- The Washington Times - Sunday, July 16, 2000

This summer of America's discontent brought on by high gasoline prices should bring ringing cheers from the Big E environmental groups in D.C. After all, Sierra Club, Natural Resources Defense Council and other big budget environmental organizations have long called for massive taxes on fossil fuels (gasoline, oil, coal, etc.). Making fossil fuel high priced is the panacea the Big E groups advocate to cure perceived environmental ills ranging from global warming to air pollution to urban sprawl.

Despite all the costs of environmental regulations built into the price of gasoline already, inside-the-Beltway environmentalists insist the federal government should levy a hefty (and arbitrary) tax. The objective is to get Americans out of their SUVs and full-sized autos and into public transit or small fuel-efficient autos preferably cars that are not powered by gasoline engines. They point to Europe and suggest we follow its example.

Interestingly, this appears to be the summer of Europe's discontent with high gasoline prices, as well. In early June, when gasoline prices were reaching new highs in Germany (as they also were in the United States), opposition parties, car manufacturers and even the government's own National Council on the Environment called for a suspension of Germany's "ecological tax" on fuels and energy. German gasoline prices have risen about 0.45 marks a liter (75 cents a gallon) since December 1998 to an all-time high of 2 marks a liter ($3.60 a gallon) in June. Eco taxes levied in April 1999 and January 2000 accounted for just more than one-fourth of the increase, or about 20 cents a gallon. Eco taxes plus value-added (sales) taxes accounted for more than 40 percent of the rise in German gasoline prices.

The response by the ruling coalition, the SPD and the Greens, was to point the finger in a variety of other directions and to vow to continue planned-for annual increases in the eco tax of about 11 cents a gallon for each of the next three years. A government spokesman placed the blame on three other factors: (1) output restrictions by the OPEC cartel, (2) a weak Euro (making dollar-denominated oil imports more expensive), and (3) strong demand for oil in the United States.

An environmental expert for the opposition Christian Democratic Union pointed out that the eco tax was supposed to increase energy prices for the sake of higher efficiency and lower consumption. In light of the already high market price, the avowed purpose of the tax would seem superfluous.

The United States is much less densely populated than Europe and our transportation system development has favored highways over public transit. This is not, as environmentalists infer, because Americans are not as bright as Western Europeans but because our system of transportation better fits our geography, demographics and the personal preferences of the vast majority of our citizens. As a result of our high degree of automobile ownership and dependence on the auto for commuting, high gasoline prices have a significant impact on family budgets particularly the budgets of lower-income families in suburban and rural settings.

But if high gasoline prices are just what the big DC-based environmental groups wanted, why aren't they applauding the current situation? The answer is rather simple: Prices that are generated by market dynamics (even production decisions by OPEC) rise and fall. Taxes can be kept high and do not provide incentives for producers to increase supplies, which would then lower prices. Further, taxes allow government policy-makers, with the help of the Big E environmentalists, to decide what to do with the public's money.

The big U.S. environmental groups are fortunate that they have not been successful in their efforts to impose a large eco tax on fossil fuels. It wouldn't take long for American motorists to realize they would prefer to endure the ups and downs of gasoline prices set by markets (even markets distorted by OPEC) rather than face permanent high prices due to federal taxes designed to overrule their transportation preferences.

Kenneth W. Chilton is environmental program manager at the Center for the Study of American Business at Washington University in St. Louis.

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