One of the greatest difficulties facing federal officials and members of Congress in developing energy and environmental policies is that anything that would seriously reduce energy consumption or pollutant emissions would have serious negative consequences as well.
Proposals to improve the environment by limiting the use of certain fuels, or to reduce oil imports by forcing down gasoline consumption, or to raise revenue and reduce consumption by taxing some forms of energy, carry disruptive economic and political side effects that have to be taken into account in deciding whether they are worth it.
These dilemmas are reflected starkly in a new study by the Congressional Budget Office of reducing emissions of greenhouse gases through a "carbon tax" that would force down the consumption of fossil fuels -- coal, oil and natural
The carbon tax, proposed last spring by Rep. Fortney H. "Pete" Stark (D-Calif.), seems to be a straightforward idea. Fossil fuels would be taxed in proportion to the amount of carbon dioxide they produce when burned. The government would get the revenue and consumers presumably would use less fuel because of the higher prices. Lower fuel consumption would mean fewer emissions of the gases thought to contribute to global warming, and presumably would lower the nation's bill for imported oil.
Stark's bill stirred strong opposition, especially from the coal industry and coal-state legislators. Coal, as the fuel that emits the most carbon dioxide, would be the most heavily taxed.
Robert Stauffer, general counsel of the National Coal Association, argued that the proposed tax would cost consumers $41 billion a year while having only "negligible impact" on pollution. He said the tax would unfairly cost residents of some states much more than others and would undermine the competitiveness of U.S. manufacturers by driving up the cost of their products.
Fred Palmer, chairman of the coal-producing Western Fuels Association, put it more strongly: "If they pass the carbon tax, you can kiss the Midwest goodbye" because states such as Indiana, Ohio and Michigan get most of their electric power from coal.
Are they right? Could be, according to the CBO report.
At the request of the Senate Energy and Natural Resources Committee, CBO's Natural Resources and Commerce Division examined the issue using "economic models of energy markets and the U.S. economy." It looks at the economic and geographic impact of the proposed tax, but makes no attempt to assess the environmental benefits, which it says "would probably not be felt until well into the 21st century."
The analysis assumes that the carbon tax would be phased in over 10 years, beginning at $10 a ton in 1991 and rising to $100 a ton, in 1988 dollars, by 2000. Fully in place, this would amount to a tax in 1988 dollars of $60.50 per ton of coal, $12.99 a barrel of oil and $1.63 per million British thermal units of natural gas. The coal tax would be twice coal's projected selling price in 2000 because of coal's high carbon content. The levy on oil and gas would be half their projected selling prices.
Federal revenue at the full rate would be $110 billion to $120 billion a year in 1988 dollars. Taxes at these rates "might" stabilize carbon dioxide emissions in a range of 6 percent below to 5 percent above their 1988 levels, the study found.
"A higher tax could cause greater reductions in the emissions of carbon dioxide. The higher the tax, however, and the more quickly it was imposed, the greater would be the resulting economic dislocation and the possible slowing of economic growth," the study found.
The economic impact would be felt on several fronts.
Overall consumption of fossil energy would be lower than without the tax. Electric utilities would build fewer generating plants. Coal-fired power plants would become more expensive to operate, while nuclear power would become relatively more attractive.
Energy-intensive industries such as steel, glass, rubber, aluminum and chemicals would face higher costs that would undermine their ability to compete in international markets. But "producers of foods, fibers and other agricultural products might expand their sales because the relative prices of their products would tend to fall," according to the study.
By 2000, the real gross national product would be 1 percent lower than it otherwise would have been. Prices of natural gas and fuel oil for home heating would rise 21 percent, but overall energy consumption would be 23 percent lower than current baseline projections.
The coal industry would be devastated: "Production would fall by 70 percent below the baseline, to less than half the current levels," according to the CBO analysis.
Of course, there are variables and imponderables that could affect these projections, such as the psychology of consumer behavior, political upheavals in the oil-producing countries and advances in technology. But "given the paucity of alternatives" to fossil fuels, "choking off energy demand means giving up a large portion of the economic growth that would otherwise be possible."