Energy Policy Must Provide the Right Incentives
Oft-mentioned and important objectives for an energy policy are to reduce dependence on foreign oil, to keep energy affordable, and to obtain more energy from sources that pollute less and will never run out. Conservation is also important to meet future energy and non-energy petroleum needs. A simple cost-redistributing system could easily work toward these goals.
Unfortunately, President Bush appears to like doing things the hard way. He created an energy task force to report, in his words, “how best to cope with high energy prices and how best to cope with reliance upon foreign oil”. Bush ignores the inevitable need for conservation and the immediate problem of global warming, instead directing his task force to examine “how best to encourage the development of pipelines and power-generating capacity in the country”. An extraction-promoting policy, however, is ill-suited for solving even the only two problems with which Bush hopes to cope. The United States today both imports and exports oil. In fact, due to trade agreements supported by both Republicans and Democrats, the United States must sell oil it produces on the global market. This sharply reduces the ability of the United States to either lower energy prices or decrease dependence on foreign oil by increasing domestic oil extraction. When U.S. taxpayers open up more federal land to drilling, oil will get cheaper for the Japanese and the rest of the world as well as the United States, and the East Coast will still get oil from the Middle East at the going global price.
By contrast, focusing on environmental protection would lead to progress toward all the important goals of an energy policy. In economic terms, the environmental view is simple: burning fossil fuels imposes a cost on everyone through the release of carbon dioxide, the primary contributor to global warming. (Fossil fuels have, to varying degrees, other greenhouse gasses and also pollutants that cause acid rain, smog, and poor air quality; carbon dioxide is used as an example for its importance and for the sake of simplicity.) While everyone bears the costs of climate change, the benefits go only to the person using petroleum energy. Consequently, people use more fossil fuels than they would if they took the costs of their behavior into account.
Charging a fee for releasing carbon dioxide into the atmosphere and equally distributing this money to everyone would make anyone who burns fossil fuels defray at least some of the costs of global warming. This provides an incentive to use less energy from fossil fuels. Enforcement isn’t difficult because fossil fuels either are extracted from fixed locations or arrive in very big ships. The pollution charge can be collected at these points, with refunds given later for petroleum not used for fuel.
How does this meet the goals of an energy policy? People are given the incentive to reduce use of fossil fuels. A person who purchases a more fuel-efficient car, for example, saves nonrenewable resources, reduces the emission of greenhouse gasses, has some slight decreasing effect on prices by reducing the demand for fossil fuels, and makes the United States less dependent on foreign-controlled oil by making the country less dependent on oil. This person is rewarded for his decision by paying less in the fossil fuel charge yet still receiving an equal share of its revenue. In sum, the less fossil fuel a person uses, the more he or she benefits— aligning his or her interests with everybody’s.
While fossil fuel prices will of course be higher under this system, energy is not made unaffordable because everyone receives money from the fossil fuel fees. In fact, people who do not use an excessive amount of petroleum-derived energy will receive more money from fees than they pay in fees, and they will be economically better off. Currently, in contrast, people who played a tiny role in driving up the demand for energy and who may have little ability to pay more or cut back face the higher prices that energy gluttons helped create.
A reduction in the domestic demand for oil has the same effect on foreign oil dependence as an increase in domestic supply (Bush’s solution), but the energy policy described here does more than just decrease demand. It encourages a shift away from fossil fuels toward other sources of energy – the opposite of the effect of subsidizing petroleum extraction – which makes the United States less dependent on oil in general, foreign oil included.
An energy policy must meet multiple goals, but one low-cost and easy-to-administer policy can work toward the basic aims immediately. The benefits of making people pay the costs of their petroleum-use decisions are clear, as are the hazards of subsidizing the extraction of fossil fuels, but elected officials need the right incentives too. Let them know that their actions on this issue will influence voters’ actions when re-election time comes.
[This (with another minor edit or two) is “Editorial Writing Assignment Number 1 REWRITE” for Howard Ziff’s Editorial and Column Writing journalism class. At the time I wrote this, I thought my plan for taxing carbon emissions and redistributing the proceeds was new. It turns out the Carter administration presented the same plan. This shows that the problem is less not knowing how to solve problems than it is implementing known solutions in a corrupt representative democracy system.]
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[Fragmentary thoughts follow; read them at your own risk.]
Even subsidizing efficient power generation has it backwards. If your neighbor dumps garbage on your lawn, are you supposed to pay him not to? Establish special grants to find some way of not putting so much trash in your yard? No, parties responsible for dumping on your lawn or into everybody’s sky should be made to pay compensation and they will find a way not to do so, thank you very much, without government direction.
Bush’s suggestion of subsidizing oil and possibly natural gas extraction conservation and environmental needs.
Another issue with subsidies is who should pay and who should benefit. If you are an ordinary consumer of power who does not use much energy, using tax dollars to be used to provide cheap power, which .
Those who use excessive amounts of fossil fuels should compensate those who do not.
Oil does not fuel our economy; demand does. We would all be better off if somewhat less money was spent on oil and if this money were instead spent on other things. Taxing the pollution of fossil fuels and dividing up the money equally among all Americans provides the needed incentive and economic ability to increase demand for energy- and especially fuel-efficient products and to increase demand for cleaner sources of energy that are not threatening to our global climate. Conservation and renewable sources of energy, in turn, reduce our dependence on oil, reduce our reliance on foreign oil and our vulnerability to the decisions made by foreign oil producers.
A national energy policy should make doing right cheaper than doing wrong.
Conversely, policies that promote extraction are disastrous for the environmental goals: fossil fuels run out faster and global warming worsens. (The government has also always made the nation’s deposits of coal and oil available to energy companies at far below what they are worth; Bush merely proposes giving away publicly owned fossil fuels faster.) Even subsidizing cleaner sources of power is an unnecessary invitation for trouble. Bad decisions have been made, for example the hundreds of billions dollars subsidizing nuclear power.
need only be significant but never more than the cost of taking carbon dioxide out of the atmosphere.)
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