Re: [Pen-l] how about a floor under gas prices?

[ehrbar <ehrbar@xxxxxxxxxxxxxxxxxxx>]

The following is a good article about the problematics Paul and Max
have been discussing.  I highly recommend this article, it brings up
many other points too (competitiveness, international coordination):

 Smith, Stephen, Tax Instruments for Curbing CO2 Emissions, chapter 34
 (pages 505-521) in the Handbook of Environmental and Resource
 Economics, edited by Jeroen C.J.M. van den Bergh, Edward Elgar 1999.

Smith argues for a "primary" tax on fossil fuels (crude oil, gas,
and coal), where they are mined, extracted, or imported, as opposed
taxing final fuels (coke, anthracite, gasoline) because

(a) fewer taxable individuals, no need for fiscal supervision of the
energy chain

(b) tax authorities do not need knowledge of the carbon 'history' of
the processing of final fuel products

Regarding distributional impact, Smith discusses the tax's effect on
heating costs which is higher in Northern regions than in the South.
A good complementary policy might be cheap credit so that home
owners can insulate their homes better, building regulations, requiring
home energy audits for every home on the market, etc.

Smith does not discuss the urban-rural divide, I think this is an
oversight.  Cheap energy allowed to alleviate the difference between
urban and rural living, and with energy becoming more expensive, other
measures have to be taken.  Paul, since you seem to have first-hand
experiene living in such an area, what kind of infrastructure would be
necessary?  Do you think the following would work?

Small windmills so that the farmers can charge their plug-in hybrids
or electric cars?  Or maybe a car sharing business based on
electric cars and local renewable energy?

Instead of isolated homesteads scattered around the countryside
perhaps policy makers need to promote the growth of villages which
also have clean industry and mass transit access -- railroads?  We
have to get used to the idea that air traffic is an environmental
no-no unless we revert to airships (blimps).  But railroads are
19th century technology, perhaps we can do better than that.
I'd like to hear everybody's suggestions.  

As Max says, prices alone may not do the trick, especially if you
eliminate the income effect, if you do not also provide alternatives.

In my view, carbon taxes can only be one element in a mosaic of
policies.  The main benefit of carbon taxes would be to make renewable
energy competitive and foster their development.  But in addition you
need a ban on new coal-fired plants which do not sequester carbon,
huge changes in land use patterns (end of suburbia and scattered rural
living) and lifestyle, end of the growth thinking (both economic
growth and population growth) and promoting shorter working hours
instead, much more social justice both inside the country (universal
health care in the US so that people can quit their jobs and devote
their lives to combatting global warming) and internationally
(terrorism etc), generous dissemination of technological knowledge,
planning for resiliency (emphasize locally produced food and energy).
Please add items which I forgot.  It is necessary to have the whole
picture in mind.

As Frank Ackerman wrote in his "Economics for a Warming World",
Post-Autistic Economics Review 44, Dec 2007, downloadable from
http://www.paecon.net/PAEReview/issue44/Ackerman44.pdf
global warming is the final exam for the economics profession.  If we
cannot come up with policies to prevent global warming we have failed
in our calling as economists.

It is also pretty clear that the thorough policies that are necessary
will not come from the established institutions of governance.  An
international grass roots movement is necessary which forces
governments everywhere in the world to implement a co-ordinated set of
policies.  This means, the policies we come up with must be simple and
generally applicable.  For instance, carbon tax seems much better here
than cap and trade which has to deal with the intractable problem of
international allocation of carbon credits.  But we economists must
come up with a consensus set of policies so that those in the streets
have something to put on their banners.


Hans

Hans G. Ehrbar   http://www.econ.utah.edu/~ehrbar ehrbar@xxxxxxxxxxxxxxxxxx
Economics Department, University of Utah     (801) 581 7797 (my office)
1645 Campus Center Dr., Rm 308               (801) 581 7481 (econ office)
Salt Lake City    UT 84112-9300              (801) 585 5649 (FAX)

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