Energy Tax Resurfaces in Global Warming Debate

Energy Tax Resurfaces in Global Warming Debate
October 1, 1997

Only weeks before a global warming treaty protocol is scheduled to be signed in Kyoto, Japan, it appears that the Clinton administration favors imposing new energy taxes on American consumers as a way to reduce U.S. emissions of greenhouse gases.

Rather than risk the direct confrontation with Congress that an energy tax imposed directly on consumers would certainly entail, the White House appears to favor an indirect tax, in the form of fees the government would charge oil and gas companies, utilities, and other energy-related industries for permission to emit carbon dioxide. The industries themselves would likely pass along the fees to their consumers in the form of higher prices for gasoline and electricity.

Administration documents circulating in Washington reveal that the White House is considering so-called "phase-in" fees ranging from $25 to $100 per ton of carbon in fuels such as coal, oil, and gas. "Obviously we would want to do it in a way that is least obvious to consumers, but any way you do it, consumers are going to pay the costs," an administration official, speaking on the condition of anonymity, told the Washington Times.

In 1993, the administration sought Congress' approval for a Btu tax, but lawmakers rejected the idea. Any renewed effort for adoption of a Btu tax or other direct energy tax would likely meet the same fate today, particularly with Republicans in control of both houses and midterm elections set for next November. Moreover, taxing consumers directly for their use of energy would further undermine the administration's efforts to obtain Senate ratification of the Kyoto climate change protocol.

With the legislative path effectively blocked, the White House may go the route of executive fiat. Under this scheme, the President would use latitude granted him by existing laws to impose fees on energy-producing industries. Such fees are said by administration officials to be necessary if the U.S. is to cut its emissions of greenhouse gases by 20 percent by the year 2010 or 2020.

The notion of indirect taxes as a way of reducing greenhouse gas emissions originated at EPA. In 1994, the agency's legal experts produced a memorandum titled "Climate Change Action Plan," which outlined no fewer than 37 different measures EPA could take to raise taxes by using existing statutory loopholes. (See "EPA Document May Foreshadow War on Energy Users," Environment News, July 1997.) For two years, the agency stonewalled repeated requests by the House Commerce Committee to see the memorandum, finally releasing it to the panel late last year. Significantly, the EPA memo made repeated references to how the various fees and taxes could be imposed without Congressional approval.

Now that the energy tax option is out in the open, the administration will have to smooth over ruffled feathers if it wants to avoid seeing its global warming treaty go down in flames in the Senate next year. That will be a tall order. A draft study issued in June by an interagency task force found that a $100 per ton tax on carbon content--one of the options contemplated by the administration--would cut economic growth by 50 percent by the year 2005 and cause the loss of millions of jobs in coal mining and other energy-related industries.

PF: A July 1997 report by Resource Data International Inc., "The Economic Risks of Reducing the U.S. Electricity Supply: CO2 Control and the U.S. Electricity Sector," is available through PolicyFax. The report documents the damage that would be done to the U.S. economy by a CO2 reduction strategy. The document is available in eight parts. Call 847/202-4888 and request documents #2322304 (summary, 6 pages); #2322415 (part 1, 9 pages); #2322416 (part 2, 9 pages); #2322417 (part 3, 7 pages); #2322418 (supplement part 1, 11 pages); #2322419 (supplement part 2, 11 pages); #2322420 (supplement part 3, 10 pages); and #2322421 (appendices, 10 pages). The report is also available on the World Wide Web at