Home energy retrofit programs (I’m talking about programs this month), indeed most energy-efficiency programs, try to entice people to do things differently to reduce their energy use. Congress puts in a tax credit for furnaces or new homes that meet certain efficiency standard. They set the CAFE standard for cars. Utilities, under pressure from their PUCs, set up free audit programs, or water heater wrapping programs, or air-conditioner tune up programs.
We spend a lot of money on activities that don’t directly deliver on the stated goal of reducing energy use. We often work against buying decisions people would otherwise make, but only in narrow circumstances.In doing so, we then create administrative nightmares and Byzantine and often conflicting sets of regulations, rules, and incentives in an attempt to herd people in the right direction. This is messy, expensive, and inefficient. And taking this path, we limit creativity to prescribed paths, sort of pre-defined creativity.
If what we’re really trying to see is more energy-efficiency behavior, there is an easier and much more, er, efficient, way to do it. All we have to do is raise the price of energy. This would naturally push the desire to reduce energy costs, and energy use, throughout all decisions, big and small.
Call it a tax if you want. But you don’t have to make it about big government. You can give every dime of it back to everyone in the country as an “efficiency dividend”, tax refund, or whatever you want to call it. And over time people could decide whether they wanted to keep spending all their money, including their annual dividend, on energy, or whether they preferred to spend it on college education for their kids, vacation, or beer.
Speaking of time, there’s no need to jolt the markets, businesses or consumers, overnight. This could be phased in over a decade. Using gasoline as an example, we could telegraph the plan to raise gasoline taxes by 50 cents per year each year other the next decade, giving people time to plan, react, and adapt. (And remember, they get that average tax amount back at the end of the year, whether they chose to reduce their energy use or not.)
Simpler. Clearer. More effective. And more efficient.
And unfortunately, given our current political climate, very unlikely to happen. (But political climates change, too!)
Addendum: The Economist makes an argument that the time to do this is now. David Goldstein of NRDC argues that price has little impact on energy use. (Goldstein is wrong in this analysis. Using historical pricing trends to declare zero elasticity doesn’t take into account growing demand, market awareness of volatility so that responding to price spikes doesn’t happen on short time horizons, time lag required for such investments to pencil out, the increasing cost-competitiveness of alternative, and more. One of his big caveats is misplaced, too–carbon fee don’t have to exist in a policy vacuum. But it’s worth considering his arguments.)