Taxing fossil fuels to encourage alternative energy

Today’s Wall Street Journal writes that 40 out of 47 economists in their latest survey said that the government should help champion alternative fuels.

A majority of the economists said a tax on fossil fuels would be the most economically sound way to encourage alternatives. A tax would raise the price of fossil fuels and make alternatives, which today often are more costly to produce, more competitive in the consumer market. “A tax puts pressure on the market, rather than forcing an artificial solution on it,” said Mr. Wyss.

In the survey, which was conducted Feb. 2-7, just two economists recommended regulations that require energy companies use more alternatives, one of the keys of the Bush plan, while six advised subsidies for producers of alternative fuels. “With subsidies, the government chooses the market solution,” said Diane Swonk at Mesirow Financial. “I’d favor taxes in this area.”

Sounds great, but aren’t we already paying a pretty good gasoline tax? Where is all that money going, I wonder.

enerugi February 9, 2007 at 2:58 pm

The problem with an ordinary tax on energy is that it is regressive in the sense that it affects lower income people more as a higher portion of their income. Is there a reasonable way to set up a “Hummer” tax on those who use an inordinate amount of oil? I think an economist has proposed taxes that increase with the amount of per-person usage of gasoline. This amounts essentially to a quota system, where each person is allotted a certain quantity of untaxed oil… but excessive consumption is discouraged by taxes. Any easy way to implement this?

admin February 9, 2007 at 3:35 pm

That’s a good point. They do already have a gas guzzler tax on automobiles, and you have to pay that if you buy a Hummer. That’s just a one time charge though, and not really the same as what you are describing. I don’t know how you would be able to implement something like that, and it would probably be hard to ever get it passed!

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