Rhein on Energy and Climate

In a recent interview with the Financial Times the new US Secretary for Energy, CHU, has ruled out the chances for raising the federal gasoline tax as not being politically feasible. That is regrettable, though no surprise to those familiar with US politics.

US action against climate change, as envisaged by the Obama Administration, focuses on four pillars: emission caps, mandatory targets for renewable electricity, automobile fuel efficiency standards and subsidies for renewable energies.

Unfortunately, each of these four pillars is weak compared to what the USA needs to do to catch up with the advance Europe and Japan have reached on their path towards a low-carbon economy.

The world pays the price for three decades of inaction by previous US Administrations and by an intolerable addiction of US citizens to wasteful use energy.

The federal US taxation of gasoline is about € 0.03 per litre, less than 10 percent of average EU taxation. US gasoline prices therefore remain extraordinarily cheap and do not induce car owners to reduce their annual mileage, except in times of high international oil prices.

A higher gasoline and fuel tax would have at least three advantages:

· Induce US automobile owners to drive less and thereby reduce the huge US oil demand;

· Raise the “carbon price”, which is likely to remain below $ 20/ton of C02, under the weak US carbon cap regime likely to emerge from Congress;

· Procure desperately needed revenue to the US Treasury at the expense of a rising “monopoly rent” for Gulf countries. It is amazing that this last point is completely ignored in the USA, though every student of economics learns about the impact of excise taxes on the supply and demand curve.

There is not much point hinting at the long-term prospects of rising oil prices. Consumers do not care about the prices to be expected in 20 years. Their behaviour is dictated by today’s prices.

The longer the USA waits raising the price of fossil energy the longer it delays the necessary adjustment to the new energy era.

European interlocutors should hammer these points to their American counterparts until they understand that high excise taxes on gasoline and fuel are in the US and global interest.

Brussels, 01.06.09 Eberhard Rhein

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  1. Dear Eberhard,

    You are absolutely right that a tax at the pump would be very effective. Indeed, more effective than increasing fuel efficiency. However, it seems to me that the administration will eventually move towards an indirect carbon tax at the pump through the planned emissions trading system. This system, if I understand it correctly, will also include refineries. With the right cap (and we are far from a good one) these refineries will have to increase the petrol costs for consumers.



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