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The Tax-Free Lunch
[SIZE=-1]By Charles Krauthammer
Friday, June 29, 2007; A21[/SIZE]
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The senator was vexed. The U.S. auto companies were resisting attempts by her and other Senate well-meaners to impose a radical rise in fuel efficiency by 2017. Why can't they be more like the Chinese, she complained. Or, to quote Sen. Dianne Feinstein precisely: "What the China situation, or the other countries' situation, shows is that these automakers, in all of these countries, build the automobile that the requirements for mileage state. And they don't fight it, they just do it."
Yes. That is how things work in Communist Party dictatorships. It is odd to hold up China as a model of corporate-government relations. It is also poor salesmanship. Just a week after Feinstein made that statement, the Brilliance BS6 sedan -- "a car with which [China] wanted to conquer Europe's automobile market" -- failed a German crash test so miserably that it may be banned from Europe, reported the European news agency AFX News. "It was the second time in less than two years that a Chinese-made car has failed the test, following the spectacular failure of the Landwind sport-utility vehicle made by Jiangling Motors 18 months ago."
You get what you pay for. When you build lighter cars with more fuel efficiency, you know that ultimately -- even with the best (let alone Chinese) technology -- safety is compromised. That happened three decades ago when U.S. mileage efficiency rose dramatically in response to the oil shocks of the '70s. It will probably happen again.
Now we may, as a society, decide that the trade-off is worth it. We may reason that fuel inefficiency leads to dependency on foreign oil which in turn leads us to lives lost in other ways -- such as wars to defend our interests in the oil-rich Middle East and elsewhere. But what we cannot deny is that there are trade-offs. What is fundamentally wrong with the energy bill the Senate passed last week and with the debate leading up to it is the chronic, almost pathological, refusal to recognize that there are such trade-offs.
Look at the major provisions of the bill. First, a mandated 40 percent increase in fuel-efficiency standards for automobile companies. What's wrong with that? Apart from the safety issue, there is the issue of cost. Car prices will rise. That could in turn drive one or all of the Big Three U.S. auto companies, all reeling financially, into insolvency.
That might be a worthy trade-off. This country desperately needs better gas mileage. But it does not come free. The most efficient and equitable way to both increase mileage and reduce gasoline use (increased mileage alone can induce people, perversely, to drive more) is with a new gasoline tax, refunded by means of reduced payroll taxes to make it revenue neutral. But there is absolutely no congressional or administration support for that, because it is too honest and open an acknowledgment that there is no free lunch. The reason Congress loves corporate average fuel economy (CAFE) standards is precisely that they hide the cost -- in the sticker price of a new car.
Whatever blame there is for the unfairness of life -- that energy efficiency is not free -- goes to the auto company rather than the mandating body, namely Congress.
That's the great attraction of ethanol, too. Another free lunch. The Senate bill mandates a quintupling of ethanol use by 2022. That might be a good idea, but it also has costs. With huge tracts of land now being turned over to grow corn for fuel, the price of corn already is rising, as is the price of other foods whose cropland has been taken over. The beauty of ethanol? It hides the price of purported energy efficiency in the most unlikely of places -- your cornflakes.
Mercifully, the Senate failed to pass a third proposed mandate from on high, a decree that power companies produce 15 percent of electricity from alternative sources by 2020. Because solar is expensive, wind is inconsistent in places such as the South, and geothermal is not exactly bubbling up in most states of the union, this mandate would have meant higher electricity prices.
I have no objection to paying more to reduce our dependency on foreign energy. But it is hard to conceive of a more politically dishonest and economically inefficient way to do it than with mandates that make private industry do Congress's dirty work, hide the true cost of energy efficiency and perpetuate the fantasy of the tax-free lunch.
