The Senate is working out details of a comprehensive Energy and Climate Change Bill that would add fees on gasoline sales to help clean up transport.
Linking the two is vital to make this work. Without this link, there's too much risk that the money would end up supporting unsustainable activities, which would be counterproductive to the goal of reducing emissions. The graph below illustrates why.
Regular gas prices have historically been more than $1 per gallon lower in the U.S. than in Canada, yet transport isn't much cleaner in Canada as a result of the higher prices there. Furthermore, gas prices have fluctuated substantially over the years, yet higher gas prices alone appear to have had little impact on emissions over time.
One gallon of gasoline is responsible for emissions of 19.4 pounds or 0.0097 tons of carbon dioxide. In other words, that extra dollar on the price of gasoline would translate into a price of over $100 per ton of carbon dioxide, i.e. far more than the €11 to €15 ($14.98 to $20.42) at which carbon emission permits have been trading for the past year in Europe, as illustrated by the snapshot on the right.
Carbon trading in the U.S occurs at even lower prices - the Regional Greenhouse Gas Initiative (RGGI) has priced carbon dioxide permits at $2.07 going down to $1.86 in future.
The difference in gas prices between the U.S and Europe is even larger than the difference between the U.S. and Canada. The average retail price of premium gasoline in the US is around $3 per gallon, while average prices (including taxes) in Europe are around $7 per gallon (Belgium $6.94 - France $6.90 - Germany $7.03 - Italy $6.98 - Netherlands $7.68 - UK $6.50 - March 8, 2010).
On a per person basis, emissions may be less in Europe, yet there are few electric cars around. For historical reasons, people in Europe may travel over shorter distances and make greater use of public transport, but transport still is one of the main contributors to emissions. In conclusion, a price rise of gasoline alone - even a dramatic one - is unlikely to make much difference for the environment.
Last year, I posted the (then most recent) figures on US energy consumption and supply.
Of the energy consumed in 2007, 85% was produced from fossil fuel and 8.3% from nuclear power, while a mere 6.7% came from renewable sources. The tiny yellow sliver on the bottom left is solar energy. Solar/PV energy represented a meager 0.081% of the energy produced in 2007, barely more than the 0.066% back in 2000.
How it is possible that the picture in the U.S. looks so bad? Well, a study released last year by the Environmental Law Institute, a nonpartisan research and policy organization, shows that the federal government has provided substantially larger subsidies to fossil fuels than to renewables for many years (see image below).
The necessary shift to electric vehicles that are powered by clean electricity will take more than a small rise in fuel prices. Perverse subsidies for fossil fuel should end. Most importantly, the proceeds of fees on gasoline must be firmly linked to clean energy programs, preferably in the areas where proceeds were raised. In other words, the proceeds should be used where change is needed most.
This requires a comprehensive legislative program that ends perverse subsidies to fossil fuel and that ensures that money meant to help clean up the energy sector is not diverted to other purposes. Experiences with cap-and-trade in Europe show that permits have all to often given away for free, while the proceeds of auctions all too often went back to polluters. In the U.S., the RGGI website says: States sell nearly all emission allowances through auctions and invest proceeds in consumer benefits: energy efficiency, renewable energy, and other clean energy technologies. Yet, experiences in New York and New Jersey should act as a warning.
New Jersey has now decided to use nearly $65 million of auction revenues to instead help ease its budget deficit. This includes revenues that have not even been collected yet, but are to be raised through June next year. New York had already decided last year to use $90 million from such auctions to help ease its deficit.
To avoid this happening with the proceeds of the gasoline fees, the Federal Government may have to collect such fees and channel the proceeds back to the local areas where they were raised, provided that the money is indeed used for clean energy programs and that emissions are indeed reduced with a set percentage for each payment period.
Meanwhile, the city of Los Angeles decided it could no longer wait and has introduced a Carbon Reduction Surcharge linked to Renewable Energy & Energy Efficiency, complete with feed-in tariffs for solar energy. In line with the conclusions of a study by Mark Jacobson, Urban CO2 domes increase deaths, poke hole in cap-and-trade proposal, the Los Angeles initiative is another example of a policy that is more effective than cap-and-trade.
Fees on gasoline are crucial, as they have most potential to raise the kind of funding that's needed to achieve an effective shift to clean energy, as illustrated by the graphs with the (most recent) DOE figures showing the rise in money consumers spend on energy and on the type of energy they spend most money.
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Comments: 13
the gas prices sure fluctuate lately...one day it's $2.56 here the next $2.76....
Instead, we should be taxing the Hell out of it to encourage efficient use, as they do in Europe, and using the money to get rid of our dependence on it by developing alternate sources of energy.
The benefits...reduced ecospheric pollution and global warming, improvement in our current accounts deficit and dependence on foreign oil sources, often in countries that are not our friends. Terrorism gets a lot of its funding from oil.
But Big Oil controls our government through their truckloads of "donations" to politicians, and now the Supreme Court has removed all restraints. allowing them to gain even greater power.
We desperately need some real campaign finance reform, limiting all political donations to, say, a hundred bucks from any individual or organization (corporation, union, PAC, etc.). Until we get that, our government will continue to be biased in favor of the Big Money boys, and Big Oil is at the top of the list.
Now that even Big Oil rejects cap-and-trade, there's no longer any reason for the Senate to stop introducing fees on gasoline. It's becoming more and more clear, even to polluters, that they cannot avoid action, so they might as well support the most effective way to get clean energy, which is to introduce fees on fossil fuel and, as discussed in the post, to ensure that the proceeds are used for local clean energy programs.
Complementing gas fees with other fees, e.g. on diesel, jet fuel, LPG and other products made from oil, would raise further revenues. Imposing a 10% fee for only one year on oil products could thus pay for the $60.7 billion in direct spending on the clean energy projects under the American Reinvestment and Recovery Act, as illustrated by the above images and the one below.
Clean energy projects under the American Reinvestment and Recovery Act (2009) - source: Council of Economic Advisers 2010
There's a further $29.5 billion in tax credits for clean energy projects in the American Reinvestment and Recovery Act, which could be recovered by ending the tax credits on fossil fuel. President Obama said in a 2009 press release that G-20 nations agreed to phase out $300 billion worth of fossil fuel subsidies. The Council of Economic Advisers 2010 report points at subsidies in the United States to be eliminated, specifically fossil fuel subsidies (including tax credits, deductions, expensing practices, and exemptions) worth about $44 billion in tax revenues between 2010 and 2019. As the Council of Economic Advisers 2010 report further points out, about 720,000 job-years (a job-year is one job for one year) will be saved or created by these clean energy projects by the end of 2012. Further clean energy projects would save and create further green jobs and business opportunities, so further revenues would be raised by the resulting increased income taxes.
In other words, once subsidies for fossil fuel have ended, a 10% fee on oil products could pay on an ongoing basis for clean energy projects such as started under the American Reinvestment and Recovery Act, rather than just on a one-off basis. Over time, such an ongoing arrangement will result in less revenues from fees on gasoline, as the sales of gasoline will decline over time, but that's precisely what should happen. As sales of fossil fuel decline, clean energy becomes ever more competitive, to the extent that less and less support from government is needed and economic and environmental gains will come about without such support.
Most important in this is how fees are linked to clean energy projects. Rather than having Federal Government coordinate all these projects, the most effective way to achieve the shift to clean energy is to ensure that the money goes to successful local clean energy programs in the area where the money was raised.