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by Ben Fried
Elizabeth Kolbert seems to agree with Dot Earth:
Enough of this “moon shot” babytalk. Taxing the resource in question is the only reliable way to make our desperate and increasingly dangerous forms of extracting it unprofitable. We do not have the time or money to waste subsidizing technology that just might work in some inspiring and transformative fashion to reduce the demand for oil. We must do the thing that will start working immediately: account for existing and potential external costs, such as a destroyed ocean gulf, in the cost cost of consuming the resource. The inspiring, non-fossilized energy technologies will follow the market’s demand for them.
You can not, at least in the short to medium term, tax petroleum enough to make it unprofitable without destroying the entire economy. There is no viable substitute, and given elasticity of demand it is reasonable to assume that all or most of any additional tax will be passed through to the consumer or end user.
This is not to say that it can not or should not be taxed at higher rates, but that a strategy of taxation will not eliminate the demand the drives deepwater drilling and other difficult and potentially dangerous methods.
It is necessary to reduce demand for oil in the long term. The means for this reduction should be 1) reduced total energy usage, and 2) substitution of non-oil based energy sources.
Higher taxes, by raising the price, can encourage the first of these directly. They may also encourage the second, by making higher cost but less taxed energy sources competitive, but in this area we do need to develop new technologies.
Higher taxes on oil coupled with a public investment in energy technology, perhaps funded by those same taxes, seems to be a good strategy.
But we should think that higher taxes alone will eliminate the demand for deepwater drilling. That should be addressed by regulation, not taxation.
It’s interesting to note that the moonshots occurred during the peak in US oil production (while we were involved in a land war in Asia) and before we started importing most of our oil. Although the land war in Asia has been a fairly constant backdrop more recently…
“You can not, at least in the short to medium term, tax petroleum enough to make it unprofitable without destroying the entire economy…given elasticity of demand it is reasonable to assume that all or most of any additional tax will be passed through to the consumer or end user.”
You can, however, tax oil (and coal) enough to make many other things profitable, including conservation, renewables and natural gas.
And it won’t destroy the economy is if the proceeds are remitted on a per capita or per household basis, eliminating the removal of money from the economy and the adverse distributional effects while keeping the incentives.
Natural gas is cleaner than oil when it comes to some particulate emissions, but is no cleaner when it comes to GHG.
“Destroying the economy” is complete hyperbole. If the feds pollution-tax gas, say at $3/gallon, it’s going to remove about $400 billion a year from drivers, and inject it into some other group. If the money is spent on tax cuts, it’ll inject money into taxpayers – which group of taxpayers depends on which taxes are being cut. If it’s spent on reducing the deficit, it’ll inject money into future generations; if it’s spent on infrastructure, it’ll inject money into users of infrastructure; and so on. It’s not a removal of money, but a redistribution. In any of those scenarios, one consistent group of beneficiaries will be people who have to breathe exhaust fumes today, and are at higher risk of hospitalization or death.
“You can not, at least in the short to medium term, tax petroleum enough to make it unprofitable without destroying the entire economy.”
It is a question of degree. Right now there are prospects that are not being developed. As the supply of oil diminishes and demand increases from industrializing countries, oil’s price goes up and it becomes profitable to extract oil from the bottom of the ocean and accidentally ruins a gulf. We’re already scraping the bottom of earth’s barrel—it’s not a question of whether we scrape but how deeply. Governments have the power to affect this marketplace through taxation. The more they take, the less profit there is for oil, meaning less exploration and dangerous exploration. These effects—again, by degree—will happen much more immediately and certainly than any “moonshots”.
“There is no viable substitute, and given elasticity of demand it is reasonable to assume that all or most of any additional tax will be passed through to the consumer or end user.”
Another question of degrees. To the extent that higher costs immediately reduce consumption, we win. To the extent that it reduces consumption over the long term as people plan where to live and what to buy, we win more. We might even survive.
But sure, some of the cost will be absorbed. However much people choose not to conserve and pass costs onto themselves, their tax money will be used to try to save all of us. We’ll subsidize efficient technologies with it, like electrified rail and bicycle infrastructure. It’s fine even if “most” of the cost ends up being a simple tax—we are running a deficit you guys—but no I dispute that it is “reasonable to assume” that “all” of it might be. Trips will be eliminated, and cars driven more slowly; we know this because it just happened a few years ago, and is still happening but not nearly enough.
And as Larry says, we can rebate some of the money to people that actually need it.
“They may also encourage the second, by making higher cost but less taxed energy sources competitive, but in this area we do need to develop new technologies.”
Everyone wants new technologies, and nobody wants to pay for them. I’m suggesting that fossil fuel consumers should pay for this development, primarily by creating a market for it. And with our current situation, the idea that a massive federal subsidy can shift the American energy consumer away from fossil fuels is one fantasy wrapped within another.
“But we should [not?] think that higher taxes alone will eliminate the demand for deepwater drilling. That should be addressed by regulation, not taxation.”
I’m not talking about using tax policy to the exclusion of everything else, just to the exclusion of moonshot-thinking.
I love protecting our waters with regulation. In addition to reducing the likelihood of more disasters, it increases the cost of the resource and spurs conservation. Of course, that cost also motivates things like cutting the tops off West Virginia mountains. Without a tax on fossil fuel consumption we are left trying to plug every regulatory leak.
“These guys deserve an award -- Delancey Street Associates, L+M, BFC Partners, and Taconic Investment Partners. And to Council Member Margaret Chin -- turning parking garages into affordable housing is brilliant.”
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