Planet Gore

Forcing ethanol: The BTU tax pickle

In (belated) reply to Anne Korin’s Feb. 20 post about ethanol and a BTU fuel-tax reform. . . .

My purpose was not to favor taxing by volume over energy-content, but to illustrate the multiple government interventions alternative fuel proponents require to legitimize their particular fuel (a different tax system, government subsidies, mandates for cars, mandates for filling stations, etc.).
 

But Anne’s BTU-based system is deserving of serious discussion.

 

Her question: “Given the wide variety of fuel options that could be sold at fuel stations — each with different BTUs per unit volume – and the fact that fuel taxes are used to fund our highways, wouldn’t the fairest way to allocate such taxes be according to the relative amount that people drive?”

 

Well, it depends on which variety of fuel option you’re lobbying for. Anne likes ethanol fuels which a BTU system favors. But diesel advocates – like Europe — don’t.

 

Because Europeans want an outcome that favors fuel efficiency, they like diesel’s higher energy content (138,000 BTU per gallon vs. gasoline’s 118,000) so they’ve taxed it less. Thirty-five percent less! The result (and $7.50 gas) is why Europe uses less fuel than 30 years ago now that “alternative diesel” engines make up 55 percent of its fleet.

 

Or take hydrogen, which also has a substantial political lobby advocating it as the future of U.S. transportation. Hydrogen contains three times the BTU content of gasoline. A BTU tax wouldn’t fit their agenda either. In fact, given hydrogen’s distribution by kg (virtually identical to a gallon), they are quite content with a volume tax system.

 

Well, not really “content.”

 

Like Euro diesel advocates, the hydrogen lobby wants a competitive advantage. Talk to any alternative fuel lobby, actually, and the common theme is: Tax us less!

Says Steve Ellis, chief of alternative fuels for Honda: “Do you want to tax something that is solving a societal ill?” Alternative fuels should be like churches apparently – tax exempt.

 

Electrics aside, volume taxation is likely to stay both because of its transparency (drivers fill up by volume after all, not BTUs) and because states depend on fuel tax revenue. Following Brazil’s national push for ethanol (now 40 percent of that market), state provinces are seeing big budget shortfalls (Sao Paulo alone is losing $600 million a year according to a World Bank study) due to the BTU taxation of E100 ethanol.

Fifty U.S. states won’t like that either. Yes, that’s politics. But alternative fuel lobbies that want political favors must also live with political drawbacks.
One more reason to let the free market sort out the fuels debate.

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