Fair Price Energy: A market-based approach to America’s Energy Crisis

September 2, 2006 8:42 AM

Fair Price Energy. One persons idea for a free market solution to the fossil fuel problem.
posted by stbalbach (46 comments total)

Here is the 1-page proposal.
posted by stbalbach at 8:45 AM on September 2, 2006

Well, that's one guy's idea. But I wonder what the point is, all it does is shift money around, it does actually do anything to solve global warming or conquering oil-rich nations.
posted by delmoi at 8:55 AM on September 2, 2006

It seems to work on the greed of those who would use less enrgy and thus be net-positive when the check comes.
posted by Gungho at 8:59 AM on September 2, 2006

I learned a long time ago that any political movement whose name included the word "majority" represented an extremist fringe, and any proposal which included the word "fair" was anything but.

It's not like the idea of using punitive taxes to try to steer economic behavior is anything new.
posted by Steven C. Den Beste at 9:06 AM on September 2, 2006

[yawn] lovely idea. never happen.
posted by twsf at 9:13 AM on September 2, 2006

By the way, just how is punitive taxation an example of a "free market" solution?
posted by Steven C. Den Beste at 9:14 AM on September 2, 2006

"currently, there are hidden costs to most energy sources (they fund terrorists or harm the environment)"

fund terrorists?

The Carbon Tax idea is nothing new - you just internalise the environmental externailty. This is a mainstream policy in the UK. The Security Tax part is offensive tosh.
posted by patricio at 9:20 AM on September 2, 2006

Surely carbon trading schemes are a more efficient method than Pigouvian taxation, which is what I think this guy is talking about.

One of the (many) problems with his solution is that it assumes that the state would be a competent, unbiased, non-myopic decider of his security and carbon fees.
posted by matthewr at 9:21 AM on September 2, 2006

how is punitive taxation an example of a "free market" solution?

The free market solves the energy crisis by routing around the punitive tax with less costly solutions. If your using "free market" in the utopian perfection sense, it doesn't exist, government has always tweaked the system with incentives.
posted by stbalbach at 9:22 AM on September 2, 2006

I like the Carbon Tax, and have long wished we would have the foresight and concern to fully implement such a system. The Preamble The Security Tax seems to counteract the Carbon Tax by promoting coal. It should be noted that the US does collect fuel taxes on use and emissions, but the amount is relatively small.
posted by owhydididoit at 9:42 AM on September 2, 2006

I like the idea.
posted by zhivota at 9:43 AM on September 2, 2006

I like the carbon tax idea, and I think it would over time encourage reduction of carbon. But shouldn't the funds collected also be used to reduce carbon emissions? The whole "divide among the taxpayers" seems like just a way to get people to like the idea better.
posted by ClaudiaCenter at 9:56 AM on September 2, 2006

Why charge the fees at the consumer level? Make the producing companies pay the security and carbon fees. They would pass the costs on to the consumer in higher prices for products that are expensive in terms of security or pollution. Higher prices caused by these fees presumably would steer consumers towards companies selling products made with lower environmental and security costs.
posted by pracowity at 9:58 AM on September 2, 2006

Pracowity, this page: "Clean energy use would be a competitive advantage: companies would pay more for their energy usage but would not receive a refund, requiring them to increase the price of high-energy goods and services. In order to offer the greatest value to consumers and shareholders, though, they would have a big incentive to become more energy efficient..."
posted by artifarce at 10:02 AM on September 2, 2006

In a perfect world this will work. Now we just need a viable plan for a perfect world.
posted by Slack-a-gogo at 10:08 AM on September 2, 2006

just how is punitive taxation an example of a "free market" solution?

Sheez, it's a fee, not a tax, since it attempts to recapture externalities of energy usage.

The true free market solution would be Chevron buying its own damn M1s, F-18s, etc (and the military contractors to man them) to secure its energy resources from foreign threats.

These ideas are entirely Georgist in nature and I approve, in the sense I would like to try them and see if they work.
posted by Heywood Mogroot at 10:12 AM on September 2, 2006

The security tax idea is completely moronic. Presumably the author thinks that the cost of the Iraq war should be factored into prices at the pump, because the war is about oil.

But the reality is that the market has already priced this in. The reason is oil is 75 a barrel is because of the uncertainty around its supply. In other words, the price of oil now includes the possibility of supply disruptions resulting from military confrontation with Iran.
posted by Pastabagel at 10:14 AM on September 2, 2006

unfortunately, the energy/pollution crisis is one that affects all nations in the world. any viable solution will have to agreed by everyone.
at best, this would be a short-term measure, and counterproductive to the greater goal of international co-operation on energy policies.
posted by fay at 10:15 AM on September 2, 2006

artifarce, that doesn't explain why it wouldn't be better to charge the oil importers and coal/nuclear power station owners directly, rather than charging their customers.
posted by cillit bang at 10:15 AM on September 2, 2006

The true free market solution would be Chevron buying its own damn M1s, F-18s, etc (and the military contractors to man them) to secure its energy resources from foreign threats.


Actually, no. The true free market solution would be for you to buy them.

Oh wait, we already do that, collectively, through taxes and defense spending.
posted by Pastabagel at 10:16 AM on September 2, 2006

Sheez, it's a fee, not a tax, since it attempts to recapture externalities of energy usage.

No, it is a tax. The technical term is Pigouvian tax.

Pastabagel's right that the energy market already incorporates security considerations into pricing, all by itself, and a lot more efficiently and effectively than the state could. Here is a quite interesting paper about a market approach to energy security [PDF; it's the one by Marshall and Robinson, not Bernard Ingham].
posted by matthewr at 10:18 AM on September 2, 2006

MatthewR is right, this is way not as good as Domestic Tradable Quotas. Fair & effective. The only intra-national carbon solution that is.
posted by imperium at 10:19 AM on September 2, 2006

Sheez, it's a fee, not a tax, since it attempts to recapture externalities of energy usage.

Exactly. The argument goes that we're already paying for this in taxes, at least on the security front, though that's hidden inside our national debt and current income tax so the market responds to it less efficiently. And it's not clear we're paying much yet on the public costs for cleaning up after dumping lots of carbon into the air.

The economic problem, however, might be in figuring out approximately how much each of those things are going to cost us. I can buy we might be able to figure out the security angle. Environmental impact and climate change... I doubt we really know how to assess that. Not to mention you'd have exactly the same political forces aligned to make a mockery of any reasonable attempt to figure those things out that you have now when it comes to energy and environmental issues.

It's a decent idea. Having the energy companies pay is also a decent idea. At some point, there is going to have to be some solution that signals to businesses and consumers the full costs of these fuels. Hopefully one with a curve we can surf, rather than a stark spike that throws our civilization off the tracks. Is this idea it? I don't know. Even if it's practicaly workable, I doubt the current power structure in the country would buy into it at all.
posted by namespan at 10:24 AM on September 2, 2006

namespan: Really, it's a tax. Heywood says it's not a tax "since it attempts to recapture externalities". If you look up, on Wikipedia, the definition of a Pigouvian tax, it says:
"A Pigovian tax is a tax levied to correct the negative externalities of a market"
posted by matthewr at 10:38 AM on September 2, 2006

And yet, semantic quibling aside, HM's answer is an apt response to SDB's statement. Call it a tax or a fee, it's still attempting to capture externalities. I suspect it's not worth wasting our time on the distinction, except perhaps to swat the idea that this is designed to punish somebody.
posted by namespan at 10:54 AM on September 2, 2006

There's a minor constitutional problem: if coal or oil is mined in a particular state and is burned there without crossing state borders, the federal government cannot interfere with it, including taxing it. It's not "interstate commerce" or anything else covered by Article I, Section 8, and therefore under the 10th Amendment power over it devolves to the state in question -- who may think that "carbon taxes" are a crock.

So whatever else might be involved, and whether this is a good idea or not, it can't be implemented without amending the Constitution.
posted by Steven C. Den Beste at 11:07 AM on September 2, 2006

Right, Steven, because that CO2 will stay right there in Arkansas...
posted by imperium at 11:16 AM on September 2, 2006

The security tax idea is completely moronic.

Translation - I don't like the idea. I might have to pay more.

Presumably the author thinks that the cost of the Iraq war should be factored into prices at the pump, because the war is about oil.
But the reality is that the market has already priced this in.
posted by Pastabagel at 10:14 AM PST

So Pastabagel, care to comment on how the market forces are covering the borrowed money for the Iraq war?
posted by rough ashlar at 11:23 AM on September 2, 2006

A. the market has already priced in security fees. B. "greenhouse effect" is not proven. (I know, you're very depressed that so far there have only been tropical rainstorms).
posted by wallstreet1929 at 11:24 AM on September 2, 2006

it can't be implemented without amending the Constitution.

Given that 2 of the 3 dissenters in Gonzales v. Raich are gone, you would be ... incorrect, as usual.
posted by Heywood Mogroot at 12:11 PM on September 2, 2006

(ooh self-imposed penalty timeout for incivility. I'll go work on my xbox stuff now)
posted by Heywood Mogroot at 12:16 PM on September 2, 2006

B. "greenhouse effect" is not proven.

How about conditional liability, then? Pretty simple idea. Say that carbon emissions are at some point in the future found to contribute to global climate change and socialized costs. Businesses and individuals don't have to accept financial liability for those costs now, since we haven't convinced every last person they exist, but should they come about, they'll be responsible for collective cots in proportion to their emissions. Since the "greenhouse effect" isn't proven -- and therefore emissions are so vanishingly small a problem that they're barely worth paying attention to -- I'll bet organizations will line up!

Or... we could shape policy now based on best estimates of impacts.

Or we could do what the current administration seems fond of -- not only forget about constructing some sort of coherent policy that addresses the situation, but also absolve energy producers and others from any responsibility.
posted by namespan at 12:42 PM on September 2, 2006

B. "greenhouse effect" is not proven. (I know, you're very depressed that so far there have only been tropical rainstorms).

That's like saying the theory of gravity is not "proven". Greenhouse theory is so well established that the only people who say anything different are far outside the mainstream. The debate is over in the scientific community, the evidence is overwhelming.

See this years Pacific Basin typhoon season, one of the worst on record.
posted by stbalbach at 1:17 PM on September 2, 2006

stba/name...solar variation theory, for example. "proven," confirmed or verified. "speculation," guess: a message expressing an opinion based on incomplete evidence.
posted by wallstreet1929 at 1:26 PM on September 2, 2006

Can someone please explain to me the claim that, because of the increased price per barrel due to uncertainty, the market has already factored in the security??

The way I see it, the taxpayers provide the money for security.
As the military proceeds to secure the energy supply, uncertainty raises the price people are willing to pay per barrel. That is, the companies who are supplying the oil, the ones directly benefiting from the military action to secure the supply, are able to charge a much higher cost for the oil. But at no point were they directly required to invest in the military action.
So the end result is, the taxpayers pay more for the military action, the energy company doesn't pay more, and then the energy company gets to charge more for the oil. In the end they're winning on both ends, as they are getting a free service, that of securing the supply, and they are able to charge much more. The increase in market supply only negatively effects the end user and his consumption habits. The change in market price benefits the energy company.

Seems like everyone loses but the energy company
posted by mulligan at 2:38 PM on September 2, 2006

Mulligan - the markets wouldn't move if there was no real risk of a disruption to supply. The "free service" isn't instantaneous and if things go wrong then wells go up in flames and governments nationalise refineries - the actual amount of oil available falls. If military action was effective there would be no uncertainty.
posted by patricio at 2:43 PM on September 2, 2006

The "security fees" suggestion is nonsense because the energy market is not like markets for other goods. For example, it's unlikely that any government would step in to secure the supply of BMWs to the USA should there be a threat to stop exports from Germany.

Governments are always going to be in the business of guaranteeing some sort of energy security (e.g. in the US, the strategic reserve) so there's the classic moral hazard risk: markets can underprice the security risk, safe in the knowledge that governments round the world won't let the lights go off.

However, the idea that "security" is some sort of externality that can be corrected by a tax is fundamentally wrongheaded - securing supply is an input to production and not an external effect of consumption (in the way that environmental damage is). The fact that energy companies do not pay for security is similar to the way in which they do not directly pay for the rest of the economic infrastructure in which they operate. The rate at which different groups should pay for things is a legimate discussion - who should pay for the paramilitaries guarding wells in Iraq and suchlike - but it's a fundamental economic and political misunderstanding to lump it in with environmental damage.
posted by patricio at 2:54 PM on September 2, 2006

Right, Steven, because that CO2 will stay right there in Arkansas...

There's nothing in the Constitution about carbon dioxide. It's certainly not mentioned in Article I, Section 8, where the powers of the federal government are enumerated.
posted by Steven C. Den Beste at 5:23 PM on September 2, 2006

There's a minor constitutional problem: if coal or oil is mined in a particular state and is burned there without crossing state borders, the federal government cannot interfere with it, including taxing it. It's not "interstate commerce" or anything else covered by Article I, Section 8

Are you out of your mind? It's long been established that the government can regulate anything even remotely economical. The interstate commerce clause is the basis for striking down California's medical marijuana laws, for example. The idea being that patients might use marijuana rather then some commercial drug, or whatever.
posted by delmoi at 6:55 PM on September 2, 2006

There's nothing in the Constitution about carbon dioxide. It's certainly not mentioned in Article I, Section 8, where the powers of the federal government are enumerated.

Um, yeah there's nothing in the constitution about Marijuana, or about automobile emissions or fuel economy, or about guns near schools. It's long been the view of the supreme court that all economic activity can be regulated by the federal government, whether it crosses state lines or not.
posted by delmoi at 7:00 PM on September 2, 2006

Reset time.

So Pastabagel, care to comment on how the market forces are covering the borrowed money for the Iraq war?
posted by rough ashlar at 2:23 PM EST on September 2 [+] [!]

Bond prices. Foreign exchange rates relative to Euro, pound, and yen. Money borrowed for the Iraq war is borrowed with the same bonds and t-bills that we use to borrow for everything else. If there's some reason to thing that we've overextended and that we will default, then bonds get dumped the prices fall, the yields rise, currecy dies, etc ad nauseum. The expectation of higher tax rates to pay for all this rap is factored into the stock markets also (i.e., expectation of higher taxes will depress prices).

So whatever else might be involved, and whether this is a good idea or not, it can't be implemented without amending the Constitution.
posted by Steven C. Den Beste at 2:07 PM EST on September 2 [+] [!]

No need. The New Deal ear supreme court has ruled that production and consumption completely within a state affect interstate commerce. I can't remember the name of the case, but the holding was that wheat grown by a farmer for his own consumption is still interstate commerce (the idea is that it takes consumption out of the interstate market, thuss affecting the market, which sort of makes sense).

SCBD, you can't look at the constitution alone. The new Deal court especially basically rewrote the powers of the federal govt. And CO2 generated by interstate commerce can certainly be regulated as such.
posted by Pastabagel at 7:03 PM on September 2, 2006

or about guns near schools

Actually SCOTUS overturned that one. One of the few decisions I was on the side of Rehnquist and not Souter, but I guess Souter et al were looking at the bigger picture there.
posted by Heywood Mogroot at 8:30 PM on September 2, 2006

This proposal puts every American corporation that uses energy out of business due to competition from corporations outside the USA that don't have to pay the tax.

When that happens, all the jobs that people like to work at to earn money disappear.

Nice work, losers - you just bankrupted America.
posted by ikkyu2 at 4:34 PM on September 3, 2006

Actually, the Europeans are committing economic suicide in this way right now. Part of the reason for the popularity of this in certain circles is that they want us to commit suicide right along with the Europeans "in order to be fair".
posted by Steven C. Den Beste at 6:56 PM on September 3, 2006

Steven, you're correct if by "committing economic suicide" you mean "taking a lead investing in next generation environmental technologies". Certain companies seem to think this is a growth area. GE and Goldman Sachs to name a couple.
posted by patricio at 8:17 AM on September 4, 2006

Patricio, if I had meant those things, I would have said those things. Since I didn't say those things, you can be very sure I didn't mean those things.
posted by Steven C. Den Beste at 8:37 PM on September 4, 2006