On February 17, 1993, President Clinton proposed a domestic energy tax, quickly dubbed the Btu tax. When fully implemented in 1997, this tax will generate about $20 billion annually while imposing a small burden on any single customer. The Administration argues that this broad based tax will impose only a small burden on any individual consumer and exemplifies the President’s belief that shared sacrifice is needed to reduce the deficit.
The Btu tax will raise fuel prices, on average, by 6 percent. Experience indicates that farmers, manufacturers, homeowners and building managers can reduce energy consumption by 6 percent with investments that quickly repay themselves. The Btu tax is not a threat to the economy. It is a challenge to our ingenuity and our willingness to adopt proven energy saving techniques.
Opposition to the energy tax has been led by energy providers and energy intensive industries but major segments of the business community have also mounted an unusually coordinated and aggressive attack. The newly formed Affordable Energy Alliance boasts more than 900 companies and associations, including the Farm Bureau, the National Association of Manufacturers, the American Petroleum Institute, the National Federation of Independent Businesses. The Chamber of Commerce has also come out against the Btu tax.
The most overlooked and attractive aspect of the Btu tax is that it is easily offset. An income tax can be reduced only by lowering one’s income. A payroll tax can be diminished only by lowering wages or employing fewer workers. But an energy tax can be offset by reducing energy consumption, a strategy which not only saves the customer money but generates important economic and environmental benefits to the nation. If every sector reduced energy use by 6 percent by 1997, when the Btu tax will be fully phased in, everyone would win. The customer would pay no more for energy after the tax than before yet the federal government would receive virtually all the expected revenue.
This paper examines the potential for improving energy efficiency in three sectors: agriculture, manufacturing, and buildings. These sectors consume about 75 percent of domestic energy. This is an illustrative rather than exhaustive analysis, based on actual operating experience and focussing on a few well-documented areas for energy savings.
Our conclusion is that each sector can offset the Btu tax by using a different strategy.
Download the full report here – by David Morris, Michael Lewis, Irshad Ahmed and John Bailey, May 1993