Alex Mills
By Alex Mills
Taxes on energy can either be major components in creating a healthy business climate, or the primary reason economies flounder.
Take Germany, for example. The Wall Street Journal reported recently that average electricity prices for companies in Germany have increased 60 percent during the past five years because of costs passed from government subsidies of renewable energy producers.
Prices are now more than double those in the U.S.
The story quoted Kurt Bock, chief executive of BASF SE, the world’s largest chemical maker, as saying: “German industry is going to gradually lose its competitiveness if this course isn’t reversed soon.”
Germany’s second-quarter gross domestic product declined 0.6 percent, and overall growth in Europe was flat.
However, Germany and the European Union has set binding target for 35 percent of Europe’s electricity to come from renewable energy by 2020.
Meanwhile, Europe’s cap-and-trade program continues to increase the cost of fossil fuels. The program has experienced troubled times, but it has managed to hang on by virtually neutering itself. The program hands companies an annual emission allowance. If they exceed it, they have to buy more on the open market or invest in clean technologies.
But the program handed out far too many allowances for free initially, causing their price to repeatedly crash. Worse, the European Parliament last year refused to scale back the allowances as planned for fear of prolonging the recession.
Back in the United States, California set up a cap-and-trade program in 2006 for utilities and heavy manufacturers. Starting on January 1, 2015, a cap and trade system will go into effect for all transportation fuels in California, including gasoline. Oil companies are predicting it will mean an immediate increase of at least 12 cents a gallon at the pump.
Time will tell when California’s consumers and economy say, “enough is enough.”
Australia figured it out, and it repealed its carbon tax recently that made utilities and industries pay an additional $23 per ton carbon emissions.
Australia is even more coal-dependent than America. Coal supplies 75 percent of Australia’s energy needs (compared to 42 percent in America). But contrary to green expectations, the tax didn’t prompt companies to rush toward renewable sources, because they are more expensive.
Rather, utilities passed their costs to households – whose energy bills soared by 20 percent in the first year. Other industries that face hyper-competitive environment, such as airlines, suffered massive losses. The tax also made Australian exports globally uncompetitive, deepening the country’s recession.
This spawned a backlash that brought down the Labor government and catapulted into office the Liberal Party’s Tony Abbott, who made a “blood promise” to ditch the tax, which he kept.
Some people learn the lesson the hard way, and apparently it takes a little longer for others.
Alex Mills is President of the Texas Alliance of Energy Producers. The opinions expressed are solely of the author.
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