The Case for a Fossil Fuels Tax part 4

This is part 4 in a series. The first three parts are here, here, and here.

The truth is out there. Indeed it is Mulder and Scully. In fact, the truth can sometimes be found in such unpromising soil as a column by conservative pundit James Poulos or an address to investors by the CEO of Exxon. Poulos is known, if at all, for posing in print the antediluvian question: “What are Women For?” Yet Poulos provides real insight into how to solve anthropogenic global warming (“AGW”). As improbably and in conjunction with Poulos, top polluter Exxon’s Rex Tillerson blazed an unmistakable path to a clean green energy future earlier this week.

We may be seeing a bit of a shift in conservative commentary on climate change. Rather than deny it outright, some on the right now acknowledge its existence but downplay its costs or even claim mankind may reap significant benefits from underwater cities, super-storms, and desertification.

In a May 26 opinion piece, however, Poulos opts not to dump more manure on the steaming pile of denialism and Panglossianism that right-wing fossil fuel industry shills have spent decades building, shaping, and drenching in perfume. Instead, he acknowledges the scope of the problem and then loudly proclaims in his title no less, “Silicon Valley could save the world from climate change. But we don’t want them to.”

All we need do says Poulos is “turn Washington into the biggest venture capitalist in the world, and hand Silicon Valley a blank check marked ‘climate’” Forget about messy solutions like cap-and-trade or top-down approaches like higher CAFE standards. If we just open up the back of the Brinks truck at the corner of El Camino Real and Woodside in Palo Alto, the Zuckerbergs and Kalahnicks will save us.

This suggestion surely reflects genius of a kind. Recognizing that AGW is real and here to stay, Poulos figures why not make a grab on behalf of Silicon Valley elites for cold hard federal cash to combat it. Flush with billions, newly minted alternative-energy billionaires will spare a few million for that smart guy Poulos who came up with the “blank check” idea in the first place.

Now I’m no venture capitalist but after watching the ones who play themselves on Shark Tank a couple of times, I’ve gotten the idea that they don’t hand out blank checks. They crawl down the front and up and inside the backside of every would-be tycoon. When funds are offered, they are often less than the amount requested and invariably come with conditions. Small-fry tinkerers and inventors go on Shark Tank because they have nowhere else to turn for seed money.

Unlike the Papa John’s delivery guy whose board game will make us all forget Monopoly, NASA rocket scientists, Harvard engineers, Cal Tech physicists, and Neal DeGrasse Tyson don’t need a special introduction to get five minutes with and $5 million from Mark Cuban. But if Poulos is right, they’re not seeking or getting the money.

The VC boys aren’t the only ones sitting on their hands when it comes to AGW. As of July 2013, Exxon was sitting on some $50 billion in cash. Berkshire Hathaway had over $160 billion. These companies and others like them have far more than enough to finance lavishly alternative energy ventures without going near the sharks. Yet they too don’t appear to be focusing on alternatives.

Why? The answer is hiding in plain sight in CEO Tillerson’s retort this past Wednesday to a climate change activist who asked why Exxon doesn’t invest in renewable energy. “We choose not to lose money” the boss bon moted. Plutocratic financiers and immensely wealthy corporations will back planet-saving technologies in an environment where doing so successfully is likely to result in big profits. Putting gazillions of no-strings-attached dollars in the hands of entrepreneurs, as James Poulos urges, will not create such an environment.

There’s another huge problem with Poulos’s “solution” to AGW. As anyone who took econ 101 in college can tell you, government bureaucrats are the last people we should ask to distribute funds among aspiring clean energy magnates. The functionaries are unlikely to be true experts in asset allocation. If they were, they’d be in the private sector. Moreover, they’d be risking public assets, rather than their own, which means at best they’re not going to be as careful as a private investor would be. At worst, they’d demand kickbacks and other favors in return for conferments of largesse.

The blank check gimmick is a bad idea and would cost the American public dearly. Still I come not to bury Poulos but to praise him sort of. Buried in his commentary is the kernel of truth that can lead us to the promised land of nearly 100% renewable energy with minimal effect on living standards. That truth is technological innovation.

We know that technology can be a major part of the solution because it already is. Europeans enjoy a standard of living approximately equal to our own yet they consume far less fossil fuels per capita. California has taken huge strides towards fossil fuel independence with solar energy. In Hawaii, expensive power-plant electricity is supplemented by geothermal energy from the volcanoes that form the islands.

But we’re not moving nearly fast enough towards nirvana. Paraphrasing Tillerson, capitalists choose not to lose money. Presumably then clean green energy is not now sufficiently profitable for investors.

How could this be? The sun is a ubiquitous carbon-free energy source. Energy-suffused rays of sunlight pour down on the Earth constantly. Scientists say we receive more energy from the sun on an on-going basis than we use.

Yet coal, petroleum, and natural gas remain much cheaper per calorie generated. Fossil fuels are nearly pure energy from the sun that our planet received over eons and distilled naturally. Solar and wind energy harvesters and distributors therefore face a daunting competitive disadvantage as long as fossil fuels remain available to extract. Sadly, there’s still plenty. No wonder Tillerson was so flippant.

So what’s the answer? We must artificially raise the price of fossil fuels to a point where super-normal returns can be generated from alternative energies and technologies that reduce consumption. At that point, venture capitalists will compete to get in on promising ideas. The easiest and most efficient way to do this is by levying a very high tax on all forms of fossil fuel energy.

We owe James Poulos and Rex Tillerson a debt of gratitude for helping lead us inexorably to this conclusion.

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10 Responses to The Case for a Fossil Fuels Tax part 4

  1. Shade says:

    So what’s the answer? You lose the voting public when you state “we must artificially raise the price of fossil fuels to a point where super-normal returns can be generated from alternative energies and technologies that reduce consumption”. What voters hear is that you want to make the energy infrastructure they currently have no choice but to use unaffordable. (Your previously proposed immediate $10/gal 3-card Monte tax scheme creates the same fears.)

    Progressives will gain more traction if we instead propose to shift the artificial tax subsidies carbon-fuel extraction companies currently receive in favor of Greener energy sources. Realistically, these two approaches in practice amount to the same thing, as voters will never accept your severe and immediate Draconian approaches.

    Know the audience you need to persuade and speak to them in a language that doesn’t feel threatening to them! Your continued elitist OCD approach may make you feel good, but it marginalizes you. Worse, to the extent that people do listen, you only hurt our cause.

  2. halginsberg says:

    Thanks Shade – eliminating the subsidies that fossil fuel producers receive will not make alternatives and conservation attractive enough to reduce significantly CO2 emissions. The only real solution is to make fossil fuels much more expensive through a tax or cap and trade. I oppose the latter because it is too easily subject to manipulation by government overseers and leads to corruption. I didn’t mention rebating the revenues collected by the fossil fuels tax (FFT) but of course that’s what we should do and that would turn a regressive tax into a progressive one. I get that most people have an initial negative reaction to a hike in the price of gasoline. But the fact is that a very significant FFT is the best answer to the problem by far.

  3. Shade says:

    I think you underestimate the extent of fossil fuel subsides that currently exist. Goggle the topic, plenty of info avail (such as here: http://priceofoil.org/fossil-fuel-subsidies/ ).

    Unlike you, I am not only interested in the macro effects of a policy. I am also extremely concerned about the many individual lives new policies such as your proposals would unfairly affect. Energy is the lifeblood upon which our current economy is built. Quick radical changes would invariably turn out to negatively affect many in the lower working class (in ways that you have difficulty relating to or understanding – see my prior posts). Attempts to solve such problems could not be fairly accomplished. For example, your proposal to chase fairness with rebates would only lead to increased layers of ineffective, expensive bureaucracy and fraud.

    I am therefore against anything or anyone that insists on an immediate Draconian increase in the price of energy. Besides realistically, baby steps towards our goals are much more likely to get public support. For example, I might support an additional gasoline tax of between $0.50 – $1.00 that is initially enacted during the winter when gas prices tend to be low. Later if we can prove to the public that our initial steps have created positive accomplishments and little harm, we can make proposals that are a bit more radical.

    • halginsberg says:

      Shade – your claim that I am not concerned about individuals is untrue. I may well be wrong but I firmly believe, and with good reason (I think), that a $5/gallon gas tax and a comparable tax (100%+) on coal and natural gas with all revenues returned to all Americans equally will greatly improve the lot of most poor, working, and middle-income Americans. So, my proposal (I hope) will not only move us forcibly away from AGW but just as forcefully towards economic justice.

      • Shade says:

        A primary concern about your plan, besides that is absolutely politically unviable and that it puts voters off, is the unfairness of your proposed plan in that you end up unfairly choosing “winners and losers” amongst those who get rebates.

        Your rebate system only works with averages. Any serious variation from the norm means either a windfall (like for Herb) or that you get screwed. The poor working poor often must spend a significant percentage of their income for energy. They can’t afford new cars or houses & they often can’t use alternate forms of transportation due to where they live & the hours they travel. Any attempt to increase the fairness of your plan will only result in increasing its already existing secondary shortcomings: its complexity and that it would be easily subject to fraud.

        Why can’t we just agree on a small but increasing carbon tax and be done with it. Unlike your plan (that will meet a wall of income redistribution resistance), politically I think a small but increasing carbon tax has legs – especially if the tax is dedicated to transportation infrastructure, alternate forms of energy production, and energy conservation. We could also try to dedicate a portion of the tax to the social safety net, though in the current political environment, I think this would kill the proposal. However, on the plus side, a slow but increasing carbon tax versus a sudden Draconian tax does at least give the lower middle-class worker some time & thus an opportunity to adjust their life accordingly to the extent that they can.

  4. halginsberg says:

    Nothing could be fairer than the rebate system. People who burn more carbon are causing more harm to the environment. Each American will get exactly the same rebate as every other one. Perhaps, the rebates should start at the age of 16 years old – obviously there’d need to be tweaks. The government is not picking winners and losers unlike in cap-and-trade. Yes, poor rural residents may well do worse than others in this system. To the extent this proves to be the case, government will have to help them transition by either moving to areas where there’s more public transportation or increasing public transport in their area or by creating their own clean green energy with wind, solar, etc.

    • Shade says:

      Exactly Hal. What you define as fair is that those that happen to use more carbon (for whatever reason) get punished. However, as I stated before, the poor working class are least able to control the amount of carbon they use; they are often victims of circumstances. How many months or years do you expect such people to hold out against $10/gal gas before they are financially wiped out and their current living arrangements and families are destroyed. Unlike you, who managed to go many years losing money on the station (considering its loss of value), such people won’t even survive one month before their jobs and families are destroyed.

      It is very disappointing that you can only see the macro effects of reducing carbon fuel use with your plan. These are real lives I speak of that would be unfairly affected. Your plan is only fair “on average”. On average doesn’t mean some people won’t be receive a windfall and other people won’t be serious losers. It must be nice to be so financially insulated from the world that you can’t understand that your plan has this most basic fault.

      Although I seldom agree with Jeff, I do agree with him that no amount of tinkering will solve this most basic problem with your plan. If you tinker more, you’ll end up making two people worse off for every one person you make better – not to mention the administrative costs, bureaucracy, and fraud such tinkering would cause.

      Just raise the carbon tax slowly so that consumers will eventually pay its true economic costs, improve the social safety net to the extent we can, and let the markets work. This will accomplish our goals, as currently the market is full of artificial supports that favor carbon energy sources. Your plan would instantly flip these artificial financial supports to carbon fuels on their head. However, while on average your plan might be fair, too many in the lower working class would also “instantly” have their lives and families financially destroyed.

  5. jeff linder says:

    Hal want to give the government even MORE power and then complains when people buy politicians favors. As long as the government has something to sell…people will line up to buy it.

  6. halginsberg says:

    Thanks Jeff. Like you, I reflexively OPPOSE giving government the power to reward certain businesses and even industries. That’s why I support the value-neutral carbon tax.

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