Five Percent: Conserve Energy

Climate Change Is Important: Energy Conservation is the First Step

November 25, 2006

Tax Incentives Needed: Clean Coal is More Expensive

Category: Editorial – Tom Harrison – 5:05 pm

Today’s New York Times has an editorial titled Taming King Coal which reveals the dirty reality of global warming: it’s getting worse before it gets better. The article reports on China’s incredible pace of growth in CO2 emissions, indicating plans to build numerous coal plants that burn coal the cheap and dirty way, not cleaner coal technology. Contrast TXU, an American company building 11 new coal-fired plants. Using good old American values and technologies, TXU will also not build cleaner coal plants: they are more expensive.

We seem to fail almost completely to recognize, as a country or world, that the impact of global warming has a staggering cost. The problem is, that cost is non-specific and will be paid in the future thus is not borne by coal plants or any other producer of CO2 emissions as part of their business. It’s an externality: a cost not measured by the “invisible hand” of economics. Our recently departed radical (right) economist, Milton Friedman, was adamantly against governmental regulation and taxation … except in order to internalize externalities. It’s time we put a price on CO2 and made everyone who emits it pay their share of the cost now. If we captured that future cost as a tax, two things would happen: 1) we would collect revenue that could help mitigate the problem, such as R&D in alternative fuels, and 2) we would change the balance of supply and demand.

Is it really that simple? It couldn’t be, could it? My answer is … almost.

As with any change in policy there are winners and losers. Sudden loss results in dramatic and sometimes catastrophic outcomes — just ask the people in New Orleans … or Pittsburgh after the steel industry collapsed. Some outcomes can be predicted and softened, but either way, it’s going to be hard when it happens. So if we can agree that global warming is going to catch us, the question is only how long do we have to spread the cost; the longer we wait to do something, the harder and more serious the consequences will be.

So let’s phase in a clear and significant tax and subsidy, perhaps even a revenue neutral one, that makes CO2 emitters pay, and rewards those who are helping to solve the problem with alternative or new energy technologies. People and corporations will be strongly incented to change their behaviors. And because we can phase the program in, people and corporations will have a chance to plan ahead, and everyone will be on a level playing field.

I’m a dreamer. We’ll never sign the Kyoto plan.

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