U.S. MOVE GIVES EC CARBON TAX NEW LIFE

European Community carbon taxers are at it again. Encouraged by the U.S. proposal for BTU tax, they soon will revive their scare stories about global warming and get back to the task of telling people how to save the planet by yielding more of their money to officialdom.

April 12, 1993

3 min read

The carbon tax ran into trouble last year when recession made Europeans fret more about trifles such as food and shelter than about important things like planetary salvation. So EC carbon taxers declared they couldn't act unless other industrial powers did, too. U.S. President Bill Clinton obliged with his BTU tax, which sets oil's rate at twice that of other fuels. Now that some European economies show signs of life, the carbon taxers sense opportunity.

FISCAL OR ENVIRONMENTAL

But Europeans should watch how the tax issue progresses in the U.S. The BTU tax differs from the carbon tax in that its main appeal is fiscal, not environmental. Aspiring BTU taxers may coo about energy conservation and air quality, but that's a sideshow. Anyone looking closely at the environmental dimension of the BTU tax must wonder why it hits coal and natural gas at the same rate. The official explanation is the revenue priority of the BTU tax. The real explanation lies in the political clout of coal mining states and labor unions. Of course the BTU taxers readily accept environmentally based support from anyone willing to overlook these discontinuities.

Europeans also should watch the exemption spree under way as Congress and the administration try to make the BTU tax palatable to its intended victims. At last count, there were 13 proposed exemptions. More are likely.

The break for home heating oil, which would escape the rate-doubling "national security" levy on oil, deserves special attention in Europe. Billed as a way to equalize oil and natural gas in the residential market, it's really a sop to the cold and populous Northeast and to Senate Majority Leader George Mitchell of Maine. And it's an outrage to residents of the U.S. West, where driving distances are greater than in the Northeast and citizens consequently more dependent upon automobiles and gasoline. In current U.S. political fashion, heating homes is more righteous than driving to work, but try explaining that to Californians and Texans.

Potential regional frictions like these should hold special meaning in Europe, where energy consumption patterns vary no less than they do in the U.S. What if Germany asked for a carbon tax exemption for some characteristically German use of coal, upon which it relied for 36% of its primary energy in 1990? Might this not raise hackles in France, where coal accounted for just 9% of 1991 energy consumption, or Italy, 8%? Exemptions quickly become touchy.

POLITICAL CONSEQUENCES

And Europeans must not ignore what is happening to Clinton's approval ratings in public opinion polls. In short, they're plummeting, a development that no doubt emboldened Republican senators to filibuster the president's jobs bill into abeyance last week. Americans are coming to realize that Clinton has plans for their wealth-"sacrifice," he called it-that may not coincide with their own. Europeans don't need to be reminded that taxation has political consequences.

There is opportunity for Europeans here. It is the opportunity to snatch hard competitive advantage from the mushy jaws of global warming politics. Trade-minded Europeans might decide that taxing energy use isn't such a good idea after all-and let Americans tear themselves apart over whom to punish most for performing work.