Definition of 'Energy Tax'

A surcharge on fossil fuels such as oil, coal and natural gas. The purpose of an energy tax is to
give businesses and consumers an incentive to use alternative energy sources, such as solar and
wind power, and to raise revenue for the government in order to finance public spending. Some
environmentalists believe energy taxes are necessary to reduce the greenhouse gas emissions that
are theorized to cause global warming. Opponents of energy taxes warn of their unintended
consequences, like an increase in the price of virtually everything that will reduce individuals'
and families' disposable income.

Investopedia explains 'Energy Tax'

Energy taxes can exist in a number of forms, from regulations that require automakers to reduce
cars' carbon dioxide emissions to surcharges on electricity bills. President Obama's fiscal year
2010 budget included a cap-and-trade energy tax.

Read more: http://www.investopedia.com/terms/e/energy-tax.asp#ixzz2Mr6pDWmQ

Energy Tax Act

From Wikipedia, the free encyclopedia

The Energy Tax Act (Pub.L. 95–618, 92 Stat. 3174, enacted November 9, 1978) is a law passed by the U.S.
Congress as part of theNational Energy Act. The objective of this law was shift from oil and gas supply toward
energy conservation; thus, to promote fuel efficiency and renewable energy through taxes and tax credits.[1]

Contents
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 1 Tax credits for conservation

 2 Gas guzzler tax

o 2.1 Economic impact

o 2.2 Market impact

 3 See also
 4 Notes

 5 External links

[edit]Tax credits for conservation

This law gave an income tax credit to private residents who use solar, wind, or geothermal sources of energy.
The credit is equal to 30% of the cost of the equipment up to $2000, as well as 20% of costs greater than
$2000, up to a maximum of $10,000. There were also tax credits to businesses for renewable energy
equipment, amounting to a maximum of 25% of the cost of the equipment.

The renewable energy credits of this law were increased by the Crude Oil Windfall Profits Tax Act of 1980.

[edit]Gas guzzler tax

The Act also created the gas guzzler tax[2] which applies to the sales of vehicles with official EPA-estimated gas
mileage below certain specified levels. In 1980, the tax was $200 for a fuel efficiency of 14 to 15 miles per
gallon, and was increased to $1800 in 1985. In 1980, the tax was $550 for fuel efficiencies of 13 mpg and
below, and was changed in 1986 to $3,850 for ratings below 12.5 mpg. The Gas Guzzler tax only applied to
cars under 6,000 pounds (2,700 kg), which made the largest SUVs and other large passenger carsexempt from
this tax, thus increasing the latter's popularity. Many argue that the 6,000-pound (2,700 kg) limit is actually
counter-productive to the purpose of the Gas Guzzler tax by encouraging the use of large SUVs that avoid the
tax due to their high weight. The tax is collected by the Internal Revenue Service (IRS) and normally paid by
the manufacturer or importer. The following chart shows the tax for various levels of MPG as of 2006.

Unadjusted MPG (combined) Tax

at least 22.5 No tax

at least 21.5, but less than 22.5 $1000

at least 20.5, but less than 21.5 $1300

at least 19.5, but less than 20.5 $1700

at least 18.5, but less than 19.5 $2100

at least 17.5, but less than 18.5 $2600

at least 16.5, but less than 17.5 $3000

at least 15.5, but less than 16.5 $3700

at least 14.5, but less than 15.5 $4500

at least 13.5, but less than 14.5 $5400

at least 12.5, but less than 13.5 $6400

less than 12.5 $7700

The combined fuel economy MPG value (55% city, 45% highway) is used to determine tax liability. The MPG
value is also adjusted slightly to account for differences in test procedures made since the base year, but it is
not adjusted for in-use short fall. The unadjusted combined MPG of a vehicle can be approximated from the city
and highway values provided in the Fuel Economy Guide by the following equation[citation needed]:

Since this is an approximate calculation, the actual gas guzzler tax may be off by one tax bracket.

We can then find out how much penalty, , the manufacturer has to pay for that particular vehicle by

using the following equation. needs to be looked up on the table above[clarification needed] and is the
numbers of cars that are found to be under the set Gas Guzzler standard,

[edit]Economic impact
Gas guzzler tax creates incentive to meet the minimum MPG requirement by manufacturer. Due to
elimination of vehicles that are below minimum MPG which is 22.5 MPG, vehicle sales have decreased
approximately 0.5 percent. However, sales revenues increase by a greater amount due to the added value
in vehicles making greater use of fuel economy technology.[3] Currently, the additional cost of efficient
hybrid systems range from $2,000-$10,000 on the vehicle sticker price.[4]

Manufacturers benefit from the increase in price of products. However, the fuel sector may lose revenue if
the increase in sales and production of fuel efficient vehicles doesn't just encourage people to drive more.

[edit]Market impact
The Gas Guzzler Tax led to the successive downsizing of most major American passenger autos, and the
combination of the tax and late-70's/early-80's economic woes effectively killed the American full-size car
as it had been known up to that point. Coincidentally, it only took one product cycle before the first modern
SUVs were introduced, the Cherokee XJ and the S-10 Blazer (in 1984). By the time Ford introduced
the Explorer, the SUV had become the common man's luxury vehicle and Ford capitalized on this using
extensive cross-marketing, most notably with Northwest clothier Eddie Bauer.

Critics of the Gas Guzzler Tax contend that the increased fuel economy of the US passenger car fleet
observed since 1978 must be considered in the context of the increased market share of mid-size and full-
size SUVs. Many consumers' stated reasons for SUV purchase (comfort, interior room, and a perception of
safety based on the vehicle's size) also apply to the now-obsolete American full-size car as produced from
the 1920s through the 70s; critics contend that the dominance of the modern SUV is a direct result of the
Gas Guzzler Tax.