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Monday, July 10, 2006

A Taxing Approach

Last wednesday I wrote about the Robert Samuelson op/ed piece in the Washington Post that discussed the increase in carbon output that will occur over the next 40 years despite Kyoto and other calls to reduce it.

Today the same paper has another op/ed by Sebatian Mallaby, "A Dated Carbon Approach", which advocates huge tax increases to force individuals, and companies, to reduce output.

While the approach has some merit, it has some huge pitfalls he ignores completely. Coal power generation is one example he uses. The US is building enough new coal plants to power 93 million homes, and he doesn't like it. The idea that you put a huge 'carbon cap' on those plants, or fine them for exceeding it is his solution.

The problem with the solution is threefold. The first is a logistics issue, really. You can build plants that reduce carbon output, either with huge scrubbers, or by using other fuels. The scrubbers generally increase the cost of the plant by 30-50%, which generally reduces the cost effectiveness of building the plant in the first place.

The second problem on the solution is also logistical and cost related, fuel. If the plant were to be built as a natural gas plant instead the building cost itself goes up by about 60% to get the same output as a coal fired plant. Secondly, the fuel is much more expensive, and because of our limitiations in delivery (thanks Sierra Club, etc) many areas don't have the natural gas available for the plants.

Finally, the consumer effect is obvious. If you raise the price of the plants, and or the fuel to run them, the cost of electricity goes up. The utilities are not, and in most cases cannot, afford to eat those kinds of cost overruns on their own; the price increases are going to end up on the end user of the electricity.

Autos are another area he touches on, but obviously missed the memo. While he laments the idea that small cars and hybrids haven't caught on as fast as other countries, he thinks a carbon tax on vehicles is the solution, along with more company investment in hydrogen (again see my previously referred to post on where it comes from) and fuel cell technology.

Consumers already get a tax break for buying hybrids, and they are gaining in popularity. However, they still cost enough more than a standard gas car that they aren't seen as a great alternative in all cases.

Adding the tax to non-hybrids might close the cost gap, but it's still just passing more cost to the consumer, not the companies who build the cars. GM is losing billions a year, the idea they would "eat" a huge tax on their most profitable vehicles is pretty myopic.

He also touches on the patenting of hybrid and other technologies, comparing it to pharmaceuticals. Evidently he doesn't realize that patent laws already apply to the auto industry, and tech industry. By reading his own papers business page he'd see they are used quite regularly (google Blackberry Lawsuit, or RIMM and you'll see).

While E85 fuel is cheaper than gas right now, it's only because of huge tax breaks, not because it's a cheaper fuel to make. It actually costs more than gasoline to produce, even with oil hovering near 75 dollars a barrell. Brazil is moving to an ethanol economy, but only through huge government subsidies to the producers. And no one has looked at the other cost to consumers of E85, the fact that the land to produce switchgrass or corn to make it stops producing foodproducts, possibly increases those costs.

My summary is easy, yes, you could tax oil, gas, auto and utility companies into a less carbon based fuel. There are questions though, are consumers willing to accept the incredibly higher costs that it would take? Are environmentalists willing to allow the additional natural gas and methane to be drilled and distributed that would be necessary to both reduce carbon emmissions from generating electricity and to produce the hydrogen necessary for that type of vehicle (NG is the base fuel for 90% of the hydrogen produced in the country).

The answer to both has to be yes before trying to move to a hydrogen based economy, either by natural market forces, or forced government intervention through taxes.

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Blogger shoprat said...

Maybe we can't cure the common cold because people aren't taxed enough.

Maybe people are overweight because they aren't taxed enough.

Perhaps pre-adolescent girls dress like tramps because their parents aren't taxed enough.

You know enough taxes will solve all our county's problems.

As Ronald Reagan said "The liberals have proposed a very simple tax code: How much did you make last year? Send a check or money order for that amount.

8:07 AM  
Anonymous Anonymous said...

On E85: This is cheap whiskey. Besides the vast amount of raw materials (corn) one should consider the energy used up in making the product.

First you need to boil the corn to release the fermentable sugars (requires energy), next you cool the wort (requires energy) to a temperature the yeast can tolerate. Once the yeast is added the fermentation process, which produces heat, must be kept within certain temperature limits (requires energy). After fermentation the wort is strained and then distilled (requires energy).

If you're going to go through all that work you might as well age the crap in oak barrels for a few years so you can drink it.

9:24 AM  

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