Taxes or Rationing Solutions?

Keywords: climate change; energy crisis; rationing; air travel; rationing stickers; carbon tax; environmental value-added tax; George Monbiot; John Bacher; Lynn McDonald; Ray Morrison

I sent my report on the "Climate Change and Energy Crisis" forum to my friend Derek for proofreading. He said I had got it all down correctly, but he had misgivings about John Bacher’s main proposal. Yes, that’s what Bacher had in fact said, so it should go into the report, but Derek thought it was not a realistic approach to reducing greenhouse gas emissions. Bacher had suggested rationing gasoline – the system that had been used effectively during World War II. Derek thought you could do that for a
short time under the extraordinary circumstance of war effort, but doubted that
people would tolerate it during peace.

My own qualms about rationing (though I’m ambivalent on the subject) is that it would require a big bureaucracy and a complicated set of rules. I was a child during World War II and I remember the stickers we had on our windshields in the US. Different families had different letters, ranging from A to C. (See photo.) Ours was A (ordinary), which allowed us three to five gallons of gas per week. The purpose was to save not only gasoline but also rubber for tires because trade with the Far East had been cut off.

We couldn’t always drive out to the countryside to visit my farm grandparents because we’d used up our weekly ration. People who had to drive to see the doctor regularly or who had war-related jobs to which they commuted, got more favorable stickers. Trucks got T-stickers. There must have been ration coupons or punch-out cards too, but I don’t remember those. I do recall overhearing conversations about the proof that people had to produce when dickering with the local ration board.

But the moral imperative had kicked in. There was grumbling, but most people wouldn’t cheat much because they recognized the necessity of conservation during wartime. I think that moral sensibilities will become relevant again pretty soon.

The alternative to rationing, of course, is to let the market take over the allocation of scarce resources. I’m a fairly strong supporter of the market mechanism
(in other words, I mistrust socialism more than I do capitalism) but the disadvantages are obvious. If the market alone determines the price of fuel, that will exacerbate the inequality that already exists (and is increasing) in society. The people who already have plenty of money will be able to use it for further financial gain, whereas the people who are poor may become desperate — unable even to go to work if they can find a job.

But Bacher is not unique in proposing a rationing system. George Monbiot
also suggested it in his new book, Heat, which I recommended to John after hearing him make the same point. Independent minds were thinking alike, I guess. And Lynn McDonald also suggested that same approach in an op ed
piece published in the Toronto Star on December 7. She particularly
mentioned the rationing of air travel, which Monbiot urges, since there is
at present no way of reducing the enormous emission of carbon dioxide by
jet planes. Monbiot says that propeller-drive planes are not quite as bad, but
that’s not saying much.

(In another conversation Derek said that there is, at least potentially, a
solution to the emissions by jet planes: a combination of hydrogen and
oxygen as fuel. Theoretically, it would be possible to fill one wing of
the plane with hydrogen and the other with oxygen, and then mix them in
flight. There's no greenhouse gas emission whatever – only water — but
he admits that it would be a terribly dangerous thing to do. The
combination is exceedingly explosive, and the worst risk would be on the
ground, while they were preparing the plane for flight.

I know nothing more about this idea, and Derek wasn’t necessarily proposing it as
realistic. One question that occurs to me: how do you get the hydrogen and
oxygen? If you’d have to use a lot of electrical power, or even worse,
something like coal, then it still might not be a real solution. Anyhow that’s a side point, to be explored another day.)

I don’t doubt that the price of gas in a true market system would
eventually create incentives for innovative renewable technologies. In
fact, I think we ought to push that approach forward as quickly as
possible – far earlier than any politician would dare introducing
rationing as the alternative solution. Already there are political leaders
— even including Michael Ignatieff — who favor the “carbon tax.” That
would, in effect, artificially boost the price of gasoline in the market
and make it unaffordable, or at least make people think twice before
taking an unnecessary trip.

Al Gore argues in favor of a carbon tax, which would be
revenue-neutral because it would replace payroll taxes. That’s not a
totally bad idea in terms of restraining social inequality – at least if
the government closes other tax loopholes, since at present the system of
graduated taxes, which supposedly soak the rich more than the poor, is not
working properly. Many rich people still find ways of keeping their actual taxes
down unconscionably low. Getting rid of payroll taxes might not increase
inequality much, though a carbon tax would seem to be somewhat regressive.

Maybe not, though. If rich people travel to vacations abroad, they will be
paying more for the trips, though admittedly they will be able to afford
it more easily than the poor. I think the whole carbon tax idea has to be
matched by a moral appeal. Let's make everyone feel guilty for fouling the air
with unnecessary travel or for keeping second homes that need heat and
light. I myself have already started thinking conscientiously about unnecessary
flights. If I go anyone on this continent, unless it is an emergency, I
will travel by car or train. Of the two, train is better, but with the
proliferation of hybrid cars that get over 75 miles per gallon, auto travel won’t
be so bad, especially if I take a passenger. My current Chevy isn’t in that league, but my next car will be.

Recently I received an e-mail (I think it was meant as a submission to
Peace Magazine) from Ray Morrison of Warner, New Hampshire. I like his suggestion, which I’ll quote here:

“Our hearts tell us what we should do. Market prices tell us what we will do. The challenge of the 21st century is to make prices reflect what we know is right.

“The single most important step to help assure sustainable prosperity is to use ecological consumption taxes to make polluters and green house gas emitters charge their true costs.

“By replacing income taxes with ecological consumption taxes, the market will send clear price signals. What’s unsustainable will cost more. What’s sustainable will cost less. Entrepreneurs and customers responding to price will quickly move emissions toward the sustainable.

“Al Gore has proposed a carbon tax to replace payroll taxes.

“My preferred alternative is stronger medicine. An ecological value added tax, or E-VAT, could replace all income taxes with consumption tax paid at the point of sale for all goods and services.

“The E-VAT is a smart sales tax that avoids double taxation for businesses. The more polluting, the higher the E-VAT tax rate. Phased in over 10 years, the E-VAT would replace all income taxes.

“An average 18% E-VAT could finance the federal budget. There’d be no IRS and just a one-page E-VAT tax form for businesses. Get rid of greenhouse gases and the IRS. Ecological taxation is a good deal for America.”

I don’t have a fixed opinion on these matters. I’d just like to get a discussion going with input from concerned economists. In fact, I’ll send this to a few folks whose opinions are probably more formed than my own. All comments are welcomed.