October 22, 1997
The United States has never had a national energy tax. President Clinton is now trying to change that -- once again. Having failed in 1993 to institute a comprehensive Btu energy tax on all fossil fuels, this Administration now seeks to use the upcoming Kyoto treaty-signing summit on global climate change to implement federal increases in energy prices -- price increases that could dwarf those of 1993. The President today announced his proposal which represents the United States's negotiating position in Kyoto: to return our "greenhouse" gas emissions to 1990 levels "between the years 2008 and 2012" and to below-1990 levels within five years thereafter.
While the scientific basis and effectiveness of Clinton's proposals remains questionable, the price impact is indisputable. Americans everywhere would recognize higher prices for the energy they use and the products they buy. How much the increase amounts to, for say a gallon of gasoline, depends on which analysis you refer to, but even the rosiest scenario provided by the Administration itself would represent a hike which is twice that of his failed Btu energy tax plan.
In 1993, the Democrat-majority House actually passed Clinton's Btu tax (without a Republican vote), and it only failed to become law after the Senate took a longer look at it. Congress would do well to take a look at the cost of Clinton's latest energy-tax-hike scheme.
Today's Proposal Dwarfs That of the 1993 Btu Price Hikes
Then -- The 1993 Btu tax proposal would have raised the price of a gallon of gas by 7.5 cents per gallon and coal by $5.35 per ton.
And Now -- Even the rosiest Administration estimate of its 1997 proposal (by the Department of Energy in September) has prices increasing higher than the 1993 hike: Gasoline would increase 13 cents per gallon (doubling 1993's); coal would increase by $26.26 per ton (a five-fold increase from the 1993 plan); natural gas would increase by $0.75 per thousand cubic feet; and electricity would increase by 1 cent per kilowatt hour.
- The Administration's June estimate by its own Interagency Analytical Team (IAT) had price increases that were substantially more than those of 1993: Gasoline would increase 26 cents per gallon (more than three times that of 1993); coal would increase by $52.52 per ton (a ten-fold increase over 1993's); natural gas would increase by $1.49 per thousand cubic feet; and electricity would increase by 2 cents per kilowatt hour.
- When the Congressional Budget Office (CBO) in 1990 examined the prospect of a $100- per-ton carbon charge (which is the same amount as in the Administration's June estimate), they calculated the costs from a $100/ton tax as even higher: "The carbon charges would amount to $60.50 per ton of coal (11 times that of 1993), $12.99 per barrel of oil [30.9 cents per gallon] (a four-fold increase from 1993), and $1.63 per thousand cubic feet of natural gas."
- According to respected outside estimators such as DRI, Charles River Associates, and WEFA, the tax would have to be $200 per ton to achieve Clinton's emissions reduction goals: Gasoline would increase 52 cents per gallon (seven times that of 1993); coal would increase by $104.04 per ton (19 times that of the 1993 plan); natural gas would increase by $2.98 per thousand cubic feet; and electricity would increase by 4 cents per kilowatt hour.
The 1993 Btu Tax: Clinton's 1993 Btu tax would have been America's first comprehensive energy tax. The Democrat-run House passed it as part of its budget reconciliation bill with all Republicans and a handful of Democrats opposing it after the House Budget Committee voted along party lines to prevent the House from considering an amendment to strike the Btu tax. The Senate included the Btu tax in its budget resolution assumptions and turned back on largely party-line votes several Republican attempts to reduce the tax's impact. As the full costs of the tax became apparent, the Senate did not include the tax in its version of the reconciliation bill and it was dropped in conference.
The 1997 Carbon Tax: The Clinton carbon proposal is intended to reduce U.S. emissions of greenhouse gases back to the levels of 1990. The similarities between the 1993 and the 1997 Clinton energy taxes are evident, but differ in three major ways:
- Alleged Purpose: This time, it's global warming; in 1993 it was deficit reduction;
- Effect: The direct costs would be substantially higher -- seven times that of the 1993 proposal for gasoline, according to credible outside estimates (or three times the 1993 level for gasoline, using the Administration's June estimate); and
- Form: Instead of proposing a direct tax, today's proposal is an indirect tax using a complicated permit system whereby certain types of fuel would be assessed according to the amount of carbon they contain.
Perhaps the most significant difference is that the cost hikes to energy have gotten larger. While the Administration's experts have sought to downplay the costs by relying on very rosy assumptions that the global targets imposed on the United States could be reached through the use of technology that does not yet exist -- and may not be desirable -- they still concede that the costs of the latest proposal would be significantly larger than those of the 1993 tax. In short, it is a "think globally, tax locally" strategy for energy price hikes that would affect every aspect of the country. Before Congress starts down that road again, it should take a look at what it has already rejected.
[For background, see RPC paper, "Administration Expected to Defy Byrd/Hagel
Resolution, and to Sell Climate Change Treaty as Painless," 10/21/97.]