Energy tax policy essay

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Research shows that without energy, there is no economy and without climate, there is no environment. This implies that energy and environment play an important part in people’s material well-being and national development. The world has been obtaining most of the energy from fossil fuels whose emissions are endangering the climate and environment. Energy tax policy should be considered as a vital part of a collection of government policies that includes economic development and environmental protection. In the United States energy tax policy is vital to the economic future as well as pollution control. 

The idea of energy tax policy seeks to have more neutral and more effective energy sources that generate benefits to the general economy. Implementing an energy tax policy reduces the country’s energy usage and encourages efficiency. Hyde says that energy tax policy will reduce costs and pollution and increase competitiveness (209). The policy that ensures a reasonable energy price for industry relative to residents will promote efficiency and conservation. The energy intensity of the country or economic sector is a useful inverse measure of efficiency. The energy tax policy incentive system to promote energy efficiency would help reduce pollution and improve the country’s public welfare (Hyde 209).     

In addition, energy efficiency and conservation measures play an important role in reducing demand for fossil fuels. Energy tax policy will promote the use of renewable sources of energy that is very important because the number of sources from which energy can be derived to meet the country’s demand for energy will be increased (Sherlock and Hollick 2). Unlike domestic fossil fuel subsidies, the energy tax policy is a long term one because it requires a commitment in the face of volatility in fossil fuel prices (Hyde 209). At the same time many renewable energy technologies in the United States have reached the stage where they are competitive in the market without subsidization (Sherlock and Hollick 1).

The energy tax policy should be undertaken in an effort to obtain the country’s long standing goal of enhancing the United States energy security (Sherlock and Hollick 1). The country’s inability to meet its oil needs from domestic sources for decades has been one of the main irritants in the United States energy tax policy (Sherlock and Hollick 1). The energy tax policy conservation and efficiency will provide approximately $1.3 billion, including a deduction for energy efficient commercial property.

A past rationale for energy taxes was to offset regulatory policies that controlled energy prices but these regulations are no longer in place. Cordes, Ebel and Gravelle (107) established that energy taxes appear less regressive when distributed according to estimated lifetime income. In addition it is also likely that the energy tax policy will appear less regressive when the indirect effects of taxing the energy used to produce energy intensive goods are taken into account (Cordes, Ebel and Gravelle, 107).

The energy tax policy is aimed at stemming growth in the country’s reliance on imported oil, particularly from volatile regions of the world. Sherlock and Hollick (5) established that the short term policies aim to increase the domestic energy production of fossil fuels, while the long term policies are aimed at promoting energy conservation and the use of renewable energy sources. The current long term policies of conservation and alternative fuel sources have origins in tax policies from the 1970s (Sherlock and  Hollick 5). The energy tax policy is being implemented by the Joint Committee on Taxation (JCT) in conjunction with the Internal Revenue Code and the Budget Committee of the United States.

The energy tax policy incorporates trade-offs between economical and political abjectives, which could either soften or worsen the existing distortions.  Sherlock and Hollick (6) indicated that if the policy is put in place the FY2012 Budget would eliminate several energy tax policies that encourage energy production from the coal, oil and gas industries while expanding incentives for energy efficiency and advanced energy manufacturing.

The energy tax policy will take care of three fundamental interest groups in the energy industry which includes corporations, customers and competitors. For the customers the energy tax policy reflects the shift from the policy which primarily focused on enhancing U.S energy security through diversification of resources towards a tax policy that more readily incorporates environmental concerns. For the firms in the energy sector the policy discourages the use of fossil fuels despite of their nation of origin (Eliasson Riemer and Wokaun, 533). However it has been noted that many renewable energy technologies may not have reached the stage where they are competitive in the market without subsidization.

Energy tax policy should be encouraged so as to promote the production of renewable energy sources while continuing to promote the country’s energy security. Eliasson, Riemer and Wokaun (533) noted that energy demand is fairly sensate therefore the policy can have substantial effects. Also the policy leads to more cost effective emission reduction than regulation because reduction will take place where economic efficiency is maximal. Since energy tax policy promotes efficient use of energy, firms become more experienced in the production and use of energy effective technologies and therefore their knowledge goes over to other related industries without compensation (Sherlock and Hollick 6).  

According to Eliasson, Riemer and Wokaun (533) the energy tax policy should be implemented so as to create minimum levels of taxation on electricity, natural gas, coal and other non-renewable sources of energy. Cass noted that plans should be instituted to recast the tax plan to address competitiveness concerns by focusing on the positive effects of the tax policy on employment, economic growth and reductions in carbon dioxide emissions (147).

In practice, the energy tax policy will have little short-term impact because energy markets are already regulated through government pricing policies (Cass 147). This implies that a shift towards the policy will cause the energy to be sold at prices that fully cover all costs including environmental costs and lead to bio-fuels becoming more competitively priced compared with conventional petroleum products, at least as niche market fuels. Cass says that a tax on the pollution, commensurate with the cost of removing the pollution, encourages cleaner fuel technologies and acts as a brake on the profligate use of fossil fuels (148).     

Cordes, Ebel and Gravelle (109) say that the energy tax policy is used to promote various objectives. Current taxes in the United States are used to primarily fund transportation programs and are justified as user taxes. The policy makers must ensure that these tax credits obtained from this policy are used consistently as intended by the law. It should also be noted that energy taxes may be employed as user charges for a public good or a quasi public good (Cordes, Ebel and Gravelle 109). Government should also promote policies that support the transportation sector, with tax incentives for hybrid and plug in electric vehicles, renewable sources of energy and alternative fuels.

In conclusion, the energy tax policy is directly connected to economic health and environmental benefits. The policy is also directly linked with the design of sustainable societies and the development of cultures. The paradox of poverty is that the poor pay a larger share of their income tax for inadequate access to unreliable energy that in turn affects them in terms of health and economic well-being. Energy tax policy reverses this cycle by ensuring that new technologies and smarter energy production and consumption come about as a result of public private partnerships around the world. 

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