California Tax Punishes Energy Savers

Written by jordan on . Posted in Blog

by Fred Foldvary

Californians who seek to avoid paying $4 per gallon for gasoline by switching to grease or vegetable oil are being subjected to a rude shock. The state’s taxes and regulations on fuel apply just as much to the do-it-yourself guy as a global corporation. A news story in the May 8, 2008, Los Angeles Times told how a mechanic who uses fuel made of fryer grease was hit with fines, paperwork, and taxes.

The mechanic was told that he needs a diesel fuel supplier’s license and has to pay the state’s 18-cent road tax on each gallon of grease. This fuel entrepreneur also needs a license from the state’s Meat and Poultry Inspection Branch to take kitchen grease from restaurants. The state has also forced him to carry $1 million in liability insurance, and he needs a permit from the state Air Resources Board to burn fat.

The state also restricts the “grey market” for cars—vehicles that Californians buy in Europe and then must be registered in California. The state requires the cars to be tested at licensed labs, but there are very few such labs. Foreign cars that run on diesel and that could also use clean and cheap vegetable oil are thus discouraged.

The state and federal politicians have split personalities when they make policy for alternative energy. They shower wind and solar energy companies with tax credits and other subsidies. They promote electric cars and set ever higher gasoline efficiency standards. But when individuals use cheaper alternatives to gasoline on their own initiative, the state makes it more difficult and costly.

If the state were to be consistent in promoting less gasoline use, it should exempt the use of grease and vegetable oil for fuel from the fuel tax. Some might argue that if there is a fuel tax, it should apply to all fuels, since if grease is less costly, the after-tax price would also be lower. From the libertarian perspective, there should not be any tax on fuel. The fuel tax is an arbitrary imposition on the consumption of a particular service—transportation—that arbitrarily makes that service more expensive relative to other goods and services. It extracts money just because people need to travel.

Some argue that a gasoline tax is like a fee for the use of roads. But there is little connection between consuming a gallon of fuel and the cost of the street or road that the vehicle is using during that consumption. Taxing fuel to pay for road upkeep is like taxing shoes to pay to maintain sidewalks or taxing eyeglasses to pay for street lighting. An entrepreneur would not finance a private road by charging extra for buying gasoline. He would charge tolls as a direct user fee, charge cars that pollute, have extra fees for heavy trucks, and negotiate with communities adjacent to the road to pay for access.

Requiring a license to take kitchen grease from restaurants is absurd. The grease would otherwise be wasted and would add to environmental damage. Common and civil law provide sufficient remedies in case grease is spilled: those who are damaged can negotiate for compensation or sue for the costs. Likewise, a permit to burn fat is an unnecessary burden. If there is any extra pollution from burning fat, a permit will not compensate for it.

As to liability insurance, surely an entrepreneur would want that, since without it his personal assets are at stake. Nevertheless, the requirement for liability insurance is one that a network of private free-market communities might also require for those doing business on their domains, so that is not a battle a libertarian would pick.

The main problem is that the state of California imposes arbitrary restrictions and costs on those who seek to lower their fuel costs, pollute less, and reduce dependence on gasoline. The state should enact a law eliminating all restrictions on the use of grease and vegetable oil for vehicles and just let civil law handle any problems that may occur.

We don’t need subsidies for alternative energy. It is sufficient to let the market work without arbitrary obstacles. Thousands, maybe millions, of car drivers would switch to cheap vegetable oil or grease if only the state got out of the way.

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Fred E. Foldvary teaches economics at Santa Clara University, where he is also an associate of the Civil Society Institute. His main areas of research include public finance, public choice, social ethics, and the economics of real estate.