Good Answer?

Steven Pottle wrote: Good answer!!

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My Question:

What do you think of these ideas for funding the energy revolution in the midst of this financial crisis?

Your Answer:

During this global financial and economic crisis, which will last for at least a year or longer, oil prices will likely remain low. This would mean that hybrid cars, and future plug-in hybrid electric vehicles will not be competitive. Investments in large scale wind and solar projects will stop. Other new energy technologies such as coal gasification or liquefaction will also even less economical. How much taxpayer subsidy do we want to interfere with free market economics?

Mandatory national Renewable Portfolio Standard is central planning in disguise. Large scale wind power developments forced to be accepted into the nation's fragile transmission grid will likely increase the frequencies of blackouts. These will cause economic disruptions. There are solutions to the problem, but the risk of blackouts will still be higher.

The best idea is to modify the proposal to raise the gasoline tax. A carbon public benefit investment program should be instituted instead. This is not a carbon tax, but is similar. A rough calculation shows that your $1 per gallon add-on price is about $60 per ton of CO2 emission, which is very high. NordPool CO2 market price is around $15/ton. I have done some screening analysis which shows that at about $25-30 per ton, a CO2 charge will make wind or solar power plants firmed up with storage economicly highly competitive without tax subsidies. Nuclear and Integrated Gasification Combined Cycle plants would also be competitive.

If we translate $30/ton of CO2 into gasoline price, that is about $0.50 per gallon.

The automobile industry is highly dependent on the oil price, which has become very volatile. Long term investments prefer stable economic and financial forecasts. The government can intervene to provide a stable gasoline price to the consumers by adding a quickly adjusted variable CO2 public benefit charge, so that the consumer price, no matter what the oil company costs are, will be stable at about $3.50 per gallon. That seems to be the breakpoint when people start to feel the pain and want to switch to alternate fuel vehicles. At today's gasoline price around $2 per gallon, this means that the CO2 charge would be $1.50 per gallon now. But if the oil price goes back up to $120/bbl, the CO2 charge would be effectively reduced to zero.

Now, how do we make this CO2 charge work in the midst of this financial crisis? The amount of CO2 charge we pay at the pump, if charged through a credit card, can be traced to the account holder and credited to the consumer/investor. I look at this money as being held in a trust fund by the government in the name of the consumer. It may be treated as a savings account which can be withdrawn by the consumer under some conditions. It may eventually be available like another source of retirement income. So the consumers do not see it as a tax burden, but a savings that also is for the public and global good.

Car companies will see this as providing a forecastable and stable financial future for developing more efficient cars.

But actually, with today's oil and gasoline prices, the CO2 adder of $1.50 per gallon is about $90/ton of CO2. That is too high. If CO2 credit is traded between the electricity CO2 market and a car CO2 market, the disparity between the $15/ton in NordPool and the $90/ton to make the new car technologies viable would indicate that the world would be better off to reduce CO2 in power generation rather than in cars.

The same idea on how to treat a CO2 charge on the cost of electricity would apply, but instead of continously adjusting the CO2 price to maintain a stable electric price, the price schedule of the CO2 charge will be projected into the future with periodic adjustments. In this manner, long term investments in different power plants will have a more stable financial forecast.

Electricity consumers will similarly see the charge as their investments held as a public benefit fund.