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Friday, December 01, 2006

Rational energy tax, what would it look like?

Good longish article:
Our national energy tax policy is misguided in at least three ways. First, a policy to promote energy independence through reduced oil imports is based on a fundamental misunderstanding of how energy markets function. A policy that attempts to establish energy independence by promoting domestic fossil fuel production is especially misguided. Second, our policy relies heavily on energy subsidies, most of which are socially wasteful, inefficient, and driven by political rather than energy considerations. Third, current energy taxes are deficient on a number of levels.
The article is from the AEI, a conservative think tank. They use different language, but the policy ends up matching Al Gore's proposal. Also from the AEI article:

Second, we should implement a green tax swap. A green tax swap uses revenue from environmentally motivated taxes to lower other taxes in a revenue-neutral reform. For example, Congress could reduce reliance on oil and other polluting sources of energy by implementing a carbon tax. The revenue could be used to finance corporate tax reform or reductions in the payroll tax. [12] Consider a tax of $15 per metric ton of carbon dioxide--a tax rate comparable to the current carbon price in the European Emissions Trading System. Focusing only on carbon [13] and assuming a short-term reduction in carbon emissions of 10 percent in response to the tax, a $15-per-ton tax rate would collect nearly $80 billion a year, an amount that represents 28 percent of all corporate taxes collected in the United States in 2005. Assuming the carbon tax was fully passed forward into consumer prices, it would raise the price of gasoline by 13 cents a gallon, the cost of electricity generated by natural gas by 0.6 cents per kWh, and the cost of electricity generated by coal by 1.4 cents per kWh.

Or Congress could raise the gasoline tax, index it for inflation, and return the additional revenue through a tax reduction. A gasoline tax increase is less efficient than a carbon tax at reducing carbon emissions. [14] Accepting the references cited above at face value, however, the gasoline tax increase would move us in the direction of the optimal Pigouvian tax on motor fuels, taking into account other pollution externalities as well as congestion and accident externalities. [15]

Next we should eliminate the gas guzzler tax loophole for SUVs and light trucks. Congress might also consider augmenting the gas guzzler tax by shifting to a feebate approach whereby low-mileage vehicles are taxed at increasing rates, as under the current gas guzzler tax, and fuel-efficient vehicles receive a tax subsidy. That could be structured to be revenue neutral.


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