July 22, 1977

July 22, 1977 | Backgrounder on Energy and Environment

Economic Impact of Carter's Energy Program


(Archived document, may contain errors)

- 27 July 22, 1977 ECONOMIC IMPACT OF CARTER'S ENERGY PROGRAM Background As the Carter Energy,Package nears the end of its considera tion in the House, concern is growing over its potential cost to the American public. Much of the measure consists of tax programs intended to either encourqge or discourage some sort of activity in th e energy area. While the Administration has repeatedly emphasized that the taxes will be rebated, the fact is that in many instances they will not be returned.

For example, one of the more significant tax credits is for insulation; however, there is some i ndication that there will not be nearly enough fiberglass available to meet even rela tively modest increases in demand. Without this material many firms will not be able to insulate and therefore not be able to take this credit.

Another fnstarlce of no r ebate credit is that most firms will not be taking the risk associated with unproved technologies such as soLar and wind power. In any case, where they do these technologies have relatively specialized applications at present. The simple fact is that the m ajority of the tax revenues under the Carter plan will wind up in the federal coffers and quite possibly eventually be used for social pro grams. For example, while the Administration claims that all of its crude oil tax will be rebated, in fact only 75% will be, leaving $40.8 billion out of $163 billion to be eaten up by administrative and similar costs.

Other costs associated with the Carter Energy program are more diffiault to identify than taxes. For instance, as we depend on increasing amounts of impo rted oil, we not only pay higher prices but become more vulnerable to economic dislocation as well. One thing is certain form is going to significantly raise costs to the public and the energy bill in its current i 3 Added Costs from Imports One aspect of the costs of the Carter energy program which has received relatively little attention is the potential addi tional cost of imported oil. While there are some OPEC members who take a more moderate view of price increases, many of them are pushing quite har d for significant escalations in the cost of crude. While the actual amount of the increases is ob viously open to debate, there can be iittle doubt that they will be significant. One must remember that the initial in crease voted by OPEC was nearly 400 Th e re is no reason to believe that the members of OPEC will be content to merely keep pace with inflation. For the purposes of this estimate it.has been assumed that OPEC increases will average only 3 annually. This, of course, is far less than the increases have been historically; however, even at this figure they come to a substantial amount. Based on an assumed 3% annual increase in the real price of oil, the cost of imports for the period between 1978 and 1985 will be fully $57.8 billion.

This amounts to over $825.00 for every family in the United States Natural Gas Much has been said about the pricing of natural gas considerable evidence of its price responsiveness and of the fact that the current low prices have been a strong disincen tive to exploratio n and development. There is no reason to believe that the $1.75 price contained in the energy bill will provide the incentive necessary to increase our supply. In fact, there is a considerable body of evidence which would in dicate the opposite. For the pu r poses of this estimate, how ever, the secondary costs associated with shortages which are likely to occur at the $1.75 price have been ignored. Although these costs will be severe, they are difficult to quantify as their exact nature is dependent on a num b er of exogenous vari ables such as region, time of the year, and the like. Instead it is assumed that supplies will be adequate to meet demand and the tax consequences are all that will be considered alone are significant enough to be of considerable conc ern.

For the period between 1978 and 1985, it is estimated that the cost of the taxes on natural gas will amount to $44.2 billion or slightly over $631.00 per family There is These Gasoline Taxes One of the most onerous taxes to the middle class citizen is the tax on gasoline is inadequate mass transit are going to be especially hard hit.

Individuals living in areas where there 5 conversion (the cost of coal conversion will be $722.00 for every family just for utilities 1978 1979 1980 1981 1982 1983 1984 1 985 im rn 4 m. m. m 832. m The American public is on the verge of discovering just how expensive the Carter Administration's approach to solving the energy puzzle will really be.

By Milton R. Copulos Policy Analyst Figure #1 TOTAL COST OF CARTER PLAN Bill ions of 1977 Dollars 1981 1982 1978 1979 6.3 Total 1980 6.7 1983 8.9 1984 1985 9.1 Taxes on Oil less Rebate 2.0 8.8 7.1 7.2 56.1 Taxes on Natura 1 Gas 6.2 6.0 pr 6.0 5.9 6.8 6.8 1. 6.5 44.2 Gasoline Taxes 9.0 2.1 4.8 8.2 8.3 8.5 8.7 58.8 Auto Ef f icien T a xes 1.0 1.0 1.0 1.0 2.0 2.0 10.0 1.0 1.0 Tax on Coal .21 22 .23 .24 .25 .27 1.81 .19 .20 Added cost of Imported Oil 1.5 3.3 5.3 7.6 10.2 13.4 16.5 57.8 16.0 Addition Fed. tax caused k inflatic from Taxes Energ1 16.0 19.0 18.0 98.0 5.0 9.0 13.0 2.0 Utility Conver sion2 50.6 54.84 58.25 59.57 377.31 7.29 25.0 34.41 46.43 Total 40.92 Source: Chamber of Commerce Forecasting Center Model 2Source Edison Electric Institute Annual figures not available Figure #2 TAXES ON OIL Billions of 1977 Dollars 1978 8.1 1979 1 981 23.0 1982 22.4 1980 23.7 1983 21.8 1984 20.5 1985 19.8 Total 163.0 We 1 lhead Tax on Crude Oil 23.7 6.1 17.8 16.8 16.3 15.4 14.8 122.2 Rebate 17.8 17.6 Admini strative and Op port un i ty cost 2.0 5.9 5.9 5.8 5.6 5.5 5.1 5.0 40.8 Indus trial Users Tas .8 1.3 1.6 2.1 2.4 2.8 11.4 B .4 Utility I Tax 1.3 1.3 1.3 3.9 Direct cost to Consumer 56.1 I Annual I cost to Consumer Less Re bate 7.1 7.2 8.9 9.1 2.0 6.3 6.7 Figure #3 PI Industrie Users Tax Utility Use Tax 6.2 Annual cost to Consumer 1978 1'9 7 9 TAXE S ON NATURAL GAS Billions of 1977 Dollars 1980 6.0 6.0 1981 1982 I i 60159 Total 41.4 2.8 I i 44.2 Tax on Under ground Bitumi i nous I Coal I I Figure #4 TAX ON COAL Millions of 1977 Dollars Tax on Surface Bitumi- nous Coal Tax on Lignite Total Tax on Coal Mining 1 Estimates based on Bureau of Mines data.

Figure #5 EAtensioi of Exist ing Gaso line Tax Addition Gasoline Tax Repeal 0 Deduct io for State Gas Tax Auto Ef f icienl Tax Annual Total MISCELLANEOUS TAXES Billions of 1977 Dollars 1978 PI 2 12 1 3.12 1 House Ways and Means Committee.'data, rounded to nearest hundred million dollars Figure #6 95.2 78.7 16.5 cost of Imported Oil 553.4 495.6 57.8 Domestic Price for Equal Volume Added Cost from Imports ADDED COST OF IMPORTED OIL Billions of 1977 Dollars 1 982 1983 71.7 64.1 78.7 68.5 1984 87.7 74.3 13.4 5.4 1.5 Figure #7 I 34.0 I 10.8 OIL CONSUMPTION Billions of Barrels Annually 88 8.5 Total I 6.36 62.0 3.1 I 28.0 I I I 1 Source: National Chamber of Commerce Forecasting Center.

I 2 Federal Energy Administra tion data 3 Edison Electric Institute I I I Figure #8 NATURAL GAS CONSUMPTION Trillions of Cubic Feet 19 7'9 1978 5.8 1980 5.8 1981 6.0 1982 6.0 1983 6.2 1984 6.1 1985 6.3 Industria Consump tion Less utility consump i tion) 5.9 l Utility Consump tion 2.4 2 .1 1.8 1.7 1.5 1.5 1.2 2.2 8.1 7.9 7.8 7.6 7.4 Total Industria Consump tion 7.9 Total Consump tion 16.9 16.7 16.5 16.6 16.7 16.7 16.7 16.4 0 Figure #9 COAL PRODUCTION in millions of tons 1980 1981 1982 1985 1983 423.0 1984 433.0 1978 320.5 1979 344.0 Unde r ground Bitumi nous Coal 362.0 386.0 406.0 452.0 Surface Mined Bitumi nous Coal 389.9 404.8 434.8 458.8 482.0 522.2 556.0 42.0 503.4 38.6 39.8 Lignite 35.2 37.0 29.6 31.2 33.2 Total Produc t ion 740 780 830 880 925. 995 1,050 1 Source: Bureau of Mines dat a

About the Author