Greener tax pastures?

Ford has a new, fuel efficient diesel car going on the market called the Fiesta ECOnetic:

If ever there was a car made for the times, this would seem to be it: a sporty subcompact that seats five, offers a navigation system, and gets a whopping 65 miles to the gallon. Oh yes, and the car is made by Ford Motor, known widely for lumbering gas hogs.

The bad news? It’s only for sale in Europe, not the US. Though there are multiple reasons for this, the Business Week article claims that taxes are a big one:

Diesel vehicles now hitting the market with pollution-fighting technology are as clean or cleaner than gasoline and at least 30% more fuel-efficient.

Yet while half of all cars sold in Europe last year ran on diesel, the U.S. market remains relatively unfriendly to the fuel. Taxes aimed at commercial trucks mean diesel costs anywhere from 40 cents to $1 more per gallon than gasoline. Add to this the success of the Toyota Prius, and you can see why only 3% of cars in the U.S. use diesel. “Americans see hybrids as the darling,” says Global Insight auto analyst Philip Gott, “and diesel as old-tech.”

The New York Times’ Ideas blog repeats the part about taxes making diesel so much more expensive than regular gasoline. But do they? The American Petroleum Institute says that diesel excise taxes averaged only about 7 cents more per gallon than those on gas. The federal government’s Energy Information Administration suggests that a rise in global demand for diesel fuel and stricter environmental standards in the US have done more to contribute to the higher price:

Historically, the average price of diesel fuel has been lower than the average price of gasoline. However, this is not always the case. In some winters where the demand for distillate heating oil is high, the price of diesel fuel has risen above the gasoline price. Since September 2004, the price of diesel fuel has been generally higher than the price of regular gasoline all year round for several reasons. Worldwide demand for diesel fuel and other distillate fuel oils has been increasing steadily, with strong demand in China, Europe, and the United States, putting more pressure on the tight global refining capacity. In the United States, the transition to ultra-low-sulfur diesel fuel has affected diesel fuel production and distribution costs.

The Business Week article is correct to note that diesel taxes are higher than for gasoline and that the cost of the fuel is much higher. But it’s not clear that the first is causing the second. If there’s evidence for this, I haven’t found it.

It might be true that, given improvements in technology, cutting diesel taxes would be an excellent spur to green innovation. I’d certainly prefer that to the doling out of favors politicians usually engage in. However it looks like Ford’s decision not to sell the Fiesta ECOnetic here might have more to do with other business factors, not anti-diesel tax bias. Note also that Mercedes-Benz, Nissan, and Honda all plan to introduce diesel models to the US despite the higher tax.


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