Spitting In The Ocean
Motivating Energy Conservation at the Root
Some time ago, in an essay in the Bay Journal, Tom Horton proposed an interesting idea. He suggested, in the middle of a stream of other important suggestions, "a power company selling energy efficiency versus more energy". This is a powerful idea because it gets to the root of what we are trying to do with respect to reducing environmental harm from energy use.
There are two sorts of things we can do if we want to reduce the environmental harm from energy use. We can make our energy use less harmful (i.e., returning the carbon we burn back into subterranean storage, using non-fossil energy sources, planting more trees), or, we can reduce our energy use. It seems likely that we will have to do both of these things if we want to significantly reduce the volume of greenhouse gases we are putting into the atmosphere.
But consider the energy sector. Investors place their funds in energy companies precisely for the purpose of getting positive returns. Energy companies make a return for their investors by earning a margin on the units of energy that they sell. They can improve that margin if they reduce their costs - get the machine working as efficiently as possible. But they can also increase their returns if demand increases. We are, of course, the demand in that picture.
So, as the market for energy is currently configured, greater energy demand (use) is an attractive thing to producers. In general, the greater demand, the better their return on investment. And, since we must have whatever it is we want, regardless of its energy costs, we consumers have been accommodating to the energy industry in that way.
How do you change that? How do you change incentives so that energy companies make better returns when energy is used more sparingly? You really should ask an energy economist (I am not one) for a detailed answer. But, from what I know about markets and incentives, I would think that a tax on fossil fuels with abatements for energy efficiency (to be shared between the energy companies and consumers) would do the trick.
What does that mean? Well, if you tax fossil fuels, you make the energy that they generate less attractive, relative to non-fossil fuel energy. The energy industry would pass the tax on to the consumers and, because this would raise energy costs, people would be more careful about consuming energy. But that is painful for some. The abatements would entail refunding some portion of the tax to the energy company if its consumers show above average energy conservation. Consumers with below average energy conservation would pay the bulk of the tax. One could, without creating a raft of new regulations or some new bureaucracy, impose a tax and abatement scheme that left energy companies pointed in the right direction and which allocated the pain of higher energy costs equitably among consumers.
Getting our energy companies pointed in the right direction by ensuring them better returns, the better their customers conserve energy, is a radical solution to the problem. It will have opponents on the left who think too conservatively to imagine capitalist incentives pushing firms toward less environmental harm. And it will have opponents on the right who cannot conceive the possibility that some taxes move you toward social optimality, not away from it. So it goes with radical solutions.
But Horton's idea was a good one and it makes you wonder, who's working on that?