By Michael Hoexter, a policy analyst and marketing consultant on green issues, climate change, clean and renewable energy, and energy efficiency. Originally published at New Economic Perspectives. This is the third of three parts. Part two is here.
Market Transformation Policies: Harnessing Self-Interest for the General Interest
With the assumption that government has the right to intervene and shape markets for the public good, the below policies will drive consumers and private investors to help shape the zero-carbon energy system. The motivational forces harnessed by these policy instruments are narrow individual and business self-interest (i.e. increasing monetary income, decreasing monetary costs).
A) Escalating Carbon Tax and Carbon Tariffs – The point of the carbon tax is not to alone drive the transformation of society but to dampen and eventually eliminate demand for high emitting activities and for fossil fuels. While for local governments, a carbon tax can be viewed as a source of “revenue”, the more efficient design of carbon pricing is for the national governments to tax carbon and impose equivalent tariffs on imported goods to prevent “leakage” and to not disadvantage local producers. Local carbon taxation will encourage individuals and businesses to practice arbitrage among carbon tax levels and cause localities to attempt to undercut each other in terms of tax incentives. Starting at a value of $30 per metric tonne of carbon emitted, the tax would go up $5/tonne/year. In those applications that involve natural gas, fugitive methane would also be counted and eventually charged at 105 times the rate of carbon dioxide emissions; other greenhouse gas emissions will also be counted accordingly. To prevent a huge whipsaw in our economy, due to the current campaign of misinformation about natural gas’s effect on warming and the rush to natural gas that has occurred, methane emissions would be charged at a smaller multiple in the first years of the carbon tax.
B) Fixed Individual Carbon Tax Credits – A carbon tax in its pure form would be regressive and there are proposals that amount to a fixed carbon emissions allowance per person reflected in a refundable individual carbon tax credit (sometimes called a dividend) that would be due to individuals the following year no matter their total tax liability. The tax credit would enable those who lead a less carbon-intensive lifestyle to make a small profit from the tax regime or at least defray a large portion of the carbon tax they pay during the year. These credits should be weighted, at first, by postal code, depending on the availability of alternatives to a high emissions lifestyle in that area. For instance, a New Yorker living in a high density region with superior public transportation has an immediate advantage as compared to a Wyoming or Alaska resident, which should be reflected in the carbon tax credit system. The carbon tax, should at first not be an instrument of re-settlement of the population, though eventually more energy efficient ways of living should be encouraged by the tax policy as it proceeds.
C) Carbon Tax Exemptions – Carbon tax advocates have tended to believe that the carbon tax should be applied across the board on all activities that emit carbon. But if the tax then makes investment in a wind turbine or building a ultra-high efficiency building substantially more expensive (because of the embedded carbon in their materials), it defeats the purpose of the carbon tax in the first place; it would function then simply as a damper on investment overall by every entity except monetarily sovereign governments. In the first decades of a carbon tax, carbon will be embedded in all manner of objects, some of which will then emit nothing or potentially emit nothing during their period of operation. Therefore it makes sense to exempt fully the building of these zero- or negative-carbon replacements for high emissions technologies from the carbon tax at least within the first 10 years of the tax. This opens the door for complexity in carbon taxation laws and also for corruption but this would be the case in any carbon tax law.
D) Removal of Fossil Fuel Subsidies – Follows from a program of discouraging fossil fuel extraction and use.
E) Renewable Electricity Feed in Tariffs – By far the most successful policy in implementing renewable electricity generators have been fixed premium wholesale rates for the production of renewable electric generators of various types, guaranteed during the time in which the capital investment is paid off. These rates guarantee a reasonable profit for the owner of the generator. The surplus payments to the generator owners are paid by a supplement to electricity prices, which adds over time a percentage to electricity rates. Rising electricity rates help also to inspire conservation of energy and energy efficiency. Feed in tariffs are, like carbon taxation, somewhat regressive in terms of their redistributive effects and their regressivity needs to be countered in policy by support programs for those who are financially unable to invest in their own generators or in cooperatively funded renewable generators. Among these programs would include, government-funded home retrofits that reduce the energy bills of those below a certain income level.
F) Ultra-high-efficiency Building and Building Retrofit Investment Tax Credits – The Pedal-to-the-Metal Plan would require in three and half decades the entire building stock to be either retrofitted or replaced with buildings which perform at the level of Passivhaeuser (passive houses) in terms of their use of energy. Investment tax credits would attract capital into retrofitting or building new buildings that use anywhere from 60 to 85% less energy to deliver the same level of services and comfort as today. Credits should make projects lucrative enough to attract private capital from non-real estate investment sectors but also not so lucrative as to encourage construction of non-useful buildings. As there are several components to these high efficiency buildings, the credits might be divided in the following manner:
i. Credit for Airtightness (graded) with 90%+ efficient heat or energy recovery ventilation system to maintain fresh air.
ii. Credit for Low Thermal Conductivity Building Enclosure (high insulation and low “thermal bridging”)
iii. Credit for monitored Energy Use per square foot (graded), Year 1 and Year 3.
G) Carbon Negative Materials Tax Credit – Additional tax credits that reduce the use of concrete and steel in buildings and incentivize the use of wood.
H) Industrial Electrification and Energy Efficiency Investment Tax Credits – Similarly corporations would gain tax advantages by implementing zero- and low-carbon alternative methods of producing goods and services. In certain industries that are premised on fossil fuel use (metal smelting), investment in energy efficiency may come before the implementation of zero-emissions technologies.
I) Nationally-Mandated Utility Rate Decoupling – Investor-owned utilities in certain US states have been incentivized to participate in state-mandated energy efficiency programs by the allowance by regulators that the utility will get a rate increase if they work with their customers to save a certain amount of energy during the course of a year. Thus the revenues of the utility are “decoupled” from the amount of energy they sell. As with feed in tariffs, this raises rates per unit of power, creating a virtuous circle where energy users are incentivized to save more energy by periodic increases in electricity rates.
Regulations and Mandates
The combination of massive public investment and market restructuring policies will provide a massive push towards the new energy economy but there are also additional regulations of the energy industry that would be part of any transformation of the energy system to one that does not rely on fossil fuels. It is assumed that the above policies would already reduce demand for fossil fuels radically while raising their price; the rules below would also have a similar effect and the combined effect of these two approaches would need to be monitored for their impacts on an economy still partially or largely dependent on fossil fuels. Some of these are intended to rein in the destructive tendencies of the fossil fuel companies as we reach the fossil fuel endgame.
A) Unconventional Fossil Fuel Extraction Techniques Bans:
- Fracking Ban – As fracking can destroy the regenerative capacity of local watersheds and landscapes and contributes fugitive methane emissions to warming, it would be banned
- Acidization Ban – An extraction technique that uses hydrofluoric acid to dissolve rock in oil and gas drilling/fracking.
- Tar Sands Extraction & Importation Ban – Another destructive fossil fuel extraction technology
- Mountain-top Removal Mining Ban –
- Deepwater Drilling Ban
B) Public Divestment from Investor-Owned Fossil Fuel Companies
C) Ban on new Fossil Fuel Power Plants
The Pedal-to-the-Metal Plan will have very significant effects on the economy as a whole and also will require policies that support the success of the plan as well as stabilize sectors of the economy that are not immediately in the purview of the plan. The following policies are likely to be implemented in addition to the above, more energy focused policies:
A) Public Funding of Elections/Banning Large Contributions to Political Campaigns – With government playing a more critical than usual role in economic and social life during the course of the plan, it will be necessary to remove the legal corruption of government by large campaign contributions by the wealthy and corporations. A central policy in this effort is to either eliminate entirely private contributions to electoral campaigns or limit them to the equivalent of $100 per person.
B) Strengthen Conflict of Interest Laws – Political representatives will need to be excluded from deciding on policies in which they have a financial stake.
C) Raise Legislator’s salaries by 30%/Increase Legislative Research Budgets by 100% — Politicians in the US in particular treat their time in office as a stepping stone to a more lucrative post-office career. While the salary of a legislator can never keep pace with the expectations of the truly greedy, a higher salary would make post-office appointments seem less glamorous. Additionally, significantly more money for legislative aides to be able to assemble laws based on research independent of lobby groups opens the possibility though does not guarantee independence from groups that present ready-made legislation that favors moneyed interests.
D) Higher income and capital gains tax rates on high earners - The plan relies on both public investment and tax equity investment; to drive the latter category higher tax rates on the wealthy (besides the potential for more egalitarian income distribution) will also encourage investment in climate and energy related projects, to reduce effective tax levels. With higher tax rates on the wealthy, the demand for tax equity investment will go up.
E) Financial transactions tax – To reduce the financialization of the economy as a whole and orient capital towards investment in the real economy, a tax on financial transactions is advisable. Set at a level of approximately 1% per transaction, the tax is to reduce speculative and high volume financial instrument trading.
F) Steel, Copper, and Concrete Tax with Exemptions – the Pedal-to-the-Metal Plan will increase demand for steel and concrete enormously, despite the built-in incentives to use lower carbon alternatives for certain applications. To dampen demand further for these materials, a tax of perhaps 15% will be added to non-exempt applications of steel, copper and concrete, which in addition to the carbon tax will lower demand for these materials from non-exempt (non-zero net carbon) applications.
G) Skills Training and Apprenticeship Programs/Continuing Education in Engineering and Architecture – To achieve actual, durable emissions reductions, workers will need to develop their skills in a number of areas related to renewable energy, energy efficiency and electrification. Furthermore engineers and architects will need to develop expertise in climate-related design. A massive training and continuing education effort will be part of the initial stages and ongoing throughout the Pedal-to-the-Metal Plan’s period of operation.
H) Higher Wage Floor – The Pedal-to-the-Metal Plan will increase employment and probably will generate full employment as did the War World II mobilization the US. However the Plan does favor the sectors of construction, manufacturing, and engineering, and will be particularly favorable to those with medium and higher-levels of skills in these areas, some of which will be newly acquired or retooled. In order for the benefits of the Plan to be more equitably distributed throughout more economic sectors and within each sector, the minimum wage should be increased to close to double its current 2013 levels. The Plan, could also be supplemented to include government hiring or funding more entry level and lower skilled positions from a diversity of sectors, and could be turned into a Works Progress Administration-style employment program, that would in effect pay the new higher minimum wage. This latter approach is the Employer of Last Resort approach that would guarantee durable full employment.
I) Voluntary Emissions Cuts/Energy Conservation – The large-scale building of infrastructure containing steel and concrete, employing machines using oil and other fossil fuels will represent a sharp increase in carbon emissions during at least the first decade of the plan. While a carbon tax will eventually reduce emissions by the adoption of energy conservation and energy efficiency in its early years the carbon price will be too low to counteract the sudden rise in emissions from the enormous building projects underway. A more rapid way to counteract these large increases in emissions would be to call on individuals and businesses to engage in voluntary cuts in emissions, such as telecommuting, ride sharing services and shared bus and van rental instead of the use of petroleum-fueled private cars. The government should compile a list of voluntary measures which calls upon people’s patriotic sense or sense of responsibility to others. These measures call upon individuals’ and organizations’ sense of belonging and “higher purpose” above and beyond narrow economic self-interest.
Scope and Limits of the Pedal-to-the-Metal Plan
The Pedal-to-the-Metal (PTM) plan will transform in a targeted way the fossil fuel dependence of contemporary industrial and post-industrial society but it will not in itself be a complete climate policy. One area upon which the PTM Plan does not focus is on land use changes and carbon sequestration via re-foresting or other land use changes. It also doesn’t directly address ocean acidification, though reducing carbon emissions eventually will reduce the rate at which carbonic acid will be formed.
The PTM plan is also focused on individual nations, centered as it is on the economy and fiscal policy of a nation such as the US or other monetarily sovereign governments. The design of the plan is in part a reaction to the unwieldy nature of the UNFCCC and Kyoto Protocol which besides their endorsement of the faulty cap and trade instrument, create a collective action problem where the most intransigent nations (the US and China) have the greatest effect on global climate policy.
A nation by nation approach with the inclusion of carbon tariffs, opens the possibility that nations can start to impose on themselves and via tariffs on other nations more stringent carbon limits than otherwise would be imposed via an initial international multilateral treaty or convention. A virtuous carbon “trade war” is a possibility, where nations committed to global sustainability impose higher carbon taxes internally and matching carbon tariffs on imported goods, leading eventually via global trade negotiations to a real global carbon price or price range, rather than the musical chairs of carbon trading.
Another area that the PTM plan in its current form doesn’t address is adaptation to the inevitable changes in the climate that will occur no matter what we do. The building, for instance, of seawalls or moveable sea barriers in some coastal areas, would be a meaningful addition to the plan and would increase the already massive scale of the undertaking. With climate change there is no need for workers to engage in Keynes’s thought experiment of burying bottles of cash in coal mines and then digging them back up, as a means to generate employment; there are already so many tasks available that need doing.
As many of the amusements that people have become used to in the developed world will become significantly more expensive, it may also be necessary for government to fund participatory cultural programs on the community level, to enable “staycations” to be more attractive for people. As during World War II and other times of crisis, in a virtual war economy the range of colorful consumer options to divert oneself and one’s family will become limited or will shift in emphasis.
General Social, Political and Economic Benefits of the Pedal-to-the-Metal Plan
Many people are not yet so concerned about climate change that they are willing to make changes to their way of life or change the economy at large to address climate change. To work towards and implement the Pedal-to-the-Metal Plan, a broad swath of the population as well as political leaders, would need to see that it is in fact “the only way forward”, and offers benefits beyond climate, addressing concerns that are dear to them. If we exclude those who actively deny climate change from consideration, the Pedal-to-the-Metal Plan offers significant benefits to many of those not concerned about climate as much as climate activists.
1) Energy Security and Price Stability– Though currently we are experiencing a wash of propaganda from the oil and gas industry about the plentiful supply of oil and gas available, these are, everybody acknowledges, exhaustible resources. The price of oil and gas will go up substantially whether or not an effective climate plan is put in place. Furthermore that price will have a high volatility which will make budgeting for energy expenditures very difficult. The Pedal-to-the-Metal Plan diversifies energy sources and bases them on free flows of energy: the major costs of renewable energy are baked into the installation of the renewable electricity generators not in the fuel.
2) Increase in Employment/Job Creation – The Pedal-to-the-Metal Plan creates millions of jobs, increasing the domestic demand for labor very much above current levels. The additional spending by government will add more jobs to the existing economy than increases in taxation and increases in the price of fossil energy will remove. The plan can easily be and should be adjusted to have exactly this effect to achieve full employment. There will also be increases in mechanized work as some of the processes will require automated work but in addition there will be many jobs that require human attention and work, some of it highly skilled, some of it requiring moderate skill levels and some requiring very little skills. To have the necessary employment effects, a massive job skills training effort will be required, especially in the first years of the plan. If multiple nations undertake pedal-to-the-metal plans, there may in fact be labor shortages which will drive increased automation of tasks.
3) Increases in Real-Economy Household Incomes and Business Profits – The Pedal-to-the-Metal Plan represents a massive net injection of money into the economy by government spending. If government spending increases exceed taxation increases, which is part of the design of the program, this will enable the private sector (households and businesses) to achieve net savings, which on the business side represent gross profits. Contrary to smears and misinformation on the part of neoliberals, libertarian fantasists, and neoclassical economists about how economic growth actually occurs, one of the only ways that the private sector can experience net growth is by fiat-currency issuing governments spending more than they tax. The other way, a net trade surplus, is only possible for some nations and not others, by definition.
4) Orienting Businesses towards Delivering Real Goods and Services – In the increasingly financialized economy of the last three decades, the proportion of total income of sectors of the economy that are focused on trading paper and existing real assets has grown while proportion of business incomes related to delivering a real good or service have shrunk. The Pedal-to-the-Metal Plan reorients business towards delivering real goods and services, though increasingly in a manner that reduces carbon emissions. Also it creates or radically enlarges new classes of real assets that continue to deliver a common good, i.e. lowered carbon emissions.
5) Reductions in Income Inequality – Major leaps in income inequality have been correlated with the increasingly concentrated ownership of and income generated by the ownership of real and paper assets. With an orientation towards the delivery of real goods and services, labor will receive an increase in the total share of income as in the current economy, labor has been either replaced by mechanization or income from asset trading generates income increasingly independent of labor. There is a wide range of outcomes with regard to how much the Plan can reduce income inequality some of which will have to do with implementation of the plan and pressure by social movements for greater equality.
6) Orientation towards “Larger than Self” Concerns – While in individual cases, heroes are still praised in our times, the current plutocratic neoliberal order generally encourages people to compete with one another and to focus on their own private concerns. The “Age of Narcissism” or the “Me Decade” have continued on for multiple decades. The Pedal-to-the-Metal Plan creates an occasion for almost everyone within society to find themselves in a “larger than self” project and focus on what they “can do for their country” and for the world.
7) Defining the “Public Purpose” for Our Time – The great heterodox economist John Kenneth Galbraith formulated the notion of “the Public Purpose” to describe shared goals and activities that span individual concerns. Modern Money Theorists have adopted Galbraith’s idea to describe what drives the goals of government economic policy. Neoclassical economists and neoliberal political leaders tend to deny that there exists something like a public purpose but instead treat society as a collection of private interests and private purposes (e.g. Thatcher: “there is no society”). The Pedal-to-the-Metal Plan creates a real, geophysically grounded instantiation of the public purpose that addresses many of the social and economic concerns of our times.
8) Stepping Back from a Largely Predatory/Parasitic Economic Model – In keeping with the orientation towards real goods and service delivery, the PTM Plan reverses 30 years of belief in a finance-led private capitalist economy that can function independently of government’s direction and government’s provision of net increases in the monetary “size” of the economy by spending more than it taxes. With government’s partial withdrawal from these activities or rather, the predominance of government help on the side of real and virtual asset price inflation, activity in markets became increasingly predatory, as economic success became defined more and more as the ability to siphon off streams of income from existing goods, services and assets. The PTM plan creates incentives for creation of real value, while systematically reducing via targeted taxation some of the more predatory/parasitic aspects of our economy. It also increases the net size of the real economic “pie” over which private economic actors will compete, reducing the “demand” for predatory/parasitic activity.
9) Demilitarization of Economies – A switch away from fossil fuels reduces the rationale for the large industrial economies to project military force into regions of the world where fossil fuels are sourced. Furthermore, as a major emitter, the military itself will need to rethink its own operations, as they depend upon the use of fossil fuels and therefore of high levels of emissions. On more subtle level, the orientation towards a cooperative venture like stopping global warming will decrease the social emphasis on competition, especially competition between nations for scarce fossil resources.
The Pedal-to-the-Metal Plan addresses the climate crisis at a rate that is commensurate with the urgency of our situation and that grapples with the real technological challenges facing societies at the cusp of self-destruction. Next steps should be a broad public discussion of the plan, modifications of the plan based on substantive criticism, or the formulation of competing concepts, which could then be subjected to the same process. Ultimately, a Pedal-to-the-Metal Plan of this description or even the notion of such a rapid, decisive policy shift, can immediately become the nucleus for political organizing and the activation of a larger social movement pressing for decisive action on climate and for government action on an economy that increasingly does not serve the interests of the majority of the population, as well as, of course, the interests of following generations.
There are ways to “nibble” at the issue, to make cosmetic efforts to appear concerned about climate but why choose these options if so much speaks for a fundamental shift in the orientation of our society towards energy and the environment? Even if the climate were not rapidly changing, after 30 years of neoliberalism, the developed economies are caught in a loop of insufficient demand and widening inequality. Political corruption is practiced openly and is rampant. Fundamental change is required to maintain and develop social and material wealth. The ruling plutocrats and their political representatives are not even defending the interests of their own children. This IS the way forward.