In my previous article I wrote about why global warming is not an issue we can solve as individual consumers but which requires collective action. Here I like to think out loud about some ideas of how that can be done.
We have so many issues, that I think it is useful to prioritize what has most impact, that means fossil fuels used for transport and power generation.
Green Net Zero Taxes
A lot of people are anti green policies because it costs them money. So policies should be designed to not hurt consumers. My suggestion is a net zero tax. Meaning any extra taxation we put on the usage of fossil fuels has to be offset with a corresponding reduction in other taxes, to make the consumer end up with zero total tax increases.
There are many ways we could structure this, but here are some ideas:
- Calculate average liters of gasoline consumed by each citizen. Give each citizen a tax rebate corresponding to the amount of extra taxes they will get from say a doubling of fuel taxes.
- Or, let everyone provide some sort of proof of how much gas the use in an average year. Then give each one a tailored tax rebate.
- All money collected from extra green taxes goes to a fund to pay for tax reductions: e.g. could be lower sales tax, income tax or property tax.
Whenever I present this idea to people, they typically respond with: but then people are able to drive just as much as before! Exactly, the point is not to force people to change their life. Rather the point is to create an incentive to do so. Even to purchasing power is the same, with higher fuel taxes, people have a strong incentive to reduce fuel consumption because there is so much more money to save.
Essentially we get government to reward those who find ways to reduce fuel consumption. This will create a bigger market for more fuel efficient cars, electric cars, biofuels etc.
We could to the same with power plants. Coal, oil and gas gets taxed higher. The worst fossil fuels get highest taxes. That would be coal. This makes electricity more expensive for consumers, but as with transport costs, they will get these costs covered through other tax deductions.
That would make renewable energy based power plants far more competitive. Existing power plants will also get an incentive to upgrade their plants. E.g. they could start mixing in more biofuels, which will not get taxed.
Effects on the Transport Sector
This will encourage more rapid adoption of electric cars. However lets be realistic, there are so many ICE cars that EVs cannot replace all within the time frame we want the green shift to happen.
The approach thus has to be based on a combination of tactics. Biofuel production will have to ramped up as well, so that people who cannot yet afford a new EV car, can start fueling their old ICE cars with biofuels instead of fossil fuels.
It is something we need to do regardless because electric transport cannot solve every problem. We have no technology for long range electric flight. Hence biofuels are needed in aviation.
Effects on Power Production
While wind and solar is growing rapidly, it takes time to simply build up replacement for coal, oil and gas power plants we have built over many decades.
That means as with cars we need to find ways of also making existing plants greener while building wind and solar.
That could mean replacing coal with biofuel in coal plants. Some already do this. Gas power plants could use biogas etc. However it is risky to risk everything on one particular technology. It is worth going broad. It may be that carbon capture is the solution. That would mean existing coal plants would install carbon capture technology, which would allow they to keep burning coal without releasing CO2.
Companies should be able to get reimbursements for the taxed coal they buy, if they can demonstrate a way of getting rid of the released CO2.
Green Investment Incentives
Another alternative or possibly added approach of turning the economy greener is doing something similar to what Norway did to build up its oil industry. We set very high taxes on oil companies, however they big tax deductions for doing research and exploration. That meant very large sums of money flowed into research and development which led to the build up of the present oil high tech sector in Norway, being the biggest export sector in Norway after crude oil.
Fossil fuel consumer could likewise be heavily taxed but get very big tax breaks on any green project they invest in or develop. So a utilities company with lots of coal power could e.g. get their extra taxes reduced by getting into wind, solar, tidal or wave power e.g.
Creating the Right Incentives for Making Biofuels
Taxing fossil fuels, will naturally incentivize the production of biofuels. But here is the kicker: What we saw in the US was that the policy got hijacked by politicians who wanted rural voters. Thus a lot of fields for food production got replaced for growing corn for production of biofuels.
We don’t want to end up in a situation where world food prices get a steep rise because we produce biofuel. There are many possible ways around this:
- Make sure it is never a national agricultural subsidy policy. E.g. Brazil could produce biofuels from sugar cane at much lower price and 4x the energy efficiency of US producers, yet their exports got blocked to the US market.
- Develop technology for making biofuels from wood and waste plant material which cannot be eaten. This is already well on its way.
- Growing biofuels in bioreactors. This could be algae or cyanobacteria. These can be produced on several hundred times less area and does not require any valuable agricultural land, since the reactors could be set up anywhere with access to water.
But how do we make people opt for these options? Growing on agricultural land will often be cheaper since little to no infrastructure need to be built and no new technology needs to be perfected. One could experiment with different approaches to achieve this:
- Regulations that simply bans the use of agricultural land for biofuel production. Using biomass waste product would be fine though.
- Differentiated subsidies. You get subsidies for biofuel production according to the size of the area you use for production. Smaller areas give higher subsidies.
Reduction in Power and Fuel Consumption
Because the problem is so big, one cannot solve it is a timely fashion merely by transitioning to cleaner fuel. Converting all power plants and all transport vehicles is simply a very time consuming task.
Finding ways of reducing our energy usage is also thus important. It is really a cost, benefit and time consideration. What is cheaper to reduce CO2 consumption? Having the next house built, being more energy efficient (insulation) vs building a windmill or rooftop solar.
If we tax fossil fuels, and subsidize wind and solar, then it makes sense that house insulation receives comparable subsidies. Otherwise people will prefer to invest in say solar cells rather than better insulation even in cases where insulation would have been cheaper.
Alternatively we should find a different way of paying utilities. They have a perverse incentive today. It is in their financial interest that we consume as much electricity as possible.