PERSPECTIVES ON AN ENERGY TAX : Doing Good While Doing Well : As we cut the deficit, we'd cut consumption and pollution. And--a bonus--we'd spur new conservation technology.

By LEE SCHIPPER

Feb. 22, 1993 12 AM PT

Lee Schipper, staff senior scientist at the Lawrence Berkeley Laboratory, is the co-author, with Steve Meyers, Richard Howarth and Ruth Steiner, of "Energy Efficiency and Human Activity: Past Trends, Future Prospects" (Cambridge University Press, 1992)

Taxing energy to raise revenue, as proposed by President Clinton, would not only reduce the budget gap, but would also have the bonuses of encouraging of energy efficiency, addressing environmental problems and improving our energy security.

The size of the tax should be related to the twin goals of stemming the deficit and reducing the negative impact of using energy. A $50-billion initial target would mean taxes of 8 cents per gallon of gasoline, 0.6 cents per kilowatt hour of electricity or 60 cents for a thousand cubic feet of natural gas. On average, prices would increase 12%, leading to nearly a 10% decline in energy demand over the pretax level, once users adjusted their technology and behavior.

The decline in energy use from an energy tax would help mitigate such problems as pollution, emissions of carbon dioxide from burning fossil fuels and our heavy reliance on oil imports. Even with modern pollution-control technology, energy production and use still results in significant environmental damage.

Is such a tax regressive? While taxes on the 40% of our energy use that includes gasoline, electricity and household fuels are regressive, extending this tax to the remaining 60% of energy that is used to make the goods and services we buy compensates for most of the problem, since the wealthy buy so much. Keep in mind, too, that the hidden costs of the budget deficit (high interest rates, cuts in social services) are paid disproportionately by low- and middle-income households. And when we go to war over oil, it is these households that send their children.

Will higher energy costs hurt the U.S. economy? Our recent study shows that energy-intensive industries (steel, cement, chemicals, paper) actually produce a small share of output with an even smaller share of employment, and have enormous potential to save energy by adopting new technologies. Higher energy prices will accelerate the move to such improvements, which have been occurring on their own for the past 50 years but slowed when the price of oil crashed in 1986.

Others fear that energy taxes will affect our competitiveness. We found that U.S. industry paid less, on balance, for coal, oil and natural gas, and nearly the lowest for electricity, than industry in Europe or Japan. This suggests that cheap energy is not a vital ingredient to industrial success. In all, only about one-third of all the energy used in the United States is for manufacturing of products relevant to international competition.

In fact, energy taxes are common in Europe. The Nordic countries tax carbon dioxide and other pollutants from all fossil fuels and have various taxes on electricity. Germany, France and Italy have a variety of taxes on household fuels and smaller taxes on industrial fuels. And every country taxes both gasoline and road diesel heavily.

In the United States, we use far more energy than Japanese and Europeans in our overlit and overcooled buildings. Although we have pulled even with Europeans in the efficiency of heating homes, we still use more money to heat water, per person, and our appliances use more electricity. We use one-third more fuel per mile of car travel than Europeans, drive about twice as far per person and use significantly less mass transit. Clearly, we have much more energy fat to squeeze from our economy.

Are energy taxes inflationary? Energy costs represent less than 10% of our GNP. Energy is more than 15% of costs in only a handful of industries, like cement or certain chemicals. But there are countless ways for us to reduce energy costs that have not yet been exploited. To avoid being inflationary, such taxes should be gradually imposed. Ultimately, the impact on inflation will be small.

What about the gasoline tax? Even though it is directed at only 13% of the energy we use, this tax has merit because transportation has its own budget gap, with users of the roads not really paying their full social costs. The energy tax alone will only have a small impact on the price of gasoline. In the end, we probably need both.

Deciding the “right” level of environmental tax and revenue to be raised is no easy task, politically. Presidents Ford and Carter tried and failed. Even President Reagan struck out when his 1986 energy security study essentially recommended either a gasoline tax or an oil import fee.

Those who oppose energy taxes should ask themselves: Should we tax income or investment, both in short supply? And taxing labor means taxing jobs, another scarce resource. Avoiding any tax because we can’t agree on the exact level means forgoing a ripe opportunity to close the budget gap, as well as the environmental and efficiency gaps. Let’s buoy up the energy-tax idea before it sinks, and keep our children’s future from being swamped by the deficit and foul air.