Simple argument part 3

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.

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4 Responses to Simple argument part 3

  1. Shade says:

    I say let’s do this part first: “Even without the Fossil Fuels Tax (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.” I’m with you there Hal re this part. However, we have not been particularly successful of late in accomplishing even this goal that in reality would require only a modest financial investment, so why is it that you risk the public acceptance we do have of this moral responsibility by tieing it to the implementation of a an immediate unnecessarily high (Draconian) carbon-tax.

    I know you feel like Noah proclaiming it is time to build an ark. Sorry Hal, but instead of convincing me with your 3rd attempt, you remind me of the old saying: “If you can’t dazzle them with brilliance, baffle them with BS”. (I am therefore responding in kind.)

    The public perception is going to be that your proposal is in large part an income redistribution plan, and voters are already leery of such programs. Furthermore, many will feel that your plan will raise their energy costs to a level that threatens their already tenuous state of financial security. As you have been unable to convince even the majority of your own Liberal listeners to support the plan, I see no chance that your plan will get traction. Worse, in promoting your plan, you give credence to those who decry that Liberals only want big intrusive (job-killing) government and you will likely turn off some from Progressive politics altogether. I feel your plan has no chance of enactment unless some of our major cities are already underwater & more were threatened. The public is not going to consider a revolutionary restructuring of its entire entire economic engine this way. Voters and those in power tend to approach major changes to the economy very cautiously.

    Changes to the economic engine of our country (that has overall has served us well) are more wisely approached with the mindset of a mechanic. When a mechanic attempts to fine-tune a device, they will make one small change at a time and measure the effect to see if things have moved in the intended direction. Your plan is instead is like a bull in a china shop. From the mechanic’s perspective, your plan makes so many major changes at once that it risks damaging the economic engine in ways we may not be able to recover from should a misstep occur. Even the greatest minds in this world are not prescient enough to know how implementation of such major plan would play out. However, I think it could be guaranteed that not all the effects would be good. If your plan was to fail in a serious way, it would lead to even more public mistrust of the Liberal agenda than already exists.

    It is the above arguments that convince me that we should instead start with a relatively modest carbon-tax & then measure the effect. If the result is a movement towards Green energy sources without too many unwanted side-effects, then we can make another adjustment to achieve even more. Making adjustments in small increments this way will eventually get us to the goal we both intend, but it would less likely overshoot our target and accidently damage the country’s economic engine accidently.

    Here are some of my concerns about your plan that I quickly put together:

    Your plan is not the Progressive income-redistribution plan you allege. In many ways it is very much like a sales-tax, in that it is classist & regressive in nature and the tax only provides a net rebate to SOME people. True the wealthy tend to use more energy and pay more tax than most of us and this will help fund your rebates. However, there aren’t that many truly wealthy people spending money on carbon-fuels or manufactured merchandise to tip the financial scales much in favor of the masses. Mostly the wealthy invest in things that make them even more money, as you can only spend so much. Also, it will be the wealthy that are first able to adapt and use new alternate energy sources, so over time they will pay less & less in carbon-taxes & thus provide less & less a rebate to help the rest of us.

    Like the accident of birth to a wealthy family, people are often not much in control of the amount of energy they use. Furthermore, many will be very “locked-in” by previous life choices (before the game was suddenly & unfairly changed). So what will really happen if we enact your Draconian carbon-tax is that the country’s population will be divided roughly in half. Those that buy things that use more energy than the norm will pay significantly more for their purchases (and get no net rebate). Only those that happen to be able to buy fewer things that require energy will truly benefit of the rebates. So, unlike the rosy scenario you repeatedly paint, only a small percentage of the working-class will be cash rich from tax rebates; most of us will either be paying more for everything or we will just be breaking even after we use our tax rebates to pay for the inflated prices of most everything we buy. Carbon-tax rebates can only go so far, but somehow when you describe them, you act like virtually every citizen will receive an inexhaustible supply. (Personally, I think that in your enthusiasm, you have somehow tricked yourself into recycling the rebated money and you have convinced yourself that the consumer will be able to spend it over & over again.) Unfortunately, for the vast majority of us, the net tax-rebate benefit won’t do much, but our net prices on everything will be climbing higher & higher as non-carbon fuels become the norm (and our rebates decrease).

    If business adopts non-carbon based fuels quickly, consumers will more rapidly be forced to pay more for most everything without benefit of as large a carbon-tax rebate. Yes, local farmers will be more competitive, but this will mean that food, which is already hard to afford for many in the U.S., will become even more expensive. Nothing in your plan is going to make locally grown food a whole lot cheaper, as overhead costs of food grown in the U.S. is often significantly more. This may be acceptable if it happens over sufficient time, but is hard to foresee how rapidly all this will occur, and thus it is unclear how well the consumer will be able to adapt to the change-over without undue hardship.

    Your carbon-tax is actually unlikely to enable the U.S. or the world to meet its massive energy use requirements with Green sources anytime soon. It will probably take several decades for this to happen, & unfortunately the alternative fuels that eventually get used are likely to carry their own environmental consequences once they are in widespread use. The real problem here is there are too many people in the world. One of my problems with your Draconian proposal is that you seem to feel that even if you plan causes people that use a high amount of carbon-fuel to figuratively (if not actually) die of attrition, you are OK with this. I have to presume this is because this would leave the earth better for you and your offspring. No, I’m sorry but I don’t sense any of your normally expressed compassion on this matter. (Furthermore, often the compassion you express for others is wasted on bad actors that happen to belong to what I agree is an oppressed minority race.)

    Big-brother government moving so many small amounts of money around is not going to have “de minimis” administrative cost, especially as politicians begin to increasingly tinker with the program (as you have already suggested) thus causing these costs to snowball (in the fruitless attempt to achieve “fairness”). Just Google the problem IRS has with phony returns and fraudulently paid refunds to see what I’m talking about. Tracking who is who, even in this technological world, is not as easy as it sounds, as people move around, have their documents lost or stolen, change names, fail to report their address, commit fraud, etc. Yes requiring debit cards helps a bit, but there will still be a multitude of expensive to administer issues.

    On the fairness issue, somehow I don’t think that you are going to be able to convince large blocks of voters in the urban areas to vote against their best interest and support larger carbon-tax rebates for rural dwellers. Though city dwellers are likely to directly consume less carbon-fuel themselves, they are often even more dependent on purchasing manufactured & transported items in small independently operated stores, where costs are higher due to transportation and handling costs. Also, most in the cities won’t be growing their own food (which is not really that efficient anyway) or putting solar panels on the relatively small roofs of multi-story buildings. In addition, many of the working-poor in both rural areas & cities live in older dwellings that are not practical to make as efficient as new construction.

    One basic flaw in your entire plan is that you seem to assume that through conservation and the switch to alternate fuels, the price of energy will soon come into-line with current carbon-based fuels. While this could eventually happen, it will likely take several decades, and the primary energy source adopted at that point will likely be fission or fusion. Solar and wind (and others) will be in the mix, but industry (& consumers) demand massive amounts of energy available 24/7. It is not economically feasible to shut things down when the wind doesn’t blow or the sun doesn’t shine and unfortunately, it is unlikely that there will ever be a practical way to store electrical energy on the massive scale needed for “the grid”. (Yes Shawn, there is molten sodium and hydride fuels, but I remain to be convinced these won’t present their own safety &/or environmental issues if used on a massive scale.) The lack of electrical storage, even if only for the present, means that not only will it be necessary to build out the new Green solar and wind sources, but it will also be necessary to continue to build and maintain conventional carbon-fuel generation facilities (so as to avoid blackouts). This fact alone essentially causes the price of Green energy sources to be doubled if they can’t reliably operate 24/7.

    Business & industry relies on stability, & it tends to be stand-offish & not invest (or hire) when faced with the unknown. Faced with the instability that your plan would bring, many business would rather shut down operations or move abroad (where energy production is much more dirty).

    Those companies that do chose to continue to operate will try to pass on their extra cost to the extent they can. However, your carbon-tax will give them incentive to search for secretive 3rd world locations where it won’t be possible to track their real carbon use. For example, most electricity in China is created in an inefficient and non-environmentally friendly way at coal-powered plants using 3rd world technology. However, manufacturing plants in China selling to the U.S. will all try to claim that their electricity comes from solar panels, and it is all the other electricity in China that is dirty. Do you think China is going to disclose what is really going on or let us inspect find out for sure? China will know that if they don’t protect industry in this manner, the plants will move to other 3rd world countries until they find the carbon-equivalent of Cayman Islands.

  2. halginsberg says:

    Shade – A rapid transition away from fossil-fuels is essential if we are to avoid utter ecological collapse. Any such transition will be destabilizing for many as you describe eloquently. Nevertheless, I posit that the FFT with rebates provides the most efficient way to a clean green energy future with the least disruption to the lives of the poor, working, and middle-class. We agree politically that this idea has virtually no chance of political success but that doesn’t mean it’s not a great idea. Congressional investigations into Bush-administration crimes in 2007 and single-payer healthcare in 2009 were great ideas but both were political non-starters. Regarding China – we also agree that America’s China policy over the past 25 years has been disastrous on all fronts. I’ll address in a later post. Thanks for taking the time and energy to respond.

    • Shade says:

      “We agree politically that this idea has virtually no chance of political success”

      You seldom admit this point, though I knew intellectually you know it to be true. My question is why can’t you restrain yourself from spending so much time & effort promoting a plan that angers even most of the Liberal listeners we need support from? While I understand that it makes you feel good that you have a plan that addresses things as rapidly as you believe is necessary, you hurt our cause as you feed into the perception that Liberals only offer big government plans that kills jobs and that bankrupts the working-class.

      Your efforts would be much more productively spent promoting the gradual phase-in of FFTs (such as a $1/gallon gasoline tax) and stopping subsidies to big oil. Even if we are a bit on the late side in taking action, I think it is better to promote an energy plan with some chance of passage than to promote a feel-good plan that primarily only angers those voters we need support from. I’m begging you to be more practical in your approach. In addition, I believe a more moderate approach would better help you to develop your listener base.

      I also feel that even a $1/gallon carbon-tax (combined with moving existing subsidies from big oil to alternate energy) would accomplish much more than you think. In the big picture, I believe Mother Earth is more resilient than you give her credit for. Those people that are affected by climate change will need to receive our support. However, even if man does self-destruct, Mother Earth and life on her will do just fine (given just a small amount of galactic time). In fact, I think the evidence is that the universe itself is likely teaming with life, if it is not alive in some fashion itself. The only entity truly threatened is mankind himself, and if due to global warming he doesn’t survive, he has only himself to blame.

    • Shade says:

      On the free-trade & China issues, I will say one point in our policy’s favor has been that it has somewhat brought China & most of the rest of the world into our economic fold. The new form of Mutually Assured Destruction is as much economic as it is the threat from nuclear weapons. I believe this mutual dependence makes a nuclear exchange much less likely.

      The economic ties we have now have with China (and even Russia) also gives us leverage with other countries like South Korea that haven’t yet changed their political outlook. We can now clearly show that joining our economic fold would be in their country’s best interest (though some like South Korea resist because their leaders realize it has the potential to weaken the political hold they currently have over their people). This is not to say that our agreements with the third world should not be modified in some significant ways, on which I’m sure you will do a good job of expounding.

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