Stanley Veliotis, a professor at Fordham University, sent me this op/ed:
"With the preoccupation over the current economic crisis, our politicians may be losing sight of other global challenges. Even if a slowed world economy has reduced demand for fossil fuels, we still confront dwindling fossil fuel supplies and warming climate. I propose a progressive tax on home consumption of energy primarily derived from fossil fuels to help discourage excessive and wasteful consumption.
A progressive electricity tax would include an exemption for a subsistence level of electricity, such as an amount sufficient to power a modest kitchen. Taxation is then imposed at progressively higher rates on bands of Kwh consumed above the exemption. For example, the first 4,000 Kwh per year could be exempted, while the next 4,000 Kwh are taxed at 10 cents each, the next 4,000 Kwh at 15 cents each, and so on. My household, which uses approximately 10,000 Kwh a year, would pay $700 in annual tax. If I reduced consumption by half, to 5,000 Kwh, my tax would be cut by 85%, to $100. Similar approaches could be used for progressively taxing home heating oil and natural gas.
The progressive increase in energy cost is a better way to motivate conservation than our current approach, under which utilities typically charge consumers for energy at a constant rate (e.g., 20 cents per Kwh, $3 per gallon). Constant rate pricing does not provide sufficient disincentive to consume beyond subsistence levels and does not adequately punish inadvertent or ignorant waste. The current cost per Kwh is the same to light my dinner table, to continuously power hundreds of holiday lights, or, as noted by president-elect Barack Obama last year, because I “like to leave all lights on in the house.” The cost per Kwh for non-essential use or inadvertent/ignorant waste should be progressively more expensive than for subsistence-level usage so that consumers make more intelligent energy decisions.
Basic economics teach that increasing the price (including sales tax) of an item reduces its overall demand and drives consumers to seek substitutes. Increasing costs of energy through a progressive tax regime should lead to consumers’ marginal decisions to not use energy or substitute climate-friendly alternatives. A progressive energy tax also has a distinct advantage over cap-and-trade and uniform carbon tax approaches, which impose added costs at the aggregate market level. Charging progressively higher tax rates on each consumer’s increasing use of energy better identifies affordable demand at the user level. If the user can afford to pay a higher amount per non-essential Kwh, then he pays it; if he cannot, he corrects his behavior by reducing non-essential use or avoiding inadvertent or ignorant usage.
Concepts of horizontal and vertical equity, which underlie our current progressive income tax structure, likewise support the targeting of progressively higher tax rates to specific individuals as they consume more and more energy. Nonetheless, a progressive energy tax proposal may confront political resistance. Two approaches could overcome this obstacle in the U.S. First, with the recent election success of the Democrats, generally more accepting of tax increases than Republicans, the public should be easily convinced that a national progressive tax regime will primarily target luxurious use of energy by those with the ability to pay. Second, for states and localities that currently have energy sales taxes, a restructuring of tax rates and exemptions could impose progressively higher rates without raising overall taxes by shifting the tax burden to higher users.
Despite recent reductions in fossil fuel prices, we must act now to conserve fossil fuels until climate-friendly and abundant alternatives are discovered and implemented for home energy purposes. While our standard of living may be somewhat reduced by an increasing energy taxes for non-essential use, we do not have the luxury of waiting for the next great energy source. We must act immediately to deter excess energy consumption until appropriate alternative sources are available."
[My] Bottom Line: The price of a scarce resource should rise. If it doesn't, overconsumption and shortage result. When the resource is "essential," that price structure must include a "cheap" block to ensure that everyone gets a minimum amount, i.e., "some for free; pay for more."
39%
18%
42%
