Tuesday, June 04, 2013

Why we need a tax and dividend policy on fossil fuels

Here's a great article.
Environmentalists, understandably, have been loath to make the fossil-fuel industry their enemy -- respecting its political power and hoping instead to convince these giants that they should turn away from coal, oil and gas and transform themselves more broadly into "energy companies."
Sometimes that strategy appeared to be working - emphasis on appeared.
Around the turn of the century, for instance, BP made a brief attempt to restyle itself as "Beyond Petroleum," adapting a logo that looked like the sun and sticking solar panels on some of its gas stations. But its investments in alternative energy were never more than a tiny fraction of its budget for hydrocarbon exploration, and after a few years, many of those were wound down as new CEOs insisted on returning to the company's "core business." In December, BP finally closed its solar division. Shell shut down its solar and wind efforts in 2009. The five biggest oil companies have made more than $1 trillion in profits since the millennium - there's simply too much money to be made on oil and gas and coal to go chasing after zephyrs and sunbeams.
Much of that profit stems from a single historical accident: Alone among businesses, the fossil-fuel industry is allowed to dump its main waste, carbon dioxide, for free. Nobody else gets that break - if you own a restaurant, you have to pay someone to cart away your trash, since piling it in the street would breed rats. But the fossil-fuel industry is different, and for sound historical reasons:
Until a quarter-century ago, almost no one knew that CO2 was dangerous. But now that we understand that carbon is heating the planet and acidifying the oceans, its price becomes the central issue.
If you put a price on carbon, through a direct tax or other methods, it would enlist markets in the fight against global warming.
Once Exxon has to pay for the damage its carbon is doing to the atmosphere, the price of its products would rise.
Consumers would get a strong signal to use less fossil fuel - every time they stopped at the pump, they'd be reminded that you don't need a semi-military vehicle to go to the grocery store. The economic playing field would now be a level one for nonpolluting energy sources.
And you could do it all without bankrupting citizens - a so-called "fee-and-dividend" scheme would put a hefty tax on coal and gas and oil, then simply divide up the proceeds, sending everyone in the country a check each month for their share of the added costs of carbon.
By switching to cleaner energy sources, most people would actually come out ahead. There's only one problem: Putting a price on carbon would reduce the profitability of the fossil-fuel industry.
After all, the answer to the question "How high should the price of carbon be?" is "High enough to keep those carbon reserves that would take us past two degrees safely in the ground." The higher the price on carbon, the more of those reserves would be worthless.
The fight, in the end, is about whether the industry will succeed in its fight to keep its special pollution break alive past the point of climate catastrophe, or whether, in the economists' parlance, we'll make them internalize those externalities. 

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