Gas Tax Holidays, Part 4:
Pressure in favor mounts in Europe
28 May 2008 in Regulatory Economics, Legislation
Public discussion about a federal gas tax holiday has abated in the U.S., but according to the Washington Post it is heating up in Europe.
Post foreign service reporters Kevin Sullivan and Molly Moore write from Britain, where the average dollar-denominated price of a gallon of unleaded gasoline is $8.61 ($9.56 for diesel). Truckers in England and Wales have shut down major highways and threaten to blockade refineries and ports unless the government reduces its high fuel taxes ($3.77 per gallon plus 17.5% value added tax). All of Europe has high taxes on motor fuel; fishermen in France have blockaded ports in protest. French president Nicolas Sarkozy has proposed that Europe respond by enacting a gas tax holiday.
So far, Europeans governments appear to be more inclined to provide direct subsidies to affected groups while leaving the high energy tax policies in place. Sullivan and Moore write:
Such a suspension would require approval from each of the 27 E.U. member states and, so far, has not been formally proposed. In the meantime, several European ministers Tuesday urged direct aid for the fishing industry and other workers affected by the soaring prices.
French fishermen have been demonstrating for two weeks against diesel prices that have recently jumped 30 percent. On Tuesday, French riot police pushed fishermen away from an oil depot at Fos-sur-Mer near Marseille in southern France.
Fishermen from Spain, Italy and Portugal attending an international fishing industry meeting in Italy voted to join the French strike, starting Friday.
In Britain, officials had previously announced that an April 1 tax increase of about 15 cents a gallon, which had been programmed into this year's budget, would be postponed until October because of rising oil prices.
But truckers and business leaders are demanding that the government scrap the tax increase altogether.
French fishermen have been demonstrating for two weeks against diesel prices that have recently jumped 30 percent. On Tuesday, French riot police pushed fishermen away from an oil depot at Fos-sur-Mer near Marseille in southern France.
Fishermen from Spain, Italy and Portugal attending an international fishing industry meeting in Italy voted to join the French strike, starting Friday.
In Britain, officials had previously announced that an April 1 tax increase of about 15 cents a gallon, which had been programmed into this year's budget, would be postponed until October because of rising oil prices.
But truckers and business leaders are demanding that the government scrap the tax increase altogether.
The recent increase in motor fuel prices has been smaller in Europe than in the United States, both in absolute terms (because of the falling dollar) and as a percentage change (because Europe's gas taxes are several times greater than those in the U.S.).
Economic and political discomfort with high motor fuel prices is occurring at the same time that the U.S. Congress is debating the Climate Security Act proposed by Sens. Joseph Lieberman (I-CT) and John Warner (R-VA). The Congressional Budget Office estimates that the bill would generate new federal revenues of $1.2 trillion over the next 10 years (and rising thereafter), with outlays somewhat higher. By 2012, a $100 billion per year secondary market in carbon allowances would be created:
Based on an analysis of the results of several economic models, our estimates suggest that under the legislation, the auction price of emission allowances for these greenhouse gases would rise from about $23 per metric ton of carbon dioxide equivalent (mt CO2e) emissions in 2009 to about $44 per mt CO2e in 2018. (In 2006 dollars, the auction price per mt CO2e would rise from about $21 in 2009 to $35 in 2018.)
Both dollar estimates are in $2006, and prices are estimated to be rising rather than stable.A gallon of gasoline contains 0.0088 metric tons CO2e. If CBO's estimates are right, the price of gasoline in $2006 would rise by ($23 x 0.0088 =) $0.20 to ($35 x 0.0088 =) $0.31 per gallon. This includes only the implied tax on the carbon in the fuel itself. Fuel prices would increase further to capture the indirect carbon tax imposed on crude oil production and transportation, fuel refining, and fuel distribution.
CBO estimates aggregate private sector costs in $2006 of $90 billion per year during the 2012-2016 period, and presumably rising thereafter. These costs would be initially paid by industry, which must purchase emission allowances. However, all costs would be borne by households in the form of higher prices and taxes; lower wages, salaries, and asset values; and reduced earnings on investments (including retirement accounts).
A crucial assumption CBO makes is that the bill will not reduce future GDP. A Wall Street Journal editorial credits EPA with the estimate that the bill would reduce GDP growth by 0.9% to 3.8% by 2030, and by 2.4% to 6.9% by 2050. We will locate the EPA report and update this post with that reference.
UPDATE:
A web page listing EPA climate change economic analyses is here.
A summary of the EPA analysis of S. 2191 dated March 2008 is here.
