The Stealth BTU Tax

The centerpiece of President Bill Clinton's first budget proposal was a massive energy tax. This BTU (British Thermal Units) tax was estimated to cost $30 billion per year, or over $300 per family of four. Some economists predicted that the tax would eliminate over half a million jobs. Had it been enacted, Clinton's BTU tax would have made it more expensive to heat a home, cook a meal, and drive to work. Such a proposal hardly fit the ideal of "putting people first."

Given its onerous impact, it's not surprising that the BTU tax was a political nonstarter. Within days of Clinton's announcement, senators from both parties made clear that they would not support such a tax. The White House was forced to settle for a 4.3-cent tax on gasoline and other transportation fuels--far below what many administration officials, including Vice President Al Gore, reportedly wanted.

Energy tax proponents may get a second chance. In mid-1996, Undersecretary of State Tim Wirth pledged that the United States would lead the charge toward "verifiable and binding" emission reductions to prevent global warming caused by greenhouse gases. Reducing greenhouse gas emissions requires, in particular, cuts in carbon dioxide emissions--which, in turn, entails reducing energy consumption. Speaking in Geneva, Wirth said the world must "take urgent action" or face the possibility of environmental Armageddon.

Greenhouse gas emission reductions will not happen by themselves; they will have to be forced. Thus, the Environmental Protection Agency has been reviewing policy options, including the possibility of raising fuel taxes and tightening energy efficiency without congressional authorization.

In November, industry officials uncovered an internal EPA memo outlining how to enact such measures through the administrative process. An energy tax--possibly in the form of a tax on the carbon content of fossil fuels--is a favored method. Stabilizing greenhouse gas emissions at 1990 levels over the next fifteen years--a modest first step according to most global warming alarmists--would require a tax of more than $100 per metric ton of carbon or its equivalent. Industry economists estimate that such a tax would cost approximately $200 billion per year, or well over $2,000 per household. Reducing emissions by an additional 20 percent, as proposed by Germany, could more than double the costs of stabilization, says Gary Yohe, an economist at Wesleyan University. Even were the taxes offset by corresponding cuts in income taxes, the new levy would crimp economic growth.

Yohe suggests that the imposition of energy taxes on this scale would feel like the energy crisis all over again. Industry would take a pounding. Energy-intensive sectors of the economy, including mining, chemical production, and paper, would be particularly hard hit. That has some labor unions, such as the United Mine Workers, worried. "We're looking at ten thousand jobs lost and the extinction of the UMW," the union's Eugene Trisko told the Washington Post.

Yet the burdens on industry are only the tip of the iceberg. An energy tax would raise the price of heating a family home, going to work, visiting family and friends, and buying groceries. In short, an energy tax would impact everything.

Of course energy taxes are not the only option. Similar reductions in greenhouse gas emissions could be achieved through a 1970s-style rationing system. Such an approach might even incorporate tradeable emission permits. Imposing quotas on utilities and fuel suppliers could reduce emissions without directly taxing consumers. Yet the effect on energy prices would be very similar.

Must global warming policies be so costly? Universal adoption of off-the-shelf conservation technologies might generate some savings, but not much. (Indeed, if energy conservation is so profitable, there would be no need to cry "global warming" at a crowded international conference to get conservation measures adopted.) Ultimately, there is no getting around the fact that "verifiable and binding" emission reductions will impose significant costs, economic and otherwise.

Jonathan H. Adler is director of environmental studies at the Competitive Enterprise Institute.