The Proposal
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 that go 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. At present (early 2011) we are seeing 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.
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 (early January 2011) 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 energy "crisis"
The US government and
public believe that they have an energy "crisis". The rest of the
world agrees that there is a crisis around the use of energy, 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 goodies 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.