Thursday, October 9, 2008

Global warming and energy independence - Solved!

I read a lot of stuff written by liberals proposing all manner of complicated schemes to cut use of fossil fuels and force energy efficiency. And I read all kinds of things by conservatives about how they want the US to become independent of foreign oil. But I never hear anyone with the guts to propose the only simple way to achieve both of those ends - tax all fossil fuels heavily; but start the tax slowly and raise it steadily and predictably so people and businesses can adapt in the natural course of things. Finally, give the proceeds back to the country's whole population as an equal payment to each citizen and legal resident. That way the cost would fall primarily on heavy users of fossil fuels, and lesser users would actually end up ahead.

If something like that had been started in the 1970's we would already be a lot less dependent on fossil fuels.

This is the perfect time to enact such a plan because prices of all forms of fossil fuels are falling, and people and industry are already somewhat accustomed to the pain of higher prices. Congress should pass a tax starting at say three cents per gallon of gasoline and fuel oil (and an equivalent amount on coal and natural gas by energy content). Congress should also mandate that the tax will increase by three cents per month indefinitely - ideally it would be set up to increase automatically unless congress votes to stop it by a significant supermajority, so that it would be very hard to stop. That way everyone would have a clearly defined incentive to buy cars and homes based on energy efficiency, and industry would have clear expectations as to future costs of energy from fossil fuel sources. People developing alternative sources of energy would also have clear expectations of the energy markets in which they will compete.

Such a tax would also leave it to the free market to decide on the details of energy efficiency and alternative energy issues - by far the most efficient way to decide among those things. Some will argue that a time of recession is not the time to start such a plan, but I'd fire back that putting some reasonable expectations around the issue of global warming and energy independence and defanging the threat of truly disastrous types of government intervention (like cap and trade which will certainly turn into a huge political honeypot) would itself have a major stimulative effect on the economy.

Being a humble person I decline the honor should someone want to name this The Sully Plan.


Anonymous said...

I think I would let go of the idea of collecting a fossil fuel tax to push people into new energy sources, simply because many of the emerging technologies can be quite expensive and not easily affordable to people in lower income brackets. What would end up happening (come to think of it, it already has happened) is that the government would start subsidy programs. This ends up costing everybody more money.

Better to allow those who have more wealth to make the initial purchases of the new technologies. As more and more of these products are purchased, increased production will cause the prices to drop, thereby making the items available to those with lower incomes.

Some technologies that were quite expensive when they were first released and then became ridiculously cheap:

Microwave ovens
VHS players
DVD players
Digital cameras

Consider also that many of the options found in very expensive cars are frequently made available in cars that are under $20K within 5 years.

Another thing to consider is that not all technologies are feasible in all parts of the country; i.e. electric cars. The effect of the cold upon batteries can be significant.


Sully said...

"What would end up happening (come to think of it, it already has happened) is that the government would start subsidy programs. This ends up costing everybody more money."

There you have my main point. No matter what we do the government is going to try to solve global warming and dependence on foreign oil by throwing money at various schemes.

I'm in favor of one overarching simple scheme which will at least have the advantages of openness, honesty and efficiency. Not that I expect the politicians to become honest enough to enact such a simple scheme.

Much more likely they will enact a carbon credits market which they can use and manipulate to direct tens of billions of skim to their friends.