The Case for a Fossil Fuels Tax part 4

    This is part 4 in a series. The first three parts are here, here, and here.

    The truth is out there. Indeed it is Mulder and Scully. In fact, the truth can sometimes be found in such unpromising soil as a column by conservative pundit James Poulos or an address to investors by the CEO of Exxon. Poulos is known, if at all, for posing in print the antediluvian question: “What are Women For?” Yet Poulos provides real insight into how to solve anthropogenic global warming (“AGW”). As improbably, and in conjunction with Poulos, 
    top polluter Exxon's Rex Tillerson blazed an unmistakable path to a clean green energy future earlier this week

    We may be seeing a bit of a shift in conservative commentary on climate change. Rather than deny it outright, some on the right now acknowledge its existence but downplay its costs or even claim mankind may reap significant benefits from underwater cities, super-storms, and desertification.

    In a May 26 opinion piece, however, Poulos opts not to dump more manure on the steaming pile of denialism and Panglossianism that right-wing fossil fuel industry shills have spent decades building, shaping, and drenching in perfume. Instead, he acknowledges the scope of the problem and then loudly proclaims in his title no less, “Silicon Valley could save the world from climate change. But we don't want them to.”

    All we need do says Poulos is “turn Washington into the biggest venture capitalist in the world, and hand Silicon Valley a blank check marked 'climate'” Forget about messy solutions like cap-and-trade or top-down approaches like higher CAFE standards. If we just open up the back of the Brinks truck at the corner of El Camino Real and Woodside in Palo Alto, the Zuckerbergs and Kalahnicks will save us.

    This suggestion surely reflects genius of a kind. Recognizing that AGW is real and here to stay, Poulos figures why not make a grab on behalf of Silicon Valley elites for cold hard federal cash to combat it. Flush with billions, newly minted alternative-energy billionaires will spare a few million for that smart guy Poulos who came up with the “blank check” idea in the first place.

    Now I'm no venture capitalist but after watching the ones who play themselves on Shark Tank a couple of times, I've gotten the idea that they don't hand out blank checks. They crawl down the front and up and inside the backside of every would-be tycoon. When funds are offered, they are often less than the amount requested and invariably come with conditions. Small-fry tinkerers and inventors go on Shark Tank because they have nowhere else to turn for seed money.

    Unlike the Papa John's delivery guy whose board game will make us all forget Monopoly, NASA rocket scientists, Harvard engineers, Cal Tech physicists, and Neal DeGrasse Tyson don't need a special introduction to get five minutes with and $5 million from Mark Cuban. But if Poulos is right, they're not seeking or getting the money.

    The VC boys aren't the only ones sitting on their hands when it comes to AGW. As of July 2013, Exxon was sitting on some $50 billion in cash. Berkshire Hathaway had over $160 billion. These companies and others like them have far more than enough to finance lavishly alternative energy ventures without going near the sharks. Yet they too don't appear to be focusing on alternatives.

    Why? The answer is hiding in plain sight in CEO Tillerson's retort this past Wednesday to a climate change activist who asked why Exxon doesn't invest in renewable energy. “We choose not to lose money” the boss bon moted. Plutocratic financiers and immensely wealthy corporations will back planet-saving technologies in an environment where doing so successfully is likely to result in big profits. Putting gazillions of no-strings-attached dollars in the hands of entrepreneurs, as James Poulos urges, will not create such an environment.

    There's another huge problem with Poulos's “solution” to AGW. As anyone who took econ 101 in college can tell you, government bureaucrats are the last people we should ask to distribute funds among aspiring clean energy magnates. The functionaries are unlikely to be true experts in asset allocation. If they were, they'd be in the private sector. Moreover, they'd be risking public assets, rather than their own, which means at best they're not going to be as careful as a private investor would be. At worst, they'd demand kickbacks and other favors in return for conferments of largesse.

    The blank check gimmick is a bad idea and would cost the American public dearly. Still I come not to bury Poulos but to praise him sort of. Buried in his commentary is the kernel of truth that can lead us to the promised land of nearly 100% renewable energy with minimal effect on living standards. That truth is technological innovation.

    We know that technology can be a major part of the solution because it already is. Europeans enjoy a standard of living approximately equal to our own yet they consume far less fossil fuels per capita. California has taken huge strides towards fossil fuel independence with solar energy. In Hawaii, expensive power-plant electricity is supplemented by geothermal energy from the volcanoes that form the islands.

    But we're not moving nearly fast enough towards nirvana. Paraphrasing Tillerson, capitalists choose not to lose money. Presumably then clean green energy is not now sufficiently profitable for investors.

    How could this be? The sun is a ubiquitous carbon-free energy source. Energy-suffused rays of sunlight pour down on the Earth constantly. Scientists say we receive more energy from the sun on an on-going basis than we use.

    Yet coal, petroleum, and natural gas remain much cheaper per calorie generated. Fossil fuels are nearly pure energy from the sun that our planet received over eons and distilled naturally. Solar and wind energy harvesters and distributors therefore face a daunting competitive disadvantage as long as fossil fuels remain available to extract. Sadly, there's still plenty. No wonder Tillerson was so flippant.

    So what's the answer? We must artificially raise the price of fossil fuels to a point where super-normal returns can be generated from alternative energies and technologies that reduce consumption. At that point, venture capitalists will compete to get in on promising ideas. The easiest and most efficient way to do this is by levying a very high tax on all forms of fossil fuel energy.

    We owe James Poulos and Rex Tillerson a debt of gratitude for helping lead us inexorably to this conclusion.

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    Comments

    You might enjoy The Innovator's Dilemma. By increasing subsidies you increase possible profits for incumbents and new innovstors. you might want to discourage incumbents instead to make only room for new clever aggressive Young Turks. Same with the VCs - the more obvious profit, the more unmaginative investors.may be a good strategy, maybe not


    Thanks PP.  I oppose subsidies.  Burning fossil fuels is what is harming our planet.  We should make doing so more expensive by taxing them.  This will disincentivize their consumption and incentivize 1) the production and consumption of alternatives and 2) conservation.


    Fair enough - in some ways subsidies and taxes are equivalent and fungible.

    You want "artificially raise the price of fossil fuels to a point where super-normal returns can be generated from alternative energies" - but real people will be paying for those higher priced fossil fuels and products like plastics and synthetics and agricultural products that depend on them. WalMart and Exxon will just pass on higher costs to consumers - what will Joe/Joesephine Sixpack do? Drive less? Higher energy costs are a regressive tax - they hit the poor much harder than the rich.

    I finally took the time to read the background article, and the main premise of "burning fossil fuels is what is harming our planet" turns out to be much slower than IPCC models claimed. This is great news, as it gives natural conversion to alternate fuels more time to work, but I'm sure it's not great news to those firmly into carbon trading and carbon caps and drastic measures *NOW*.

    "So what's the answer? We must artificially raise the price of fossil fuels to a point where super-normal returns can be generated from alternative energies and technologies that reduce consumption. At that point, venture capitalists will compete to get in on promising ideas." - sadly no. From the article kicking Al Gore for only having 1 green investment:

    Perhaps this 2014 60 minutes episode may help you understand why. In it they say that, "despite billions invested by the U.S. government in so-called 'cleantech' energy, Washington and Silicon Valley have little to show for it."

    Khosla Ventures has been focused on alternate energy for a decade now - people with fat wallets and good intentions (yes, they exist) are already mixing investments with high hopes to try to make a better future - but that future is very hard to accelerate, and very hard to do at a profit. Note as Q did that much of the industry's success is driving in adoption *AT A LOSS* to rapidly speed our way down the learning curve and not necessarily to lower end-users' costs soon for consumer price point. This success is centers much more around *incentives* or * subsidies* without which people might just do with less.

    The Innovator's Dilemma would spell this out - in some kinds of innovation, an Exxon would be well positioned to invest and innovate and it would lead the pack - that's how IBM has stayed relevant for decades - the myth that large corporates always miss the next wave is based on understanding only 1 half the equation.

    In this case, the problem is that Green Energy will be fairly profitless for a decade or 2, despite the growth rate (or China will take much of that profit as its margin per worker is much much lower and its deployment revenue will be much higher than ours).  So for Exxon's stockholders, the CEO is being asked to subsidize alternate energy during its profitless years, or continue making money as he knows best.

    This risky and painful investment in the future is probably one for very risk-accepting VCs and governments themselves. Case in point is Germany and Denmark who are pushing this hard, as is China to lower its horrid pollution problem especially.

    Based on these points, where do you see a tax on fossile fuel helping?  I posted a picture of new charging stations across Europe, and while it's a nice development, it's still pathetic - fewer than 200 if I recall correct. Even in the vast US, stations are 438 with 2415 chargers. In 2012 we had 250 million registered vehicles on the road, and well over 100,000 gas stations (most with more than 1 pump).

    This situation happened in radio 20 years ago, when everyone wanted to replace radio transmitters with radio over the internet, and the higher cost bracket, TV over internet - forgetting that you need internet & mobile infrastructure to deliver (unlike a single broadcast frequency). Audio's fairly easy and it finally pretty well works (but forget signal in rural areas) and the main effect of Pandora and others is to destroy the small bands themselves, not successfully deliver radio over a new medium, while satellite radio ate 1 of the 2 contenders and the joint project struggles along but finally profitable after 25 years. TV? still early days - home DSL handles now but mobile data is still iffy, especially internationally. But looks like Google will also exploit the small producers to take almost all the profits so it'll be a wasteland of high corporate profits for Apple and Google. Certainly nothing the leading incumbents at the time could have latched onto, even if they hadn't been like deer in the headlights.

    This next round will be really disruptive. Elon Musk's well-positioned in space - including now military projects, electric cars and battery technology, even long-range train replacement - but even that early success is susceptible to the same kind of market change that Alta Vista and Yahoo encountered with Google's entry into the search industry. And from the other side, often innovators do the early ground work and then the large incumbents come in and take the whole market and buy the little guys. We shall see.


    You write: "real people will be paying for those higher priced fossil fuels and products like plastics and synthetics and agricultural products that depend on them. WalMart and Exxon will just pass on higher costs to consumers - what will Joe/Joesephine Sixpack do? Drive less? Higher energy costs are a regressive tax - they hit the poor much harder than the rich."

    You are absolutely right and that is why in my earlier blogs in this series, I specify that all the revenues from the tax need to be rebated directly to the American public in equal shares.  This will result in a progressive redistribution of wealth wherein poor, working, and middle-income Americans will on balance come out ahead since they spend less on carbon energy per capita than the rich do. 

    I explain the system very briefly (thank heaven for small favors) right here.

    By the way, here's a quote from today's Washington Post's editorial "A good-enough plan".  "Any economist will tell you that the most efficient way to reduce emissions is to put a price on them and get out of the way, allowing consumers and businesses to wring carbon out of the economy without grandiose central planning or favor to preferred interests."


    And the 1st comment by "Shade" to that explanation explains why the "solution" will be a great problem.

    And you still ignore that companies that would pay the most would then either increase prices for their customers (frequently a regressive tax yet again) and/or often find themselves burdened with extra costs vs. non-US firms that don't pay such a consumption tax. And the rich can afford to pay an additional $10K a year in gas - the poor will then get an additional $10K in tax shared rebates so they can... go drive around more and turn the heat up and buy more cars? who knows. it's a highly optimistic equation that just heavy taxation achieves specific consumption and innovation goals.


    Hal's real aim is income distribution.  Reduction in fossil fuel consumption is just the ruse.

    He thinks the poor use fewer fossil fuels so they will get more money back than the rich.  The rich have the resources to lower their consumption should they choose...the poor don't.


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