First, here is the essence of the proposal as it would be applied in the U.S.A.. Some background and rationale are given subsequently.
Congress should pass into law a bill that would add gradually increasing fees to the cost of fossil fuels and to the emissions of easily measurable emissions (for example, gasoline could be increased by 25 cents per gallon per quarter).
All the fees would be deposited in an impregnable trust fund. (These fees are not taxes, because none goes to the government.)
All legal adult citizens (perhaps seventeen and older) resident in the country would be required to have bank accounts.
Every month, the funds in the trust fund would be divided by the number of legal adult citizens and the resulting exactly equal amounts would be transferred to the bank accounts of all citizens, thus reducing the trust fund to zero every month. (Citizens too poor or disadvantaged to have bank accounts would receive debit cards of the same value.)
The assessment of the cost-of-living index would be amended so that it includes the rebates as well as the cost increases caused by the fees.
Congress would give itself the power to change or stop the increase in fees at any time. It will be hearing the cries of joy from poor people with something approaching a guaranteed annual income, and some signals of pain from rich people and from the lobbyists of businesses that cannot or will not adapt to the new conditions.
That is the policy, somewhat simplified. Elsewhere in this website is a “white paper” in which we have tried to foresee many of the details for which action would need to be taken. Some introductory comments are as follows.
There is a well-known policy that is often advocated to control emissions and the use of fossil fuels that is known colloquially as ”paying for pollution” , whereby emissions of carbon dioxide, nitrous oxides etc. and the use of fossil fuels such as gasoline and coal would be taxed. The approach proposed here would result in significant improvements over this policy. Taxing fossil fuels and carbon emissions has three significant problems: it hurts poor people more than the rich; it is inflationary; and it puts enormous sums in the hands of government to use on “bridges to nowhere” and the like. This policy helps poor people, is noninflationary, and involves no taxes going to the government. It would act as an enormous stimulus to businesses and to individuals to do everything imaginable to cope with the new circumstances these changes would bring about. And it would introduce some certainty into the future. In recent years we have seen the abandonment of many green efforts that were started because of the rise in oil prices in 2008, just as happened in the 1970s after the OPEC-induced oil-price increases. However, at the time of adding this note (late 2013) there has been an acceleration of green efforts, coupled with a report that wind power is now considerably less expensive than coal and nuclear power in supplying electricity.
This policy seems to be an obvious, simple, low-cost approach that should be just what the Obama team needs. Up to the time of writing the government has seemed to want to hand over huge sums to banks and insurance companies in blind faith that doing so will help.
The following are some comments on why I, an engineer, am proposing this policy at this time.
An engineer’s confession and personal proposal: engineers are to blame for the environmental “crisis”
The US government and public believe that they have an environmental “crisis”. The rest of the world agrees that there is a crisis around the use of energy and of the creation of pollution, but looks at the problem differently. Nevertheless, the principles by which energy, emissions and resources should be controlled apply to all the more-affluent countries. We engineers are to blame, and we should propose solutions. (This therefore might confuse you, because it means that we are engaging in a role-reversal with policy makers such as legislators and economists.)
Engineers and scientists have caused our present energy problems, resource shortages and pollution levels. Civil engineers created construction systems, transportation systems, and water-supply and sanitation systems that enabled us to live in great cities. Mining engineers enabled vast quantities of coal, oil and gas to be delivered to factories and to our homes. Mechanical engineers invented steam engines, railroads, turbines, oil-field equipment, internal-combustion engines, automobiles, airplanes, and the means of producing these so inexpensively that we all feel that we have a God-given right to own and use lots of everything. Chemical engineers devised means of refining petroleum and gas fuels to drive all these types of power producers. Electrical engineers developed alternators and means for delivering electric power to us all, and information systems that, while entrancing us and bringing us closer together, increase the demand for goods and services and for ever-more travel.
A cornucopia of goods at ridiculously low prices
Engineers and scientists have, therefore, delivered a cornucopia of goods, particularly consumer goods, and these have been made available, at least to the western world, at extremely low prices. We have not devised appetite suppressants for them. (When I first arrived in the US in September 1955 on a fellowship that paid $9 per day, I spent much of the money on all kinds of hardware. Most other countries tax goods with substantial purchase or value-added taxes, which are absent or small in the US, thus contributing to the incentives for us to consume.) The US now uses a quarter of the world’s nonrenewable energy and of most other resources, and produces about a quarter of the world’s pollutant emissions, and yet its people believe that they are short of energy. It is obvious why: for instance, we have many fit young friends in the US who think nothing of getting into huge vehicles to travel distances as short as 25 yards, and who leave their house lights, TVs,, heating and air-conditioning systems on full whether they are home or not. The US Administration has refused to endorse the Kyoto Accords because to do so would threaten the American way of life. Our leaders in Congress and the administration seem to believe that this way of life is something that God has bestowed on US citizens, his chosen people. Meanwhile the global temperature is rising ominously.
The principal reasons, therefore, for the high US consumption, the shortages, and the extraordinary levels of pollution from, for instance, mining are the low prices for gasoline (about a quarter of UK prices), electricity, natural gas, water, timber, and for the rights to the mining of minerals and fuels.
King Canute and rollbacks
Where the free market operates, as it does to a great extent for motor-vehicle fuel and some interstate electricity sales (where there has been substantial deregulation in many areas) prices have increased considerably, although not in general to the levels of much of the rest of the world. US legislators at every level have been calling for caps on prices. They have not heard of the early Danish-English King Canute, whose sycophantic courtiers proclaimed that he was so powerful that he could order the tides to roll back. Canute was happy to prove them wrong. US legislators have also called for the fuel consumption of vehicles to be set by regulation at extraordinarily low levels, in defiance of the second law of thermodynamics and of the law of supply and demand. They have even required that a proportion of cars sold shall be “zero emission” vehicles, but have excluded bicycles and other human-powered vehicles, which come closest to this worthy but misguided goal.
The US Administration’s policy towards addressing the problem of energy shortages is to find more sources of energy in the few remaining wild areas of the world, and to spend tax money to pay technologists to develop more-efficient vehicles, power plants, nuclear energy, and so forth. US citizens are told that they can have it all! They deserve it!
This policy is not an engineering solution to a problem. It is what engineers pejoratively term a “Mickey Mouse” approach. Engineers are trained to look at all possible solutions to problems, including the ridiculous extremes, and to pick an optimum somewhere along the spectrum.
A range of alternative solutions
One ridiculous extreme is rationing and regulation of just about everything, as practiced by the former Soviet Union. We know that that did not and does not work, there or here. In the middle of the Arab oil embargo of the 1970s I visited a nuclear power station in Illinois that had the usual problem of getting rid of its waste heat. It had been forbidden to use the Mississippi, which at the time was frozen, alongside the plant. The cold spell had produced an extreme shortage of natural gas. Some industries had been shut down to conserve gas for home-owners. The power station was grossly over-heated, and I congratulated the management for using their waste heat productively. Alas! It was using natural gas. Congress had capped the price at which Texas and Louisiana could sell it at a level that made it an irresistible bargain for users, and an uneconomic millstone around the neck of producers. Beware of price-cappers! This type of well-meaning but short-sighted measure killed many promising energy-saving developments started by my engineering colleagues around the US in the 1970s.
The free market and external costs
The other extreme, not ridiculous but having serious flaws, is a completely free market. This would bring about an optimum solution except for one indisputable objection: most technological developments bring about benefits to users of the technology, and penalties or costs to non-users. These costs are so-called “externalities”. Economists would prefer that externalities be internalized. The use of fossil fuels in motor vehicles brings about a host of externalities, including pollutant emissions, usage of finite resources, accidental injury and death to non-drivers, destruction of neighborhoods, increased defense costs to protect “our” oil supplies, huge loses of time and the quality of life for nonusers, and so on. Some economists have assessed these externalities as being on average between 60 and 90 cents/mile driven for every US vehicle.
If these externalities are not assessed, and a completely free market were allowed to run, energy (and other) prices would rise further, oil companies would reap even higher profits, and poor people in particular would suffer. This has been one reason why proposals for higher US energy taxes (which would certainly reduce demand, and do so efficiently) have been repeatedly rejected: they would be “regressive”. They would also be highly inflationary.
Energy fees (taxes) that are progressive and noninflationary
Taxes on nonrenewable energy can, however, be made progressive and palatable, even popular, if introduced in the following manner. First, they should be imposed on a gradually rising scale over a period of years, so that everyone, including business people and entrepreneurs, could plan ahead. Second, the proceeds of the fees should be put into an impregnable trust fund, immune from being used for Congressional “pork”. The trust fund should be reduced to zero at the end of every month through the distribution of equal rebates to adult citizens (perhaps aged 17 and over) via their bank accounts or debit cards. These proceeds would not, therefore, go to the government. The correct name for them is “fees”, not “taxes”.
The effects of this would be as follows. Energy use and, therefore, the energy fees paid, increase with wealth and income. If the costs of collecting and distributing the fees were negligible (and they should be relatively small) the hypothetical “average citizen” would receive a rebate exactly equal to his or her energy fees, assuming no change in his or her consumption, Rich and high-income people would receive a rebate less than their energy fees. (However, rich people have the most freedom to buy efficient cars and appliances etc.). Poor people would, on the other hand, receive a rebate larger than their increased expenditures. They would get richer! The fee system would be progressive! Everyone, rich and poor, would have an incentive to reduce energy use and to invest in energy-saving measures, from buying more-efficient appliances to being less capricious about automobile use for every possible trip, however short. There would be a free-market boost for new-technology business – there would be no need for government programs on wind turbines, hybrid autos and a host of favorite gimmicks of lawmakers) and employment would increase strongly. Traffic jams would decrease. It would become fashionable to walk short distances. Buses would go faster and more frequently. Energy supply and demand would come into balance. Life would be much more relaxed and enjoyable. People would be fitter. Welfare programs could be scaled back because everyone, including the very poor, would now have something approaching a guaranteed annual income with no strings attached. Some welfare programs could be shut down.
Emission taxes could be treated similarly
The same principles could be applied to shortages in other resources, including road space (congestion fees are becoming popular) and to emissions (where the economics justifies fees to reduce pollution. However, there are obvious cases where fees are inappropriate and regulations are appropriate, such as when the overwhelming wish of citizens is for regulation. Restrictions on smoking in airplanes and buildings are of this type. Taxing indoor smoking would be impracticable and unintelligent.
Inflation problems easily solved
There are serious objections to energy and emission fees in that they seem to increase inflation. Under the proposed policy, on the contrary, they would reduce real inflation, because energy producers, for instance, would face a reduced demand and would be compelled to lower their component of the prices. We have a defective manner of evaluating the cost of living in the US, and in most other countries. In the present system, consumption taxes are included, but income taxes are not. Nor are rebates. All that is necessary to correct this strange anomaly is to require that the rebates from this program be included as lowering the cost of living, while the energy and other fees are increasing the cost of living.
Proposed level of tax increments and resulting rebates
We have proposed that fees on nonrenewable energy should start (perhaps six months after the program is agreed upon) at $1.00 for every 500 megajoules of energy brought to the surface of the ground or water from mines, oil and gas wells, released in nuclear processes, or imported by land sea or air into the US. Such a fee would increase gasoline prices by about 25 cents per gallon. Three months later the same increment would be added, and the increases would continue every three months for eighteen months. Then the fee increment would be applied every six months for two years, and subsequently the same increment would be added yearly. At the eighteen-month point every citizen would be receiving rebates of about $375 per month.
Congress would have the right to freeze the fees at any time or otherwise to change them. They would be receiving cries of delight from poor people and from most business people launching new businesses dealing with energy conservation and with the harvesting of renewable energy. They may be hearing complaints from those oil companies too hide-bound to get involved in wind energy, tidal and wave power and the like.
What a wonderful prospect! There would be all kinds of incentives favoring socially beneficial activities, people would be healthier and happier, and we would at last have found a task for which the people’s representatives are ideally suited! The US would become a world leader in conservation, instead of the world villain in consumption and pollution!. Farmers might have to pay good wages to US citizens to harvest crops, and we would have to pay more for them. Local farmers would be favored because the extraordinary present amount of long-distance shipping of produce (the average distance traveled by our food is reckoned to be 2000 miles) would become more expensive. This surely is not a bad consequence.