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Proposed oil tax a barrel of trouble for Hawaii


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POSTED: Thursday, November 26, 2009

I used to believe that Hawaii should pass an oil tax. This tax would be imposed on the use of fossil fuel and the money raised would be used to establish a renewable energy fund.

Unfortunately, the proposed state oil tax is anti-business, anti-labor and anti-common sense, and might significantly increase greenhouse gas emissions.

Assume that two barrels of oil are shipped to California for refining. One barrel of refined petroleum products is combined with some other raw materials to make finished products that are then shipped to Hawaii. Simultaneously, the other barrel of refined petroleum products and the raw materials are shipped to Hawaii so that Hawaii labor and businesses can make the same products in Hawaii.

Assume that the identical imported and local finished products are then sold at local stores. The local products have higher internal costs and therefore must be sold at a higher price. The internal costs are higher because products made in Hawaii would be taxed on the petroleum inputs that are imported, while products made elsewhere that contain embedded petroleum products are exempt from the tax.

The locally made products also have higher external costs because the state must account for the greenhouse gases associated with the production of goods within Hawaii but not of goods from elsewhere. Therefore, locally produced goods, made under identical circumstances as imported goods, and which are assumed to be made with the same amount of greenhouse gas emissions, are recoded as having higher greenhouse gas emissions.

Thus, an oil tax is anti-Hawaii business and anti-Hawaii labor, since it gives better treatment to imports instead of local produts.

The oil tax is anti-common sense because products can be made with any fossil fuel, including petroleum oil, coal and tropical biofuels. Clearly oil has the least impact of these three fuels. Yet the oil would be taxed, the coal would not, and the imported biodiesel (unlike imported ethanol) would receive a federal tax credit and also receive favorable treatment under both the Kyoto Protocol and the House Waxman-Markey climate bill. Thus an oil tax would encourage producers to shift their fuel use from petroleum oil to coal and tropical biofuels, both of which are far worse for the planet than petroleum oil.

One could argue that shifting priorities from imported fuels to locally produced renewable energy could produce some net benefit. This, too, is a fallacy. The state does not distinguish between different types of “;green”; fuels. The state also does not distinguish, with the exception of hydrogen, between different production methods for a given type of “;green”; fuel. Ethanol is “;green”; energy regardless of whether the energy used to make it comes from biomass, hydroelectric, geothermal, oil, coal or tropical biofuels; and regardless of how efficient the process was.

There is no way currently of knowing whether the Hawaii renewable energy fund would subsidize systems that contribute to higher or lower levels of greenhouse gas emissions.

Thus, oil tax legislation would be a mistake.

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Henry Curtis is executive director of Life of the Land.