A simple Energy Tax to help stimulate industrial economies

In the extraordinary economic events of 2007-2009, one has gone unnoticed, yet could offer a way to a global solution: it is the nuanced impact of oil at 100-120 $ a barrel during many quarters on most industrialized economies; consumers reduced their consumption of oil products moderately, even car sales did not drop while consumers wisely switched from gas guzzlers to more fuel-efficient cars, the inflation remained bearable, money started going into energy-saving and alternative energy investments. In fact the high oil prices were almost a good thing for industrialised countries, but from the fact that they reduced the purchase power of their citizens, and enhanced financial imbalances that helped to pervert the financial system.

Thus a revival of the carbon-tax idea, a 30 to 40$/bbl equivalent carbon-tax  in all OECD countries, might offer a global remedy; it could be raised on most oil, gas and coal products, excluding a basic heating and  transport allowance per household (or low-income household).The volume would probably be at least the equivalent of, yearly, 12 to 15 billion barrels oil for the US and a bit less for the EU. This means an income of about 400 billion dollars a year for the US and, say 350 billion for EU countries, with very constructive uses:

- For a number of years, use 250 billion $ a year to clear the banking mess and help restore some fiscal balance where needed.

- Finance environmentally friendly and energy-saving projects in transport, housing, urban development; these could create many useful jobs replacing those that will disappear in the financial sector.

- Limit or reduce social security contributions of workers to enhance their global purchase power, while safeguarding social security, pension and health-care systems which are badly under funded in most industrialised countries.

When the banking and mess is over, the whole proceeds could go to the latter 2 purposes. It would be better if emerging countries would apply energy taxes as well, but if they do not want to, industrialised nations should move along anyway (a carbon import tax might then be envisaged for a few industrial sectors, which might be needed anyway if carbon permit schemes are not universally adopted). It would of course be essential that Opec members are not aggravated and do not retaliate by reducing their production, but most could probably be persuaded that western economies’ collapse (which is now looming) is not in their best interest, and that such a tax would not drastically reduce consumption.

Citizens might be reassured that the financial system can be saved and  they are not  about to face a hold-up on their savings and earnings by failed bankers or overstretched States (it is not uncommon, nor illogical, for households to react to perceived public profligacy by increased saving, which would thus neutralise the unfunded stimulus packages). In the long run, environmental projects and social security could thus be financed in ways that do not penalise productive activities, even encourage it.  The scheme might not be too popular in first instance, but if it is perceived to present a real remedy to the pending economic disaster and the environmental challenges, it might probably be accepted by the people, who are much more lucid than their politicians imagine.

Eric De Keuleneer.

Posted by Eric De Keuleneer at 9:53