On the plus side, we now have a serious climate bill in Congress. On the downside, it suffers from the problem that the EU, and indeed all governments have when dealing with a social problem: laws do not work. Making any desired activity illegal generates a black market, encourages corruption and inevitably results in selective enforcement that targets the politically weak. When you add to the mix a problem as complicated as climate change, setting emissions targets, temperature targets or even sea level targets is foolhardy. We have fairly good estimates for what amounts of carbon dioxide will cause different levels of calamity, but we don't have a good system of forcing anyone to stay within their limits.
Actually, we do, but we'd like to avoid FDR-style stimulus if possible. Cap and trade promises to be as much of a boondoggle as the CAFE standards. Essentially, they were an attempt to drive production of fuel efficient vehicles without bothering to stimulate demand for them. Cap and trade without very strong enforcement and carbon costs that track inflation will have the same effect.
How about an alternative: a carbon tax. Sure, don't call it that, but a slowly phased-in tax that guarantees certain sources of energy will lose economic value over time will drive efficiency and alternative source investments. So, as a start, I'm a big fan of the "Gush-Up" idea funded by a slowly increasing gasoline tax at the slow but steady rate of $.05/yr. Here's how it could work:
Assume gasoline sales will be at least 90% what they were last year. That allows $5.9billion to be spent on the program this year. Lop off another 5% for program administration, and you have $5.6billion for a "bottom up" car company stimulus this year.
The $5.6billion would then go to boost the trade in value of old, heavy cars. I recommend a formula along these lines:
Boost = (Gross Vehicle Weight)*(Age-10)
As the program gets advertising (part of the administration budget), there will hopefully be a surge of people coming in to buy cars. While the tax is regressive, it will have a much larger benefit for poor communities that have been keeping old, polluting cars around because they could not afford to replace them. It should also ease the strain on infrastructure as lighter vehicles replace heavier ones. The fact that it would not provide enough funds for everyone to trade in their vehicles right away would help smooth demand from year to year.
Thus, with gas prices going up steadily, the owners of old gas guzzlers will have an incentive to go buy an updated vehicle. To the extent they can get credit or cover the remaining cost of a new car, it benefits the auto manufactures directly. Otherwise, it raises the price of newer trade ins, allowing people who want to trade in their older Honda Accord on a new Chevy Malibu to do so more easily. Given the heavy US government investment in GM and Chrysler, it makes sense to arrange the "pilot" program to favor their dealerships.
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