VegOil vs. The Taxman
Pat pointed out a fascinating article about some of the possible pitfalls of using alternative fuels.
So last fall the Charlotte musician and guitar instructor spent $1,200 to convert his 1981 diesel Mercedes to run on vegetable oil. He bought soybean oil in 5-gallon jugs at Costco, spending about 30 percent more than diesel would cost.
His reward, from a state that heavily promotes alternative fuels: a $1,000 fine last month for not paying motor fuel taxes.
He’s been told to expect another $1,000 fine from the federal government.
And to legally use veggie oil, state officials told him, he would have to first post a $2,500 bond.
This strikes me as an absolutely fascinating legal/public policy problem. On one hand, I think it’s without question good for people to experiment and innovate with alternative fuels, and a large tax burden would do much do discourage this. On the other hand, it’s pretty obvious that it’s important for the rule of law to stand and for appropriate taxes to be collected such that roads can be maintained.
At current, there’s no obvious and straightforward way to make this happen. Sure, one-off waivers can be granted to individuals, but does that scale? (That said, does it need to? Is the “we really should have good rules in place to regulate them appropriately” threshold one that you don’t reach until a technology is pretty well mainstream?) I’ll be interested to see what sort of legislation pops up around alternative fuel cars.
On a personal note, I think VegOil cars smell like ass. But that’s just me.
June 21st, 2007 at 11:02 am
Hmmm…Most people say that the reason we should have taxes on fuel is to cover externalities. As you noted, roads are one of these externalities as well as pollution and other costs that the public at large must bare. At the local level, DMV Fees and Fuel Taxes may be the only way that they can fund certain public services.
So I don’t think it is necessarily bad to require that people pay “fuel taxes” even if they are using non-standard fuel. If the alternative fuel (not paying for its cost in externalities) is cheaper than petrol-based fuel (whose cost includes those costs) then people aren’t really getting the right signals about actual cost.
While I am all about encouraging growth in alternative fuels, I also have problems with the government trying to “Pick a Winner” by screwing around with market signals such as pricing. In general, this creates growth in ONE area, while stifling growth in other areas. Similar problems happened in Europe’s Cell Phone industry where EU insisted on adopting one standard (which got ubiquitous cell-phone coverage much quicker than the states, but made it more difficult to shift to 3G services when it turned out that the technology they started couldn’t compete).
As an aside, I think we are seeing this happen with Ethanol. I have not been able to navigate through the studies and counter-studies to decide one way or the other whether it is really an effective alternate fuel. But the massive subsidies and foreign tariffs that we are pumping into Ethanol production mean that the market is never going to make the optimal decision about it.
June 21st, 2007 at 1:49 pm
I have an inkling that we will see reflections in the tax code soon enough. There are so many social and economic policy exceptions in there already, such as exemptions for farm vehicles (which ironically Hummer owners have been able to take advantage of too).
HB’s comment about market signals is interesting. I always thought the ethanol subsidies were not about encouraging alternative fuel but were rather an agriculture measure to support corn growers. I don’t know precisely how much and where artificial mechanisms already skew pricing in the US but I expect quite a great deal, especially in agriculture/food products, fuel and petroleum based products, et al.
Oil companies already enjoy preferential treatment in the US market (although it doesn’t seem like it at the pump). Fun unsubstantiated rumor: I was talking to my Dad the other day (who at one time owned and operated a texaco station). He said at one point (long before the Aramco merger) its unpaid federal tax liability reached some catastrophic amount. Feds threatened, Tex refused to pay, and leveraged its position against the federal government since so many states depend on oil companies for tax revenues and employment. Then, as if by magic, the Saudis bought 500,000 shares of nonvoting stock in the exact same amount as Texaco’s outstanding federal taxes. Hmm, wonder how that happened.