Want Less of Something? Tax it
Unfortunately, fossil fuels are the target
The British Parliament imposed a wealth tax in 1696 to fund its wars with Louis XIV. The tax was payable according to the number of windows in a property as a proxy for wealth, so it became known as the “Windows Tax.” It imposed a flat-rate house tax of 2 shillings per house plus a variable tax for the number of windows above ten. Properties with ten to twenty windows paid an extra four shillings, and those above twenty windows paid an additional eight. As a result, many windows were bricked up in properties around Britain. The effects of the Windows Tax can still be seen today in London, even though the tax was repealed in 1851.
The windows tax was historical evidence that proved what Ronald Reagan famously said more than a century later: “If you want less of something, tax it.” If you want more of something, subsidize it.” Recent legislation reflects these principles when applied to the current anti-fossil fuels and pro-renewables movement: tax fossil fuels and subsidize renewables.
When running for President of the United States, Joe Biden was clear that he intended to eliminate fossil fuels. He probably did not realize he was following Ronald Regan’s advice when he supported and signed into law the comically-misnamed Inflation Reduction Act (IRA), which contains a plethora of taxes on fossil fuels and subsidies for wind and solar on an unprecedented scale. In doing so, Biden is making progress on his campaign promise: “I swear to you that I will eliminate fossil fuel.”
President Biden knew from his 50 years of government experience that his goals could be accomplished with taxes, fines, fees, and over-burdensome regulations on fossil fuels, and he didn’t waste any time getting started. So on day one of his presidency, Biden canceled the Keystone XL Pipeline, put a temporary moratorium on oil and gas drilling in the Arctic National Wildlife Refuge, and started working on his agenda of oil and gas taxes.
Biden’s first legislative initiative to advance his green agenda was the “Build Back Better/Budget Reconciliation Bill in 2021. That bill died due to Senator Manchin’s lack of support. A year later, Manchin announced his support for the IRA, a 755-page bill containing almost every green dream and tax on fossil fuels ever conceived, which Biden signed into law on August 16, 2022. A summary of the many taxes and fees in that bill, plus other fees and penalties, are summarized below.
IRA tax on natural gas “methane emissions.”
The methane fee is a tax on natural gas aimed at reducing methane emissions by creating the first-ever charge on greenhouse gas emissions. The IRA imposes the charge on natural gas and petroleum facilities for methane emissions occurring after January 1, 2024. It applies to methane emissions from facilities that are required to report their greenhouse gas (GHG) emissions to the Environmental Protection Agency’s (EPA’s) Greenhouse Gas Emissions Reporting Program (GHGRP).
The tax on natural gas starts at $900 per metric ton of methane, increasing to $1,200 in 2025 and to $1,500 per metric ton beginning January 1, 2025. Based on estimates by the American Action Forum, the fee would result in an annual cost between $39 billion and $65.8 billion and as much as $337 million in fees per facility, increasing the overall cost of natural gas. Still, it would address only 2.6 percent of total annual reported greenhouse gas emissions.
This tax on methane has long been a goal of environmental NGOs such as the Environmental Defense Fund (EDF), which has pushed to eliminate the use of natural gas by penalizing methane leaks when natural gas is vented or released from pipes or other production infrastructure. Never mind that the increased natural gas consumption has enabled the U.S. to reduce its greenhouse gas emissions to pre-1990 levels by reducing coal consumption, making it the world’s leader in CO2 reductions.
IRA tax on crude oil
A particularly galling new tax on crude oil is hidden under the heading of “Part 6—Reinstatement of Superfund” Section 13601, page 18, which states:
“This provision would permanently reinstate Superfund excise taxes on domestic crude oil and imported petroleum products at the rate of 16.4 cents per barrel in 2023, with adjustments for inflation annually after that.”
The reference to “reinstatement of the superfund,” which expired in 1995, is a smokescreen for an entirely new tax on crude oil and all refined products, including gasoline, diesel, home heating oil, jet fuel, and even plastics. Essentially every petroleum product will be taxed by this provision. In addition, the IRA attempts to hide the fact that the revenues will be repayable to the General Fund of the U.S. Treasury until the end of 2032. In other words, the crude oil and petroleum products tax will be laundered through the Hazardous Substance Superfund Trust Fund.
Ari Natter, an energy and environment reporter for Bloomberg News, wrote of this new fee: “Democrats’ plan to reinstate a 27-year-old fee on oil imports represents a violation of a pledge by President Joe Biden not to raise taxes on anyone making less than $400,000 per year. But, of course, the conservative Americans made the same point for Tax Reform made the same point.
IRA tax on coal
The Inflation Reduction Act of 2022 made permanent higher tax rates funding the Black Lung Disability Trust Fund. Coal producers in the United States are liable for the excise tax imposed on the first sale or use of coal. The increased tax rates are as follows for sales and use after September 30, 2022.
“Underground-mined coal (Form 720, Quarterly Excise Tax Return, IRS Nos. 36 and 37). The rate of tax on coal from underground mines is increased to the lower of $1.10 per ton or 4.4% of the sale price. It was 50 cents per ton, 2% of the sales price.”
“Surface-mined coal (Form 720, Quarterly Excise Tax Return, IRS Nos. 38 and 39. The rate of tax on coal from surface mines is increased to the lower of 55 cents per ton or 4.4% of the sale price. It was 25 cents per ton or 2% of the sales price. For more information, see Chapter 5 of Publication 510, Excise Taxes.”
In the works: The social cost of carbon
As if the “tax fossil fuels out of existence” provisions in the IRA weren’t enough, the Biden EPA has proposed a quadrupling of the “Social Cost of Carbon.” This is a barely disguised form of tax on fossil fuels. Wikipedia defines the social cost of carbon as “the marginal cost of the impacts caused by emitting one extra tonne of greenhouse gas at any point in time, inclusive of ‘non-market’ impacts on the environment and health.”
The concept of the social cost of carbon originated with the Obama EPA. They waved their magic wand and came up with $43 per metric ton as the social cost of carbon, which they later increased to $51 per metric ton. President Trump reduced it to $7 per metric ton of carbon dioxide. The Biden EPA initially declared that the social cost of carbon was $51 per ton, but his EPA has quietly proposed increasing that number to $190 per ton.
That shows that the social cost of carbon is a made-up number, and no amount of claimed analysis can change that. In other words, “pick a number, any number.” Imposing such an absurdly high social cost of carbon in the cost/benefit calculation would ensure the end of any new permits being issued by the federal government for any fossil fuel-related projects, which moves the Biden administration toward Biden’s promise to eliminate fossil fuels.
David Blackmon summed it up precisely:
“It is no longer plausibly deniable that these proposed actions are all part of a plan by governments in the Western world to not only end economic growth in the name of “climate change,” but to reverse it. There can no longer be any real doubt of the motive.
In the works: A ban on gas stoves
One of the main goals of all fossil fuel tax and penalty schemes is to eliminate the use of natural gas. A recent example of this goal is the elimination of gas stoves for cooking. The uproar was so immediate and loud that the head of the Consumer Product Safety Commission quickly said it was not being considered. Then a few weeks later, the CPSC admitted that they were concerned about the “growing body of research” that supposedly linked gas stoves to adverse health impacts and were developing standards to address them. In other words, CPSC says they are trying their best to devise an excellent excuse to shadow-ban gas stoves.
Such excuses include studies like the UCLA study that Steve Everley exposed in an article in National Review. That study claimed that the “climate and health impacts of natural gas stoves are greater than previously thought” and called for “ending the use of residential natural gas.” In other words, CPSC will now attempt to kill gas stoves with a thousand cuts of regulations, making them too expensive to buy.
Bans and overly restrictive regulations are other forms of taxes.
In the works: Biden’s Proposed 2024 Budget Attacks Oil and Gas
While Joe Biden weakened his stance that fossil fuels should be eliminated quickly, his proposed 2024 budget shows no changes in the policy of taxing oil and gas out of existence. The President’s proposed budget calls for several tax increases targeting fossil fuels.
One is how drilling expenses, called intangible drilling costs, are currently handled, which allows producers to deduct most of their costs from drilling new wells. This is the same way all other business investment expenditures are handled. It is not a special tax “break” given to the oil and gas industry. American Petroleum Institute (API) senior vice president for policy, economics, and regulatory affairs, Frank Macchiarola, said the proposal contradicts recent Biden administration calls for more energy production. "While the administration has said in recent weeks that in this moment of crisis, we need more oil and gas supply, they are now proposing to eliminate an IDC tax provision that is specifically designed to attract investment in oil and natural gas development and is similar to tax provisions industries across the economy receive," he told Fox News Digital. "We again call on the Biden administration to adjust their policies to match their rhetoric.
Other targets for elimination are U.S. oil and gas subsidies, including provisions ranging from incentives for domestic production, write-offs and deductions tied to foreign production and income, and approved accounting methods that can reduce the stated taxable value of assets. Other provisions that would be repealed include the enhanced oil recovery tax credit, expanding intangible drilling costs, expensing mine exploration and development costs, and more.
The Joint Committee on Taxation, a nonpartisan panel of Congress, has estimated that eliminating it could be a tax on the oil and gas industry of $31 billion over the next ten years.
Where do the damaging energy policies of taxing fossil fuels out of existence lead?
While Joe Biden campaigned to eliminate fossil fuels, he recently admitted that fossil fuels are needed for at least ten years. This admission drew raucous laughter from Republicans because they know fossil fuels will be required for many decades. Biden’s new position on fossil fuels was echoed by Energy Secretary Granholm at CERAWeek recently when she said, “we know that oil and gas are going to remain a part of our energy mix for years to come,” which is a remarkable shift in tone.
However, this significant change to the administration’s position that oil and gas should be eliminated as soon as possible has not changed the administration’s policies. The philosophy of taxing and regulating fossil fuels out of existence is still in place, as evidenced in the recently released presidential budget released last week. Moreover, Biden has not asked to repeal taxes and other bureaucratic limitations on fossil fuels already in place, nor will he ever do so.
The fundamental problem of taxing fossil fuels and increasing their prices is that the energy industry drives all other sectors, meaning that energy prices drive all different prices. As energy prices go up, all other prices increase as well. Higher prices on fossil fuels increase the cost of everything because fossil fuels are critical components of everything in modern life.
Increasing the prices of fossil fuels will not only drive up the cost of food, shelter, and clothing, but it will also drive up the cost of the renewable fuels infrastructure that Biden and others envision being the replacements for fossil fuels. For example, increasing the prices of fossil fuels increases the cost of building all those wind turbines and solar panels because they will require massive amounts of fossil fuels. Vaclav Smil laid out the numbers:
“For a single 5-megawatt wind turbine, the steel alone averages 150 tons for reinforced concrete foundations, 250 tons for the rotor hubs and nacelles, and 500 tons for the towers.” To make the steel required for wind turbines that might operate by 2030, you’d need fossil fuels equivalent to more than 600 million tons of coal” (Vaclav Smil, “Numbers Don’t Lie,” page 147-150).
The costs and prices of wind turbines, solar panels, and everything green will skyrocket along with the prices of fossil fuels, potentially leading to shortages of all forms of energy.
The markets for the raw materials needed for wind turbine construction were tight and immediately tighter when the IRA was passed. The cost of rare earth minerals and the more mundane materials such as steel, concrete, and copper were already experiencing skyrocketing prices due to supply limitations. In addition, a recent Wall Street Journal article highlighted the drastic slowdown in wind projects in the U.S.
These increasing prices for raw materials and energy-related commodities will keep driving inflation, forcing the Fed to raise interest rates even more as they try to quell inflation, resulting in a double whammy on the economy.
Unless the U.S. energy policy, which is currently driven by the ideology of quickly and forcibly replacing fossil fuels with wind and solar, changes soon, high energy prices and reduced energy supply will quickly become the new normal. It is hard to see how the U.S. economy can improve in these circumstances. The U.S. is facing a severe slowdown in economic activity and continued inflation, or stagflation, due to unrealistic and destructive energy policies.