TAX WHAT YOU WANT LESS OF:

For Alternative Energy's Sake--Keep Oil Prices High: Tax oil if prices drop? No way! Yet if we don't, we can say good-bye to renewable energy (Steven Kyle, 12/15/08, Scientific American)

Today renewable technologies such as wind and solar are close to being competitive with fossil fuels. But we can say good-bye to that prospect if oil prices decline to $60 to $70 a barrel, which could easily happen in a recession, as we witnessed in October. Two years of lower prices can turn hybrid cars into a bad financial proposition for consumers, and green technology start-up companies could go bankrupt as demand for their goods dries up. Even a temporary decrease in petroleum prices would undermine the long-term development of the alternatives we all know we need.

Happily, there is a solution. If investors could rely on a certain lower limit to oil prices, they would have a fixed goal to work toward for making alternatives cost-effective. Knowing the goal removes a large element of risk for entrepreneurs and their financiers, providing a huge incentive to continue development.

A lower limit is easy to accomplish: the federal government has to impose a variable levy on oil to guarantee a floor price.

Actually, if they were competitive we wouldn't need to tax gas to make it unattractive.

Posted by Orrin Judd at December 16, 2008 4:14 PM