Subsidies vs Taxes & Dispersion of Scientific Information

This is a brief reflection on two of the points raised last class. Makena’s “Should we subsidize renewables or tax carbon emitters to promote energy transition?” and Pachauri’s statement on the importance of disseminating scientific information to influence official decisions on climate issues.

Regarding Makena’s, the political cost of subsidizing an economic sector is normally much less than increasing taxes since subsidies do not directly impose a fiscal burden on taxpayers and not rarely unscrupulously distribute resources among comrades strengthening the status quo. From an economic standpoint, subsidy artificially stimulates local production shifting dangerously the balance between supply and demand and oftentimes disregarding global market volatility. In Brazil, most cars were filled up with sugarcane ethanol after 1973 oil crisis. But when sugar mill owners demanded more financial incentives to offset losses by cheaper oil and higher sugar prices, the country’s national deficit increased dramatically forcing this command-control initiative to cease. Nowadays carmakers manufacture flexfuels but ethanol prices have been fluctuating due to cheaper oil, harvest uncertainties, and exponential demand.

Taxation directly affects demand. As the government decides to expand its fiscal policy, less resource is left out in consumers’ pockets and voters tend not to re-elect representatives limiting personal savings. Nevertheless, restricting demand by increasing prices of carbon-related products is economically acceptable taking into account that energy suppliers will be then forced to invest in research and development of alternatives to remain market competitive. These market adjustments are expected to lead the economy to an equilibrium in which sellers make more profit and consumers enjoy alternatives without price pressure. This ideal economic and environmental scenario, however, only becomes a reality if the market operates close to capacity and if one assumes that political interests do not play any role whatsoever in economic decisions. The WTO’s nitty-gritty commercial battles reveal that the current economic system - as well as 21st century political decision-making – still borrows nation-state principles from mid 1600s.

As for Pachauri’s statement highlighting IPCC’s efforts in disseminating scientific information to strengthen contemporary effort in addressing the origins and the effects of historic climate change, I believe that the panel is on the right track by encouraging social scientists to engage in observations and data analysis of cumulative greenhouse gases. Economists, for example, could design models demonstrating that tackling global warming actually spurs economic growth and development in the short term. Research questions would evolve on the assumption that the effective use of renewables improves overall well-being by keeping costs at minimum levels in comparison with future expenses. Translating this academic explanation into an appealing message to the lay public is the following challenge. Images and sounds are powerful ways of constructing visible and tangible scenarios.

So, in order to drive positive changes and shape collective behavior apart from expensive law enforcement, IPCC staff could adopt unorthodox strategies and start mingling with producers, writers, and artists. As mostly of the world population watch movies, contemporary communication dilemma seems to be defining which type of vision makes us sympathize with others’ plight evoking immediate action: an apocalyptical “Inconvenient Truth” or a thoughtful “Waste Land”?

Land Use Tax and Green House Gases (GHG)

Land use is an important aspect to be studied and carefully considered in any attempt to reduce the emission of Green House Gases (GHG). This topic becomes even more prominent in places like Hawaii where overpopulation is a great concern since it turns land into a fairly scarce resource.

Citizens are to pay increased fees for occupying public spaces. In the context of ground transportation, vehicle owners have no other option rather than disbursing more to everything running out of fossil - and renewable - fuel engines to sharply reduce GHG local emissions. At the same time, drivers should be eligible to receive fiscal incentives for promoting ridesharing and using alternative means of transportation.

Technology is an essential tool to help drastically reduce the number of vehicles on streets. As local governments create online systems through which drivers and riders can connect and transfer mileages, taxpayers can easily communicate to find creative ways to share private spaces.

Vauban, in Germany, has dramatically increased the prices of public - and private - parking. The Green Party coalition decided that the ones who opted for driving rather than taking convenient, comfortable, and reliable public transportation must pay for occupying public space for private purposes. This decision has proven to be environmentally effective since GHG-free vehicles do not address the issue of land overuse and traffic congestion as well as contribute to the economy of mass production and consumption; therefore, increasing overall emission of pollutants.

In addition to taxes, the combination of incentives and technology generates less GHG emissions precisely because it reduces the number of private cars in public areas. A comprehensive system of smart pick-up and drop-off meters, for example, combined with online database and tax refund systems may encourage car owners to share private spaces with others.

Positive consequences of these measures are various: i) promote ridesharing ii) create incentives through tax refunds iii) indirectly force drivers to replace cars with public transportation iv) increase the number of people advocating for the improvement of green transportation and road safety and v) increase public surpluses for investments on new practices and technologies.

More ideas:
http://www.house.leg.state.mn.us/hrd/pubs/congestion.pdf