Annapolis Institute Overview


Coal tax would burn business

by Phil Burgess, Unabridged from the Rocky Mountain News, February 2, 1993

After running on a platform to get the economy moving again, the Clinton administration came out of the gates with a social agenda (abortion and gay rights) and an agenda for new taxes. Unfortunately, these are not elements of an economic policy that will create jobs, promote economic growth and increase American competitiveness.

But the tilt light blinked brightest at the prospects of an energy tax, floated during the first week of the Clinton presidency by Treasury Secretary Lloyd Bentsen and other members of the economic team.

Energy taxes take many forms: a tax on sales of energy fuels such as coal, oil, natural gas and hydroelectricity (an ad valorem tax); a tax on the amount of energy produced by different fuels ( a BTU tax); a carbon tax (a favorite of environmentalists to reduce greenhouse gas emissions); an oil import fee (to cut oil imports); and a gasoline tax (to promote conservation). Of these, a carbon tax is a particularly bad idea.

Carbon taxes would increase the price of coal at least twice as much as other energy fuels. Carbon tax proponent John Peterson of the Government Finance Group estimates that a carbon tax would increase the price of gasoline, natural gas and fuel oil by 10-20% and of coal by 60%.

A recent study by Boulder-based Resource Data International shows a carbon tax would have other results. First, a carbon tax would require electric utilities to reduce coal burning, substituting fuels with lower taxes, such as oil and natural gas.

Second, hundreds of billions of dollars invested in coal chain industries — coal mines, coal transportation and coal-fired power plants — and paid for by rate payers since the first oil price shock in 1973, would have to be written off. That would be like asking a family to tear down their home (while remaining responsible for the mortgage payments) and build another, taking on a new mortgage.

Third, the increased cost of energy would ripple through the entire economy, decreasing international competitiveness for everyone, but especially for manufacturing and other energy intensive industries. Yet these are the industries that produce the “good jobs at good wages” that Bill Clinton says he wants to save.

Result: a carbon tax would slow economic growth, cost jobs and reduce the competitiveness of American business.

There is also an environmental problem. Most of the rest of the world burns coal, and more than 80% of the increase in greenhouse gases over the next 100 years will come from the developing nations, not the U.S. or the industrialized world.

The U.S. leads the world in the development of coal conversion technology that permits cleaner and more efficient coal combustion. If a carbon tax forces utilities to back coal out of the U.S. fuel mix, both public and private investment in coal combustion technologies will dry up. People do not invest in declining industries.

Though nature determines carbon emissions from burning a ton of coal, new technology can improve coal-burning efficiency — for example, from the 10-20% found in China and other developing countries to the 30-40% found in the U.S. Result: with greater combustion efficiency, less coal is needed to produce the same amount of electricity, which means greenhouse gas emissions are reduced significantly on a global basis.

So, like so many things in life, the enlightened policy is counter-intuitive. If you really want to reduce global greenhouse gas emissions, do not discourage the use of coal in the U.S. It’s the global environment, stupid.

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