My Energy Policy Recommendations

You have been made dictator of the world. Your policies are going to be implemented without question. What new energy policies do you enact? Let’s restrict this to energy, as this could really get way off topic otherwise.

Here is what I do (with respect to the U.S.) I go on TV and just have a frank conversation with the public. I hit on both Global Warming and Peak Oil, explaining that we have to find other energy solutions because 1). Peak Oil is going to force us to; and 2). Global Warming is strongly suggesting that we do it ASAP. I go on to explain that there are no magic technological solutions waiting in the wings to save us. We aren’t going to go to the filling station and fill up on E85 or hydrogen. At least not any time soon. Sacrifice is required. I explain some of the possible scenarios if we don’t begin to sacrifice now. We either plan it now, or it hits us later without providing any parachutes for the fall.

The problem, I would explain, is that fossil fuels are simply too cheap. We use them too casually. We must stop doing this. We have to stop and really think about our fossil fuel usage. So, starting today, the tax on fossil fuels will be increased by $3/(barrel of oil equivalent) per month for at least the next 3 years, at which time this tax will be reviewed. The tax will apply to crude oil, natural gas, coal, tar sands, shale oil, etc. All fossil fuels. This tax increase is only $0.0714 per gallon per month, and a tax credit will be provided for those making less than $50,000 a year (because I am a benevolent dictator). The tax credit in each year will be high enough to offset the impact on the average consumer’s life. However, given that you know prices are going to be increasing, there is a tremendous incentive to begin conserving. Our ultimate objective is sustainability.

The money raised from this tax will be funneled into public transportation, alternative fuel research, conservation incentives, and the development of walkable communities. Proposals will be reviewed by a panel of scientists and engineers from the appropriate disciplines in academia and industry. Suggestions from the public are welcome, and will be considered based on technical merit. (No cars that run on water, though).

So, that’s the cornerstone of my energy policy. Do you have other suggestions? Alternatives to this? Or do you believe the market will provide, and such steps are unnecessary?

25 thoughts on “My Energy Policy Recommendations”

  1. I’m not an expert, but I do know from my economics courses that people in America react very little to gas taxes. When prices shot up 70% a couple summers ago, people actually bought more gas. I forget the actual amount needed to shift a demand in oil, but I know the demand is fairly static.

    The gradual increase may help consumers prepare for consuming less rather than trying to suddenly cut consumption. Yet, the 8 cent increase could take years to make a difference.

    Nonetheless, I love your philosophy for actually confronting the public and attempting to make things actually sustainable. I’d vote for you.

  2. I forget the actual amount needed to shift a demand in oil, but I know the demand is fairly static.

    A survey that I read suggested around $5.00 a gallon would cause people to change their behavior in significant numbers.

    Yet, the 8 cent increase could take years to make a difference.

    That tax increase would be every month, though. It would be over $0.80 per year for at least 3 years. That will start to bite, but people are going to get a warning this time.

  3. there are some other economic and social factors you may want to take into consideration. as the cost of transportation increases, the value of existing property in suburbia will drop significantly which in turn will probably precipitate a banking crisis. Simultaneously, as people move toward city cores, you will have significant inflation on property prices (which are already very bad [1])

    Another issue to deal with is dissolving of communities. Since public transportation wastes people’s time[2], it’s reasonable to assume that people will own less so they can move closer to their jobs as their job changes. this will have a serious negative impact on communities because if you’re only going to live there for a couple of years, why should you care about where you live and get involved?

    with urban properties also comes the issue of unelected governance in the form of homeowners associations. It would be nice to ban these little dictatorships.

    As the price of real estate skyrockets, it will lock significant portions of the population out of the market. This will give rise to increasing numbers of slums with all the attendant health and safety issues. This is going on today in near equatorial cities around the world. There’s no reason to think we will be immune from the same phenomena.

    A social phenomenon, already going on because of urbanization trends, is that people are marrying later and having fewer children. It appears that people are not willing to give up their tiny little living space for another person or persons. It is reasonable to expect that this trend will continue and if my prediction of increased moving rate holds true, then it’s reasonable to assume that the trend to later marriages etc. will increase even more quickly because it will be difficult for couples to form a bond and maintain it over long distances.

    when you design your livable communities and urban spaces, design them for the 80-year-old person. far too many “livable communities” are designed for a healthy twentysomething year-old and ignore the needs of elderly and other handicapped people. Also designed them for something more than just people. Enable folks to have dogs complete with outdoor exercise pens attached to their properties. Design to reduce outdoor noise to nothing so that you never ever have to hear or see your neighbors if you don’t want to.

    I agree there are no good solutions yet. I think we will find one but it’s still pretty scary. The consequence of doing something a pretty horrific and the consequences of not doing something are pretty horrific.


    [1] a friend bought a city condo at the same time we bought a suburban property. For the same dollar value, we got 2000 ft.² house, most of an acre which can be used for garden and a fenced in area for our dogs. we also have a fair amount of privacy. She got roughly 800 to 1000 ft.² on the ninth floor. Additionally, she had to have opaque shades on her windows so that people couldn’t look into her apartment from the other building across the street.

    [2] never assume people really do work on public transportation. Take a look around you you’ll find most people listening to music, reading newspapers, staring out the windows and otherwise wearing a blank face as a way of protecting themselves from the people around them.

  4. Your proposal works for me. I would probably phase the taxes in more gradually. Don’t forget you also need to end subsidies to pretty much everything if you want a real market-based system, or to things that don’t make sense (e.g. corn ethanol) if you’d rather get into the business of picking winners and losers. Speaking of which, I would also suggest policies aimed at making nuclear power more attractive, including finalizing plans for waste storage and ending the reprocessing ban. Finally, you might exempt chemical-industry uses of fossil sources from the tax on the theory that less of the carbon ends up in the atmosphere.

  5. As we’ve discussed before, you are going to have to have substantial public affairs operations to articulate your case so your critics and political opponents don’t succeed in making you look like you are saying this to get rich from oil company kick backs. Don’t misread me here, I’m just saying that’s the political opposition tactic likely to be employed against you–especially if you start talking about “artificially” raising gas prices. The American people will demand to know why cheap gas (at market prices) will cost them more. You could see significant civil unrest in addition to the political opposition, and you will see an economic impact on people who depend on energy to get to work.

    I’m not arguing against doing this, and ”WInning the Oil End Game” makes some interesting cases for ways we could do this without disruption. I’m just saying you would have to watch out for a lot of socio-political factors and may make a lot of enemies on both sides–the oil companies and the people who will insist you are helping the oil companies get rich.

    At any rate, we definitely need to work on improving efficiency, moving toward PHEVs, renewable energy, and finding “bridge fuels”, like synthetic fuels to help ease us into 100% PHEV/bio-fuels and mitigate the risk of sudden peak oil or embargo. We also need to look at Gen IV nuclear energy, at the very least to burn up the used nuclear fuel from other reactors (obviating the “waste disposal” problem).

  6. matt

    Absolutely right. The estimates of price elasticity of demand for gasoline are 0.1 in the short run: 100% rise in the price of gasoline, 10% fall in demand. In practice, US gasoline demand has only fallen *once* in postwar history, during the 1980-81 oil crisis and subsequent recession (over 10% unemployment, so fewer people driving to work or to go shopping).

    The long run elasticity, I have seen estimates of 0.3 to 0.5.

    However the income substitution effect plays out over time. As time goes by, incomes go up, and people burn more gasoline (it’s a relatively favoured good, in the sense you buy a nicer house further out and commute more, you go on longer holidays and drive more, you shop at the mall more often etc.).

    Faced with that, I am a fan of CAFE. It’s not as economically efficient, but it does raise the overall energy efficiency of the economy.

    Analagously, by tough standards on new buildings, appliances, etc., California has kept its electricity consumption flat per capita since 1980, whereas the nation’s has risen by 40%. California is something like the 8th richest state per capita, but well below the national average in per capita energy consumption.

    I don’t think big gasoline taxes are politically practicable in the US.

    In terms of global warming, I favour generalised carbon taxes (or tradeable carbon emission permits). Certain areas of the economy (like electric power generation) are much more price elastic (amenable to reductions in CO2 emission) than is transportation.

  7. RR

    This may be off topic but I think it might be of interest to you given your studies in the area of cellulosic ethanol.

    In October 2006 an Australian TV Science program (see links below) covered an apparent breakthough in converting the C5 sugar (xylose) in sugar cane bagasse to ethanol.

    The scientists used traditional plant breeding strategies, involving 2,000 strains of yeast, to evolve a yeast that recognises xylose as suger.

    Normally I am highly sceptical about “breakthroughs” but the scientists (Attfield and Bell) have qualified for an AusIndustry COMET grant from our Federal Government.

    A few years ago I participated in a grant application under this scheme and it is quite rigorous. I believe that this could justify a closer look from someone with a background in the science (which I lack).


    White Paper here:

  8. Mr. Rapier, why not a cap-and-trade scheme? Wouldn’t that be more politically feasible? I am certain we will see a cap and trade scheme here in the US before we ever see another tax! Friendly bet?

  9. Mr. Rapier, why not a cap-and-trade scheme? Wouldn’t that be more politically feasible? I am certain we will see a cap and trade scheme here in the US before we ever see another tax! Friendly bet?

    If it works, and is politically feasible, I am for it. I have heard quite a bit about these schemes, but don’t know how they work in detail. Has any country successfully implemented such a scheme?

    A couple of days ago, I gave my input to Barbara Boxer’s request for suggestions in setting the Global Warming agenda for the new congress:

    Rank the Priorities

    I did put a “Cap & Trade” Carbon Emission System as my number 1 priority. In the comments, I indicated my support and reasoning for higher fossil fuels taxes.

  10. Cap and Trade

    Yes they exist:

    – use SO2 scheme run by the EPA. Large polluters must buy SO2 permits at auction. The result has been a 40% fall in SO2 emissions, at less than half the projected cost

    – NO scheme – implemented by agreements between State governments, on the same principle

    – European Trading Scheme– a trading scheme for carbon emissions for large European polluters.

    The scheme reached a peak price of Carbon of 30 euros. New data was then released, which showed that the member countries had issued more permits to the large polluters than they actually needed.

    The price has now crashed to 3 euros, and there is no liquidity. Effectively everyone is waiting for an agreement on the post 2012 nature of the scheme.

    So the ETS works as a trading mechanism, however it failed as a market (so far!) because of member countries trying to protect their heavy industry.

    I’ve seen some MIT work which suggests that it also had a measurable impact on total emissions ie the scheme worked better than we know.

    excellent summary on how to make such a market work in the USA.


  11. I don’t understand the appeal of cap-and-trade. Big incumbent polluters are issued valuable permits for free – where’s the sense in that? Look at the euro carbon trade to see where that might lead. Pay-to-pollute via RR’s tax is simpler and IMO fairer.

  12. It’s a nice idea but will fail for the same reason every planning scheme fails: unintended consequences. You want to precipitate a crisis because in the future when peak oil comes there will be a crisis. What’s the point? The likely result would be another Great Leap Forward for mankind. The real threat is the one we don’t know about. That is what will catch us. Anything we know today is already being planned for.

    As for global warming, I’m not sure if it’s even worth debating, but I think the problems have been wildly exaggerated. The cure is worse than the disease, if the disease even is a disease.

  13. doug

    There are issues with cap and trade and with taxation.

    Cap and trade first and foremost allows a quantitative limit to the amount of pollution. You can’t do that with a tax.

    C&T also lets the market tell you what the correct price for the pollutant should be ie the price at which the market will pay to emit the amount of pollutant you choose to allow.

    Now there are arguments for each system. The other main argument for C&T where some or all permits are allocated to existing players, is that it doesn’t penalise the owners of the existing polluters for the fact that the world has changed.

    The polluter still has the incentive to avoid the emittant, because he/she can then sell his permits. But his shareholders are protected against the loss.

    The biggest problem with a tax (which would be equivalent to the government staging an auction, with no permits pre allocated, except that you don’t know in advance what tax would create the right emission level) is what does the government (or the permit issuing authority) do with all that revenue?

    It’s quite possible for a government to spend that revenue in a way which worsens the impact of the tax. Eg the US government spends $120bn on agricultural subsidies, and is about to up that subsidise ethanol. It’s reasonably certain that that is mostly a complete waste of economic resources, they would be better to burn the money in a bonfire.

    For this reason, most sensible proposals mandate revenue neutrality. The extra revenues are rebated to taxpayers either by a per person credit (a la Alaska’s oil dividend) or by reductions in Social Security taxes (most people pay these, and they are fearsomely regressive).

  14. Robert, I have the utmost respect for you but I don’t like your plan. Richard Smalley only wanted 5-10 cents a gallon yet you want almost $3?

    Have you worked out how much money the plan will raise? You are asking for almost 60x what smalley wanted. I mean there is only so much you can spend on physics (which is limited by the people) and mass transport.

    Also, carbon trading has some major problems. Not even the drafters of kyotto are happy with it. Check this video out.

  15. Robert, I have the utmost respect for you but I don’t like your plan. Richard Smalley only wanted 5-10 cents a gallon yet you want almost $3?

    The purpose for the tax is primarily to encourage conservation, not to fund alternatives. That would be where some of the money would be directed, of course, and excess funds could be used to reduce income taxes. But high gas prices are the most effective way to encourage conservation, so that’s really the purpose. If you don’t think it works, just look at the countries with very high gas taxes. You will see much lower per capita energy consumption.

  16. Does your suggestion sound like a derivative of Prop 87 that you just fought against? Or am I missing something here?

    Mark, as was so often the case during our previous interactions, you are in fact missing something. First, the one thing I did like about Prop 87 was that I thought it would increase prices and therefore encourage conservation. That is exactly what I am proposing here.

    As I stated numerous times, I was ambivalent overall about passage of the proposition. I was dead serious about that. My objections were to the way it was being marketed. Proponents essentially were saying that the source of your problems is Big Oil. It is not that you drive too far in an inefficient car. No, your problems are all about being ripped off by oil companies. That was the basis of my objections, as well as some of the other deceptive marketing tactics.

  17. Robert

    I doubt $3/gal gasoline taxes would have a big impact on total energy consumption.

    Call it a 100% increase in US consumer gasoline prices.

    Estimates are in the short run, the effect will be a 10% reduction in consumption. In the long run 30-50% at best.

    Now Transport is about 36% of US energy consumption. And consumer use is about 2/3rds of that (that would include business driving).

    So you might get an 8% reduction in US energy consumption (0.3X100%X24%) or you might even get a 16% reduction.

    Unfortunately higher incomes lead to increased gas consumption as well (I don’t have the demand elasticities). So your total reduction will be smaller over time.

    The UK has $6/gal gasoline. The main reason the Chancellor hearkens to this is not energy conservation. Rather, it is that it is a *price inelastic* commodity, and so a tax increase raises more revenue (if elasticity were greater than 1.0 this would not be the case). Such is a tax that produces £20bn a year for the Chancellor, without the hew and cry that an increase in income tax might provide.

    Another way of looking at it is that world oil markets have imposed a ‘tax’ of c. $1/gal on US drivers in the last 3 or so years, yet gasoline consumption has continued to rise.

    A generalised carbon tax might well have a much bigger effect on the economy, because other areas of the economy are more *elastic* in their emission of carbon. In particular, power production, home heating, industrial processes– each can take easy steps to avoid the cost of higher energy.

    But gasoline isn’t particularly elastic, and taxing gasoline *as a measure to save energy* is not likely to be particularly successful.


  18. I agree with others in that your tax is rather draconian. It doesn’t give consumers enough time to switch their habits. The US car fleet on average turns over 8-10% per year. What I would do is raise gasoline taxes over a longer period of time and then offer a trade-in credit based on gas mileage. To make the system revenue neutral, I might put all the money into a rebate pool. This would encourage people to switch to more fuel efficient vehicles.

    I would then send the largest, most fuel inefficient vechicles to Venezuela, Iran, Nigeria, and any other oil producing country that heavily subsidizes gasoline sales. For extra security we might even bolt on an additional 1,000 pounds of armour or other weight. 🙂

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