mercury Air Toxics Standards (MATS) rule will cost electric utilities $9.6 billion in 2016 (77 FR 9306), and that its proposed revised national ambient air quality standards (NAAQS) for ozone will cost $3 billion to $39 billion in 2025 (RIA 7-33). Dozens of other major air rules for energy-intensive facilities could be cited (see Appendix A of this report).
Some EPA rules explicitly target CO2 emissions. EPA estimated that its May 2010 greenhouse gas/fuel economy Tailpipe Rule would cost the auto industry $67 billion during 2012-2020 (75 FR 25515). EPA estimates that its Clean Power Plan (CPP) to control CO2 emissions from existing power plants will cost utilities $7.3 billion to $8.8 billion in 2030 (RIA ES-7). Actual costs could be substantially larger. Virginia’s State Corporation Commission staff estimates that one utility — Dominion Power — will have to spend $5.5 billion to meet the State’s CO2 reduction target. NERA Economic Consulting estimates the CPP will cost states $41 billion in 2030 and $336 billion over 15 years.
In addition, as of Jan. 2012, 30 states and the District of Columbia had mandatory renewable electric generation policies. Such measures, which make electricity more costly and less reliable, are a roundabout way of putting a cap on CO2 emissions and function as acovert CO2 reduction tax. Federal and state policies impose numerous energy-efficiency standards, which also aim to limit CO2 emissions.
A significant portion of all federal and state tax and regulatory costs affecting carbon energy are passed on to consumers, who also pay federal and state motor fuel taxes at the pump. At 49.28¢ per gallon, the current average combined federal and state gasoline tax is equivalent to a carbon tax of nearly $50 per ton. The idea that ‘carbon’ is a tax-free zone just because there is no explicit carbon tax rate is ludicrous.