Sunday, January 17, 2016

Low Oil Prices: the opportune time to start a Carbon Tax

Paul Krugman notes that the current low oil prices (caused by the current oil glut created by over hyped investment in fracking) have not been expansionary to the world economy and appear to have been contractionary because of their impact on lowering investment into oil production.

I wrote this comment:

Oil consumers should invest their savings because of lowered fuel cost into developing renewable energy based transportation systems to move away from oil for environmental reasons especially including global heating. The spending to develop alternatives would, on a global basis, make up for the loss of demand caused by the loss of income to oil producers. Now is the time to start a heavy and increasing tax on carbon to help facilitate the transition away from dirty fossil fuels to clean alternatives. Low oil prices mean the impact of the taxes on low income consumers will be minimized. The long run goal should be the elimination of fuel use altogether. Such oil and gas extraction as is done in the future should be for chemical feedstocks only. That would mean greatly reduced oil production, which is already baked into the current lower profitability, which means that lower profitability is a very good thing.


In retrospect, "heavy" tax on carbon doesn't sound very PC, that would be what my detractors would call my suggestion.  But what do I actually mean?  I'm thinking about a carbon tax that would have an immediate effect in the US of about a 50 cent tax on gasoline.  (Eons ago, a proposed national 50 cent tax increase...during the Carter administration IIRC...fell flat politically.  But that tax would have been the equivalent of more than a dollar today in a world in which none except for a few scientists knew about global heating.  Even then, there was nothing particularly dodgy about the economics, but it was a tough sell.  That's not my problem here.  I'm telling you what is the correct thing to do not what wins a highly rigged popularity contest.) Followed by an addition 50 cent increase a year later.  Then,  adjustments of up to 10% a year depending on how we are tracking a curve (less at first) to carbon neutral by 2050 offset by the social cost of transportation and heating.

I'm fine with the fully refunded tax proposed by Hanson and others.  All the money could be refunded to individuals on a per-capita basis, everyone getting the same refund.

I'm also fine with socially investing the tax into renewable energy powered transportation systems.  A split between the two approaches (50% refunded, 50% socially invested) might be the ultimate best approach.

While being a kind of all-inclusive leftist, I'm not often an anarchist.  I believe great power comes from collective approaches in many cases up to the global level.  A national and international social effort in constructing renewable energy based transportation and energy systems is a big part of the ultimate solution.

Meanwhile an oil glut is an opportune time to start for many reasons beyond a lessened cost to low income consumers, including the fact that building the new systems will require a lot of oil.

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