The best way to tax polluters, fight climate change and reduce the deficit? Raise the federal gas tax

Last week, Maryland’s Chris Van Hollen and a handful of fellow liberal Democrats in the U.S. Senate announced legislation to tax the oil industry on the basis of their greenhouse gas emissions.

There is clearly merit here. After all, to not charge oil companies for knowingly producing a product that contributes so much of the excess carbon dioxide and methane gas that is harming the planet would, in essence, be to have taxpayers underwrite Big Energy’s profits. Government is forced to spend billions, if not trillions, to address wildfires, droughts, sea level rise and the many other deleterious effects of global warming. Should we have given pesticide manufacturers the same free ride when their product was linked to birth defects? To lead paint producers? Hardly. Companies that continue to profit from the harm they so obviously cause others (including taxpayers) should be forced to pay. To not assess them provides an incentive for greenhouse gas producers to continue this folly.

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But here’s the rub: Sen. Van Hollen and other advocates believe that consumers are off the hook in this assessment.

They argue that oil companies couldn’t just pass along the tax to consumers because it’s based on their past actions. In other words, some of their competitors won’t necessarily face the same tax burden and thus there won’t be a major increase in their costs going forward. Any company that attempts to raise prices at the pump would get undercut by a rival producer that does not. The result of this economic principle of “cost of production?” Shareholders would presumably take the financial hit. At least that’s the theory.

Here’s a better idea. Why not raise the federal gas tax? It’s been stuck at 18.4 cents per gallon since it was last raised in 1993. During those 28 years, inflation has caused it to lose about 45% of its value. Today, ordinary taxpayers have to underwrite the federal government’s investments in transportation that gas tax revenue largely financed in the past. That’s been made particularly obvious during recent negotiations over infrastructure spending. Even President Joe Biden was unwilling to put an overdue gas tax increase on the table. Why, you ask, particularly given how states, including Maryland, have raised the gas tax to pay their share of transportation costs? Simple: Because it would inevitably result in higher prices at the pump, and politicians of both parties fear how voters would react to that.

This is madness. If the United States is going to get serious about dealing with climate change, it can’t continue to promote low gas prices. Other countries don’t. In Europe, the average gas tax is around $2.35 per gallon — or more than four times the combined state and federal tax in the U.S. Why would U.S. drivers invest in electric or hybrid or even fuel efficient vehicles if they have so little incentive? Far better to pay more at the pump to help generate investments in low-polluting technologies like high-speed rail or fast-charge EV stations than see the money go to oil company executives and their shareholders.

When we pay more in gas taxes, we are essentially paying ourselves, not oil companies.

Sure, it would be much easier if we lived in a world where you could have your cake and eat it, too, which is what having cheap gasoline but reduced greenhouse gas emissions amounts to. That’s just not realistic. Simply let the gas tax rate rise with inflation and by doing so follow the example of peer nations like Canada, Japan and Germany, where fuel taxes represent 32% to 61% of the price at the pump instead of the pitiful 19% the U.S. maintains today.

We could fix roads, bridges, airports and ports while investing in the transportation of the future and sparing the next generation from having to finance billions, if not trillions, of deficit spending by choosing this option.

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That would be rational government policy. But if Congress still isn’t willing to do the responsible thing, Sen. Van Hollen’s Polluters Pay Climate Fund Act would at least be a start.

— Baltimore Sun