Annapolis Institute Overview


BTU tax kills jobs, slows growth

by Phil Burgess, Unabridged from the Rocky Mountain News, February 23, 1993

Imagine a headline proclaiming, “Clinton proposes 98% tax on computers made in the Silicon Valley.” The subhead reads: “Computers made in Indiana to be taxed 29%.”

People would properly ask: Why does the administration pick on one industry to carry so much of the burden of its tax proposals? Why did the administration select a tax option that pitted industry against industry and region against region? Why did the administration choose to tax an “input” — an industry that affects the productivity of so much of the rest of the economy — rather than an “output” such as sales or income?

Of course, president Clinton would never impose a tax on computers made in the Silicon Valley. Yet last week the Clinton administration achieved a similar result when it proposed a BTU tax. A BTU tax — a tax on the heat or energy content of each fuel — is for coal the moral equivalent of a targeted federal tax on computers.

A BTU tax is simply a carbon tax in disguise, greatly increasing the price of all energy fuels and especially coal in relation to oil and natural gas. Consider, for example, low sulphur coal mined in Wyoming’s Southern Powder River Basin (SPRB). “Clean coal” from the SPRB is in great demand — not just in the West but also in the South and Midwest — because it helps electric utilities comply with the Clean Air Act.

Last year, the average market price of SPRB coal was $4.45 per ton at the mine mouth. Because SPRB coal averages 8,542 BTUs per pound, Clinton’s tax of 25.7 cents per million BTUs will add a tax of $4.39, increasing the market price of SPRB coal to $8.84 per ton — a 98% fuel price increase for electric utilities using Wyoming coal.

The 98% tax increase per ton of SPRB coal is the highest. But, data provided by Resource Data International, a respected energy information firm in Boulder, show that tax increases on coals from other states would also be substantial — including North Dakota (up 69.9%), Montana (67.8%), Colorado (38.1%), Kentucky (29.5%), Indiana (29.2%) and West Virginia (27.6%).

And that’s not the end of it. The cost of transporting coal in most cases exceeds the cost of the coal itself. For example, coal costing $4.45 at the mine mouth in Gillette, Wyoming, may cost as much as $22.00 per ton to deliver to a utility in Texas, the destination of a lot of SPRB coal. So, coal gets hit twice with a BTU tax: once at the mine mouth and again in transportation, where diesel fuel is taxed at 59.9 cents per million BTUs. In fact, coal transportation costs would increase from 15 to 40 percent under the current proposals, depending on distance and how many locomotives are required to pull the train.

This gets to be pretty boring stuff real fast. I understand that. But the devil is in the details. The BTU tax proposed by the Clinton administration is bad economic policy and bad environmental policy. More than half of the nation’s electricity (57%) is produced by coal. A BTU tax will cause a massive shift from coal to other fuels — at a huge cost to the economy that will be paid in lost jobs, slower growth and less competitiveness. A BTU tax will also back coal out of the U.S. fuel mix, reducing public and private investment in clean coal and coal conversion technology. Result: Undesirable emissions from the rest of world, where 80% of the fossil fuel growth is already happening, will not be reduced.

When the administration says a BTU tax will cost the average American less than $120 per year, they omit enormous secondary and indirect costs. They have just begun to count. We should all pay attention.

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