Thursday, February 08, 2007

A sensible idea that both the left and right should like... so it won't happen

Use of fossil fuels has externality costs. There is overwhelming science that fossil fuels are contributing to global warming at least to some degree. In addition, our use of oil has a profound impact on our foreign policy and military needs. I don't need to go over this here as it has been covered extensively elsewhere.

The best way to solve an externality problem is to force those who consume the product to pay society for the externality costs. Not only does this better match those who consume the good and those that pay for it's overall cost, it also encourages those that have choices to choose something with fewer externatility problems.

So why not tax use of fossil fuels? A new survey of economists conducted by the Wall Street Journal shows that a majority of economists surveyed support this idea. While not exactly laissez-faire, its a hell of a lot closer than mandating better fuel economy or particulate standards. Its a lot more free-market than subsidizing ethanol. For environmentalists, a tax on fossil fuels would do more to encourage development of alternative energy than all government research grants to date combined. The tax wouldn't have to weigh on the economy, the government could simultaneously lower personal and corporate income taxes. Think of it, corporations that use little fossil fuels get a big tax break, and those that do use them are strongly encouraged to come up with an alternative. People who ride their bikes to work get a big tax break. Those that drive big SUV's 50 miles a day are encouraged to make changes. If these people or corporations can't or won't change their consumption, then they will bear the cost. All without complicated and heavy-handed regulation that corporations will just find a loop-hole around anyway.

Sounds like an idea the left and right could both agree upon. Too bad congress doesn't seem to be listening.


Dan said...

Yes, it does sound like a good idea Tom. And yes, what a travesty the major parties seem unlikely to table such a law. Here is Canada we have the Green Party which, unfortunately, has no say in Parliament. However, read a recent news report (their plan sounds suspiciously similar to your Tom. hmm... ;-) ). Luckily my MP (member of parliament) has a blog, is passionate about the environment, and reads his email. I think I'll pass this along to him.

Greens would impose carbon tax on fossil fuels

Updated Wed. Sep. 27 2006 5:17 PM ET

Canadian Press

OTTAWA -- The Green party says it would cut personal income and payroll taxes and create a carbon tax to discourage the use of fossil fuels.

The party's so-called green plan would also end tax subsidies for the oil sands, which it says would save the public about $1.3 billion a year.

Leader Elizabeth May says the plan would allow Canada to meet its commitments under the Kyoto Protocol.

The plan would use the tax system to reduce greenhouse emissions _ introducing a carbon tax to discourage the use of toxic fuels while cutting taxes for alternative energies and fuel-efficient vehicles.

She rejected the notion that a carbon tax is not politically saleable.

"Most politicians are afraid to even begin to explain the idea of tax-shifting and I think that's premised on their idea that the Canadian public is not very bright,'' she said.

"We believe you can explain to people: don't you think we should tax the things we don't want, like toxic chemicals that cause smog and cancer, and greenhouse gases, and reduce taxes on things we say we do want, like employment and income?''

Tom G. said...

My hope is that momentum builds for this idea here in the States as people realize that we will have to do SOMETHING about our fossil fuel consumption.

As your article mentions, this could very easily be structured as a change in taxation not a tax hike. Plus it would logically be phased in to give people a chance and businesses a chance to make changes before the full brunt of the tax is felt.

Anonymous said...

This approach is needed. The exteranlities should be paid for.

Harvard Prof. Greg Mankiw comments on this general topic from time to time.

Deborah said...

I've always been enormously supportive of fossil fuel taxes. The size of vehicles that some people drive is a testimony of the degree of spillover costs for fossil fuels.

I also think this tax should be paying for 100% of our road system, and 100% of infrastructure for public transit, and then its fair share to general revenue (say 1/3rd of the tax take).

Something that I think people really haven't thought through is if you make it so public transit is attractive for people to use, they will use it and even if you choose to drive, you gain huge benefit in reduced traffic congestion and driving time, and cost savings on insurance due to reduced accidents. And with reduced driving time also comes reduced use of fossil fuels.

I'm Canadian and we do have higher fuel taxes, but they are not dedicated and they just go to general revenue, so public transit and the road system is always underfunded. We are paying around $1-$1.10 per liter CAD, which I guess for US works out to about $3.50/gallon.

Another tax that I support is a transportation payroll tax based on distance from work, and this one would 100% subsidize operating costs for public transit so there is one price, for going anywhere within the transit system. Here in Vancouver a one way trip on transit is $2.25 for one zone, $3.25 for two zones and $4.25 for three zones. The return trip for 3 zones is more than an hour's wages at minimum wage, which is in insanely expensive, imho.

Our transit system here in Vancouver is are carrying this debt load of billions from building rapid transit and it is simply public policy that is counter productive to reducing fossil fuel consumption.

Currently only employees carry any burden for distance to work and I've never found living close to a potential employer has ever given me any added leverage over an equally qualified person. If employers had to pay a fair share of this tax, it would encourage them to seek employees within their very local community. I would have a 100% exemption from this tax for workers living within 5 miles of the workplace.

I may sound harsh, but I'd be setting this payroll tax at 2.50 per extra mile each up to a max of $50/month each. But then, I'd also have the cost of transit at $1.50 each way, so the employee that lives over 25 miles form work that chooses public transit would actually end up doing considerably better.

I also think the higher percentage of your population using public transit, the lower the cost per trip.

And, you get more workers on public transit, then the trucking industry works way more efficiently. I mean, some these guys are being driven out of business for the time they spend sitting in traffic.

Tom G. said...


Well, we can debate how it ought to be done. I take it from your post that you are a strong environmentalist. Just the fact that environmentalists (mostly on the left) AND someone like Greg Mankiw (on the right) can agree on this should speak to how strong an idea it is.

By the way, in the U.S., a great deal of the highway maintenance is done by the states. In Maryland, we have a fuel tax which is the primary source of funding for transportation projects in the state. No state income or sales tax revenue goes to fund highway projects.