In my earlier posts (part 1 is here, part 2 is here) arguing for a very steep Fossil Fuels Tax (FFT) with collected revenues rebated directly to the American public, I left unaddressed two important and interrelated questions: One, the rebate to individuals is easily understood, but how should corporations and non-human entities be treated? Two, won’t poor and struggling Americans who consume above average amounts of fossil fuels be the biggest losers if we start assessing a $5 per gallon gas tax and comparable levies on other fossil fuels even if all revenues less de minimis administrative costs are rebated in equal shares to all Americans?
I. Starting with corporations and other non-humans, I am not inclined to provide them with any rebates. The purpose of the direct payments is two-fold: first to help the less affluent maintain or even improve their standard of living and second to provide everyone with the wherewithal to transition to alternative forms of energy. Large companies (excepting the fossil fuel extractors) are best positioned to avoid significant financial harm from higher energy costs by cutting back on consumption and transitioning to clean green sources.
In addition, the increased payments the FFT requires from businesses will be transferred directly to their customers by the consumer rebates. Accordingly, companies can at least theoretically pass all added energy costs directly to their newly cash-rich consumers. In practice, those companies that spend relatively less on fossil fuels than competitors will have a big advantage.
Small farmers who sell locally will benefit relative to big ag that distributes its products thousands of miles via gas and diesel-powered trucks and trains. Likewise, American manufacturers will have an advantage over their foreign counterparts who ship goods thousands of miles via diesel-burning container ships. High tariffs should be imposed on all goods manufactured in countries that don’t tax energy at the same rate as the United States or that are delivered by shippers who purchase fuel that is not subject to the FFT.
Still some businesses will face difficult choices. Those that can’t evolve will be weeded out just as changing environments have forced some out of business and other to cut back for millennia. On the other hand, the market will reward spectacularly those who develop best energy practices and even more spectacularly efficient generators and distributors of non-carbon based energy.
In the end, businesses will have to negotiate a brave new world where fossil fuel costs are far higher than they are now. But, since their ultimate customers will have much more money in their pockets, most companies will be able to pass through additional costs to customers via higher prices as all actors scramble to reduce consumption.
There’s another reason that we should be very leery of providing any rebates to companies. Doing so would make the system complex, prone to political corruption, and cheating. I cannot think of any reasonable method of rebating the tax revenues generated to various companies. As soon as companies see an opportunity to grab at the enormous pot of cash collected at the pumps and power plants, lobbyists will demand that their industries get the lion’s share and the public will be screwed.
II. What about poor, working, and middle-income Americans who consume above-average amounts of oil, gas, and coal? Won’t they be net losers? To some extent their greater tax payments will be offset by revenues from corporate energy purchases. Of course, they will still have to pay more for goods and services as prices rise due to added business costs.
Implementation of the FFT will exacerbate problems faced by the less affluent arising from recent demographic shifts due to the very high cost of living in cities. City-dwellers drive less than their country cousins and apartments require less energy to heat and cool than houses. Poorer Americans in rural areas may find it very difficult to shorten their commutes or relocate to fuel efficient homes even with rebates from the FFT.
One plausible solution is to provide somewhat higher rebates to those who live in rural areas. For the FFT to work, the rebates that any one individual or small group receives cannot be tied to their energy consumption. If there is a correlation between the size of one’s rebate and one’s fossil fuel use, then the incentive to consume less or move to alternatives is greatly reduced or even eliminated.
Wise use of a zone system where those living in areas that are not proximate to accessible affordable public transportation and job centers receive higher rebates would take some of the sting out of higher energy prices for poor exurbanites and country dwellers while still providing strong incentives to move away from fossil fuels.
Even without the FFT, we should commit to guaranteeing a decent quality of life to all Americans. Such a guarantee would include comfortable safe living quarters, guaranteed education and health care, and a secure retirement. Such a guarantee would mean that nobody harmed by the FFT or anybody else would face destitution or worse.
Part 4 of this series on the FFT is here.