(2007-03-08) Kling Alternative Energy Politics

Arnold Kling isn't a fan of lots of methods of trying to increase the use of Alternative Energy.

• Carbon Offset: Al Gore is trying to say that by investing in alternative forms of energy, he is "offsetting" the heavy use of conventional electricity for his home. This is like saying that eating salad entitles a dieter to enjoy cake for dessert... Even subsidizing the planting of a forest may not work. Although the trees will absorb Carbon Dioxide from the atmosphere, the planting itself may require the use of heavy earth-moving vehicles that emit pollution. Overall, adding forest in one spot may lead to a developer cutting down a forest in a nearby spot. (That's why they should use Energy Accounting.)

• Subsidy for Alternative Energy: It may be true, as Greg Mankiw argues in his Pigou ClubManifesto, that higher taxes (Sin Tax) on bad energy are justified. Figuring out the optimum tax is a difficult challenge, even for the Pigou Club. However, once the correct tax is set, that by itself provides all the incentive that is needed to get people to switch to good energy. The tax on bad energy will raise the price that people are willing to pay for good energy. That higher price for good energy is all of the incentive that producers need to undertake the effort to provide more good energy.

• Carbon Market: That market price will become a tax on firms that exceed their pollution entitlement and a subsidy to firms that decrease theirs. Once again, the economic logic supports a tax without a Subsidy... In contrast to the lack of public benefits from energy subsidies or cap-and-trade, the private benefits are enormous. The winners are politicians, lobbyists, and narrow producer interests. (Gaming The System)