View Point

Friday, October 31, 1997

$4 per gallon gasoline
would make Hawaii better

A 'green tax' would curb oil consumption
and provide spur to develop new
energy sources

By C. Barry Raleigh

THE residents of this state are among the most heavily taxed in the country. Moreover, the only purpose these taxes serve is to pay the costs of government.

The general excise tax (GET), like the personal income tax, is without redeeming social virtue. The GET takes a higher proportion of annual income from the poor than the rich and, thus, is regressive.

Personal and corporate income taxes punish the very qualities that the state is trying to encourage -- industriousness, investment and entrepreneurial success.

Most agree that the GET and income taxes are bad news. But how can the state recover revenues that would be lost by doing away with them?

A revenue-neutral green tax on imported energy would not only make up much of that lost revenue, but actually lead to economic growth along with beneficial environmental consequences.

Nearly all energy fuels are imported into Hawaii. Petroleum imports alone account for 90 percent of our energy needs.

Consequently, we are exporting cash, about $1 billion a year, that can only be replaced by more tourist dollars or exports unless we want to go bankrupt.

The alternatives -- wind, biomass and solar energy, all potentially abundant energy sources in Hawaii -- aren't competitive because fossil fuels are artificially cheap.

The external costs associated with burning them, the CO2-induced greenhouse warming that is most certainly under way and the health problems caused by air pollution, are not included in the cost.

These are, of course, immensely difficult global problems. But brought down to the scale of our resource-poor islands, they take on an urgency that calls for solutions.

Hawaii's fragile economy is far too dependent on petroleum for energy requirements. A significant price increase in oil, such as the OPEC-mandated increase in the 1970s, would be devastating to our economy now.

Once the OPEC cartel collapsed, however, the U.S. government ceased to fund the research and development needed to establish cost-effective indigenous alternatives to petroleum. Oil prices are bound to rise again but now we need to look for market-driven, not governmentally mandated, alternatives.

Traffic problems on Oahu are a direct outcome of the artificially low price of oil. Cars are, consequently, a relatively cheap, convenient luxury and people won't lightly abandon them for dubious mass transit.

Suppose, however, if fossil fuel taxes brought gas prices comparable to those in Japan and Europe, about $4 per gallon.

Finally, a mass transit system

Public pressure for an adequate commuter transit system, such as those in Japan and Europe, would undoubtedly emerge with the concomitant reduction in traffic that we need so urgently in Hawaii. Fuel-efficient cars would become popular again.

A serious concern is that energy taxes are considered to be regressive. Also, in some cases, the automobile is essential for certain businesses or the jobs of some workers.

Easing pain of higher gas taxes

Adjusting the income tax structure could redress most of these inequities, however. Or, for those who pay little or no taxes, the revenues generated could be used to pay their automobile insurance.

With the formerly unavoidable GET or income tax gone, those who wish to also evade the gas tax can do so legally by finding alternative transportation, by carpooling or mass transit, for example. Those who wish to commute by another means than the family gas-guzzler could actually reduce their current tax bill significantly.

The green tax thus provides a market incentive for people to make the choices that can help their own pocketbooks while at the same time relieve traffic congestion, mitigate air pollution and reduce the cash outflow from the state.

Another favorable consequence of a petroleum tax is that alternative energy sources that are now uncompetitive will become attractive once the price of gasoline or electricity goes up substantially.

Thus, instead of exporting dollars for energy, production of renewable alteratives such as liquid fuels from biomass could become new industries in Hawaii.

Consider sugar cane as an example.

Sugar at pre-1980s production levels in Hawaii could generate more than 200 million gallons of ethanol energy equivalents of gasoline, or about 40 percent of our annual gasoline consumption for vehicles.

With some improvement in the technology for conversion, that volume could increase to 250 million gallons, produced at about $1.50 per gallon of energy equivalents.

Ethanol is a clean-burning fuel which, because it comes in the form of biomass, generates no net increase in greenhouse carbon dioxide in the atmosphere. It can be burned in automobiles mixed in any proportion to gasoline with relatively minor mechanical adjustments.

If ethanol, because it is an indigenous fuel, is not taxed, it would be considerably cheaper than gasoline and hence a commodity in high demand.

Green taxes, therefore, not only serve environmentally desirable ends but, in Hawaii, have considerable potential for helping improve economic conditions. Less cash outflow for fuel imports feeds job creation through growing and producing alternative energy.

New life for sugar industry

Sugar cane employed between 5,000-10,000 workers at its peak. Equally important, sugar and other biomass crops grown for energy alternatives to petroleum provide Hawaii with a much-needed strategic cushion against the shock of a rise in the price of oil, or worse, a repeat of the 1973 embargo.

It is like having Hawaii's own oil field producing 6 million barrels or more per year forever.

The state's frail economy is only one reason green taxes are timely. Our sugar industry still has much of the infrastructure necessary to put sugar back into production, in this case, as an ethanol source.

But in a few years that will not be the case. We need to be armored sooner rather than later against the economic body blow of a rise in the price of fossil fuels.

Finally, our traffic problems must find a solution and mass transit still needs the stimulus that market forces, namely $4 gasoline, can best provide.

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C. Barry Raleigh is dean of the UH School of
Ocean and Earth Science and Technology and president of the
Center for a Sustainable Future. The foregoing is his personal opinion.