Streetsblog Capitol Hill

To hear American Trucking Association (ATA) vice chairman Barbara Windsor tell the Senate environment panel today, truckers would face a grim economic future if the price of diesel fuel rises, as the ATA predicts would happen if Congress passes climate change legislation.

"If we have to add costs for diesel, I think we'd have a decline in jobs," Windsor told Sen. Jim Inhofe (R-OK), the senior Republican on the environment committee.

But for the ATA, more expensive diesel fuel isn't always a bad thing -- only when it results from putting a price on carbon.

The truckers' group supports increasing the federal diesel fuel tax, which has remained static for 16 years at 24 cents per gallon, but only "so long as the revenue is not diverted to other causes," as ATA's chairman explained this month.

So the ATA is in favor of putting a price on high-emissions diesel fuel, but only when the resulting revenue is used to advance transportation policies that meet with the trucking industry's approval. What makes the truckers different, then, from any other D.C. interest group that lobbies tooth and nail for its own bottom line?

For one, the ATA-endorsed claim that the climate bill amounts to a "$3.6 trillion gas tax" uses inflated estimates that differ markedly from those used by the independent Congressional Budget Office (CBO) and the Environmental Protection Agency (EPA).

Both the CBO and EPA have found that acting on climate change would lead to fuel price increases of around 25 cents per gallon by 2030. Meanwhile, diesel prices rose by 56 cents per gallon over a span of just three months this spring, a phenomenon the ATA chalked up to oil speculators. (The ATA has yet to endorse Rep. Pete DeFazio's [D-OR] proposal to tax oil speculators to pay for infrastructure improvements.)

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Seven months after first trying to re-brand congressional climate change legislation as an "energy tax," Senate Republicans were back at it today with a new report and op-ed that attempts to expose the climate bill as a "$3.6 trillion gas tax."

Sens. Kay Bailey Hutchison (R-TX) and Kit Bond (R-MO) gathered outside the Capitol today, flanked by aides wearing black stickers imprinted with the slogan "CAP & TRADE = GAS TAX," to promote a new report [PDF] that presents their "gas tax" assertions.

How did Hutchison and Bond get to their $3.6 trillion total, which their report calls "relatively simple and straightforward to calculate"? They simply multiplied their estimate of how much fuel the U.S. would consume between now and 2050 by their estimate of the per-gallon gas price increase that would result from an economy-wide emissions cap.

Hutchison and Bond got their numbers from the National Black Chamber of Commerce (NBCC), a business group that released projections on the cost of the House climate legislation at around the same time it joined the official astro-turf lobbying campaign against the bill. The NBCC's analysis, produced by consulting firm CRA International, is one of many competing cost estimates for the climate bill, each of them relying on different assumptions and models that claim to predict the future price of carbon under the pending legislation.

In fact, the NBCC analysis states (in Appendix C) that it has assumed higher CO2 allowance prices than the Environmental Protection Agency (EPA) analysis of the same House climate bill, thus resulting in higher estimates for the plan's impact on real-world carbon prices.

What does the EPA say about the House climate bill's likely effect on fuel prices? Its analysis found a 25-cent per-gallon increase by 2030, or less than three pennies per gallon per year -- small potatoes compared to the oil price swings of recent years, as the Pew Center on Global Climate Change pointed out.

Center for American Progress senior fellow Joe Romm has delved further into the claim, promoted by the oil industry, that a cap on carbon emissions would increase gas prices. Using the non-partisan Congressional Budget Office's estimate of allowance prices, Romm found a per-gallon gas price increase similar to the EPA's.

Still, it's unlikely that Hutchison and Bond would be fazed by economic models that discredit their case. Although they told reporters at today's event that they support cutting carbon emissions, the first page of their report makes clear that they dislike the very idea of more moderate energy consumption:

Advocates of climate change legislation want to increase the price of traditional forms of carbon-based energy, such as coal and oil, so that consumers are forced to respond by using less of those forms of energy. Policy-makers call this putting a price on carbon. Economists call this sending a price signal. The bottom line is that the price of energy will go up.

More expensive energy from climate legislation can be seen as a new national energy tax on American consumers and workers.

Late Update: Senate Foreign Relations Committee Chairman John Kerry (D-MA), the lead sponsor of the upper chamber's climate bill, came out swinging in response to Hutchison and Bond's report.

"Let’s actually have a debate based on reality,” he said in a statement that accompanied a rebuttal from his office. Check it out after the jump.

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On Monday, Elana Schor highlighted a recent column from occasionally right New York Times columnist Tom Friedman, who once again rolled out one of his favorite policy prescriptions -- an increased gas tax. Friedman wrote:

Tom Friedman (Photo: IvyGate)

According to the energy economist Phil Verleger, a $1 tax on gasoline and diesel fuel would raise about $140 billion a year. If I had that money, I’d devote 45 cents of each dollar to pay down the deficit and satisfy the debt hawks, 45 cents to pay for new health care and 10 cents to cushion the burden of such a tax on the poor and on those who need to drive long distances. 

The first and most obvious thing to point out is that it's far more likely that Tom Friedman's mustache will be elected president than it is that Congress will approve a five-fold increase in the federal gas tax, even one phased in over a decade or more.

There is a reason that gas taxes have not been increased in 15 years: expensive gasoline in America is incredibly politically unpopular, and not without reason. Increases in gasoline prices are painful for American households, precisely because the nation is so dependent on driving.

That's the tricky part. Prices need to be higher to reduce dependence on gasoline, but that very dependence makes price increases political suicide. What is needed is either an extremely gradual increase in gas taxes (on the order of the rate of inflation plus 1 percent per year), or increases in market prices (for which politicians will still be blamed), or an indirect levy of some kind that will act to reduce consumption.

A second point is that a $1 per gallon tax on gasoline and diesel fuel won't raise $140 billion a year for very long. Why? Because consumers respond to price shifts, and they respond a lot to large price shifts.

In 2007, the average, inflation-adjusted price of a barrel of oil was about $67 per barrel, and Americans consumed about 20.7 million barrels of oil per day. In 2008, the price of oil averaged about $91 per barrel (which translates into a gas price increase of about 60 cents per gallon), and consumption fell by more than 1 million barrels per day, to the lowest level since 1998.

The price goes up and consumption goes down, reducing the revenue one earns from the increase in price. What's more, the short-run demand response will often be mild relative to the long-run response.

Faced with an increase in the price of gas, households can't do all that much in the short term to respond. They may cut out unnecessary errands, or carpool, and if they live in an area with good transit access, they'll likely increase transit ridership.

But because of the household location decisions made in recent decades, most households will have few ways to reduce gasoline usage immediately. Consumption will fall, but not by much.

If months pass and the increase persists, then responses will grow more dramatic. Households will trade in gas-guzzlers for more efficient vehicles or buy bicycles. Consumption declines will increase.

And if increases are expected to be permanent, the long-run responses will be significant. Households may begin to choose home or job locations that minimize driving or that allow for use of transit, walking, or biking. Communities may begin designing themselves differently and increasing transit service.

And ultimately, consumption may fall to near zero.

That doesn't mean that driving will fall to zero. Read more...

We tend to have a few good laughs when Randal O'Toole fires up his Cato computer and weighs in on transportation issues. It's hard to take seriously a man who thinks that having the government tax people to build something which it then gives away for free is the libertarian ideal.

But occasionally O'Toole provides an opportunity to discuss some interesting aspects of the transportation planning process and learn from his errors. And so we turn to his latest policy paper, which was released yesterday. Therein, he writes:

The Interstate Highway System accomplished all of this [construction of the system] without any subsidies. Federal highway user fees paid for 90 percent of the cost of the system, and state highway user fees covered virtually all of the remaining 10 percent.

This brings up an interesting question: What is a user fee? Common sense would suggest that a user fee is a fee paid by a user of something in order to use that something. A common example might be a train fare. When one wants to ride a train, one purchases a ticket. One doesn't purchase a ticket if one doesn't want to ride the train, and one doesn't ride the train without a ticket. A ticket is specifically meant to extract a fee from a potential user, that that user might then be allowed to use the train.

So do gas taxes count as highway user fees? Well, one might pay gas taxes even if one never uses highways. You pay the gas tax on gas used to drive down local roads or private driveways, or to power lawnmowers and tractors that never even see publicly-funded blacktop.

And one can use highways without ever paying gas taxes. Anyone able to obtain a vehicle powered by natural gas or electric batteries or canola oil can ride on the federal highway system for thousands of miles and never pay one cent to do so.

So gas taxes are not user fees. Indeed, the lack of actual user fees is one reason American highways suffer from severe congestion problems; when you give away something valuable for free -- like scarce highway space -- it ends up seriously over-consumed.

As a thought experiment, let's consider a world in which federal gas taxes functioned more like a user fee. That is, let's imagine that when drivers fill up, they pay a federal gas tax only on the gasoline consumed while driving on federal highways. That's still not really a user fee, but it's a little closer.

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The Treasury Department sent $81 billion in taxpayer-subsidized aid to General Motors and Chrysler -- which is unlikely to be recouped in full -- using legal authority that "is the subject of considerable debate," according to a report released today [PDF] by the congressionally appointed bailout oversight panel.

The bailout legislation approved in October allowed Treasury to take over "troubled assets from any financial institution," but provided a very broad definition of the term.

That "ambiguity about congressional intent," the oversight panel stated, helped ensure that "Treasury has faced no effective challenge to its decision to use [bailout] funds for this purpose [of rescuing automakers]."

Media coverage of the report has focused on the panel's finding that GM and Chrysler would have to post an unprecedented financial turnaround in order to fully repay obligations to the government.

But the oversight panel isn't alone in concluding that taxpayers have a slim chance of recovering all their investments in the auto industry -- Ron Bloom, President Obama's chief manufacturing adviser, agrees.

From a footnote in the oversight panel's report:

During a meeting with Panel staff on August 11, 2009, Mr. Bloom explained that it was possible but unlikely that taxpayers would recover all of the money they had invested in Chrysler and General Motors. Mr. Bloom has acknowledged that “likely scenarios involve a reasonable probability of repayment of substantially all of the government funding for new GM and new Chrysler, and much lower recoveries for the initial loans.”

Those initial loans, the panel explained, are the $23.4 billion lent by Treasury to the pre-bankruptcy incarnations of the two struggling car companies.

So now that U.S. taxpayers have an inescapable stake in GM and Chrysler, what conditions should they expect the government to impose on the automakers? Read more...

More than a month after he first proposed the idea, Rep. Pete DeFazio (OR) -- along with 29 fellow Democrats -- has introduced legislation that would levy a small tax on oil futures trades in order to close the yawning gap in the federal transportation budget.

DeFazio's bill would set the tax at 0.2 percent for every oil futures contract and 0.5 percent for every option on a futures contract, which he has projected would raise nearly $200 billion for transportation over the next six years.

The prospect of reining in the Wild West world of oil speculators, whom lawmakers and heads of state of all stripes have blamed for creating furious spikes in gas prices, is an irresistible one for many members of Congress.

But DeFazio's bill sets broad exemptions from the tax for businesses that rely on "commercial" oil futures trades to guard against economic downturns or oil price fluctuations

Wall Street firms acting on behalf of those "commercial" traders, which range from oil companies such as Exxon to major trucking companies, would also be exempted from DeFazio's proposed tax -- so long as the firms never held the oil futures for their own profit-making purposes.

It's unclear how much those exceptions would drive down the value of the oil-futures tax. DeFazio's bill does answer skeptics who believe taxing securities transactions could drive business offshore by requiring foreign holders of U.S. oil contracts to deduct and withhold the tax themselves.

The bill's distinction between "commercial" and "non-commercial" oil traders could prove problematic, however, given how murky the distinction is for some financial analysts. Oil companies and banks often work both sides of the equation, making trades connected to legitimate business as well as trades purely to profit from price swings, making enforcement of the rules potentially difficult.

Further complicating the issue, the Commodity Futures Trading Commission could soon pull the rug out from DeFazio's transportation-funding plan by setting its own limits on Wall Street's speculative trading. Still, his proposal is worth watching in the coming days of fiscal uncertainty for infrastructure.

The full list of DeFazio's House Democratic co-sponsors is available after the jump.

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