Thursday, December 9th, 2010

The Price of Cheap Energy

Americans’ deep skepticism about the perils of global warming is perhaps most evident in the price they pay for energy. American drivers benefit from some of the cheapest gas outside the Middle East. A gallon of gas in the United States costs less than $3. In Germany it costs more than $7.

This has nothing to do with the supply and demand of oil, a commodity that carries more or less the same price around the world. The difference is all about taxes. Cheap gas at the pump is just one more sign of the failure of the American political system of taxing energy to temper its use.

The OECD has produced new data on environmental taxes around the world.  It shows a remarkably wide range of attitudes toward environmental goods. The Dutch levy nearly 5% of their gross domestic product in environmental taxes. The Mexican government, by contrast, pays its citizens to pollute with an energy subsidy worth about 2 percent of GDP.

The United States does better, but not much. Its energy taxes amount to about 0.5 percent of GDP.

It is a bit of a mystery to me why Americans would be so resistant to an environmental tax. Perhaps it has to do with the country’s vast size. Goods and workers in the United States have to travel longer distances, so it is natural that Americans would be more sensitive to the price of energy. But Australia is pretty big too, and Australian energy taxes are about three times as large, as a share of the economy. Canada, another big country, also has higher energy taxes.

Maybe the resistance to taxing energy comes from the same place where Americans get their hostility to all taxes. After all, neither Canada nor Australia have Tea Parties.

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