3 Big Ideas to Avoid Recession AND Green the Economy
by Michael Graham Richard, Ottawa, Canada 
on 02.13.08
Big Media seems interested in stories that link economic recession and the environment: Our piece about 4 Reasons Why Recession is BAD for the Environment was picked up by both the New York Times and the Wall Street Journal. Well, it's a good thing they're listening because we have a lot to tell about how to both avoid recession and make our economy much greener.
The first thing to do is: Tax "bads" instead of "goods". By that we mean that if you're going to tax something, get the incentives right and tax things like greenhouse gases (CO2, methane, etc), toxins (mercury, dioxin, etc) and things that are locally scarce (water in Las Vegas, for example). Don't tax things that you want more of, like labor, capital gains, investments, etc.
The goal here is not to take more money from people. In fact, if we can take less, all the better. The goal is to shift taxes in a revenue-neutral way, so that if X amount of money is needed for some program, it can be raised by de-incentivizing people from destroying the planet without discouraging work and investment (these things aren't bad in themselves, they just have bad side-effects when we don't put a price on things like ecosystems, CO2 and toxins). Aligning people's self-interest with the planet's is the best way to have everybody make good choices, even people who couldn't care less. Right now, people's wallet and the planet are not aligned; you either pick the cheaper product, or the green product. The framework needs to change, because we doubt it's possible to convince everybody to think before they consume.
The second thing to do is to reform and streamline regulations that slow down the development of green technologies. We're specifically talking here about regulations that have been adopted "for the public good" in theory, but that were in fact lobbied by big players to keep competitors out. A good example of this was given by the founders of Google: They had to deal with endless bureaucracy and red tape when they installed their 1.6 megawatt of solar panels. A smaller company - or an individual! - could never have made it through all the delays and extra expenses. This biases the system in favor of the dinosaurs.
The third thing is to level the playing field by removing subsidies. All subsidies would be best. Dirty industries get a lot more of them than clean ones anyway, making the green underdog artificially less competitive with tax dollars. Even subsidies that seem quite good at first usually later turn out to be bad (corn ethanol) because of the law of unintended consequences, and governments are very bad at picking the right technologies because of political interference, pressure by special interests and multi-year lag in decision-making. On top of that, even the really good subsidies are usually temporary and uncertain, making investors wary to place big bets.
If we really must spend tax dollars, lets do it at the R&D level and make the findings available to all via public domain licensing. That will speed things up immensely and lower the costs of going green for everybody.
We can have a strong economy that brings people out of poverty and reduces human suffering and a healthy planet.
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I've always found it weird that desirable things were taxed while undesirable things weren't. I support these ideas! Obama, you reading this?
Yeah, Obama, you reading this? Anybody knows how to reach big shot politicians?
We also need to tax development that is not built LEED and subsidize building owners who retrofit LEED.
www.leedadvisors.com
Great article. I always say that the environment and the economy have very much aligned goals when we look at the long term. Most types of pollution worth preventing are so because in the long run they have devastating effects on the economy. They deplete natural resources and give people costly illnesses.
As you said, we just need to stop funding dirty industries put in place tax schemes that internalize eventual costs and fund research in green tech. oh and somehow brake population growth.
Desirable things are taxed because they generate more tax revenue. If you tax undesirable things, you will not have enough tax revenue to pay for all the good and green.
And while I support the idea, it is naive to think that you can simply stop giving pork to large corporation that give money to politicians. The buying of the US political systems needs to be corrected first.
"Desirable things are taxed because they generate more tax revenue. If you tax undesirable things, you will not have enough tax revenue to pay for all the good and green."
Why not? You just set the level. A ton of CO2 might start at $X, and 10 years later when there's less CO2 emitted, you can tax it at $Y which is higher than X.
"And while I support the idea, it is naive to think that you can simply stop giving pork to large corporation that give money to politicians. The buying of the US political systems needs to be corrected first."
with that I agree, which is why there needs to be less money and power in the hands of the government. There more there is, the more people will go there to get a piece of the pie for themselves.
SOunds like you've been listening to Ron Paul :-)
One problem with the theory of tax bad things is that "bad" things may turn out good just a much as subsidizing "good" things can turn out bad.
Can't criticize subsidies of certain things while promoting taxes of others...it's nearly the same thing economically.
Taxes are set by politicians and there is a political problem with trying to "tax away" bad things. The problem is that as the bad things are reduced, the good politician has to keep introducing more and heavier taxes. CO2 emissions reduced by half? Well then you need to double the CO2 tax to be able to get the same tax take.
It is politically very unpopular to be constantly raising taxes and it is likely that you get voted out in the next election. This is a real problem and don't underestimate it.
I've personally asked our Finance Minister Michael Cullen about taxing "bads" and he replied something like "...but then your tax base keeps disappearing" which IS a valid point.
I'm not sure how to get around it. Perhaps by being highly transparent - eg lowering income taxes on the same day as you are increasing pollution taxes by the same dollar amount and then having an independent authority to adjust tax rates each year to raise the same amount of money (so that politicians can distance themselves from it). In New Zealand we have an annual vehicle registration charge, most of which is used to pay for road accident victim care (through ACC) and this changes every year according to how much money was used in the last year/projected to be needed in the coming year. Perhaps taxing pollution could work the same way.
Benjamin
"Can't criticize subsidies of certain things while promoting taxes of others...it's nearly the same thing economically."
Not quite. Taxing CO2 or mercury doesn't pick winners and losers, it's just an incentive towards a general goal (less CO2).
As for the "small government is better" comment, this is totally erroneous. If you take power away from government, you give it to corporations. You let markets control things that should be moderated through regulations. The key is to 'give the people back the power over governement.' The government is supposed to be a body that 'serves' its people.
Start with true campaign finance reform. Make ALL political campaigns be funded by 100% taxpayer money. Severely limit lobbyist access to public officials.
Give the power of governance back to the people. Only then can we be a truly 'free' society.
Luc,
I wish this worked, but it doesn't. Even if you have a perfect guy in office right now, and hundreds of perfect senators and congressmen. What about in 4 years? what about in 8 years? It'll never work. You can't give that much power to the government, they'll screw things up, start wars, take your money and then get lobbied to death because that's where the money is.
At least with corporations, if they're not doing a good job you have a choice, or a new startup can get in the field. Governments are monopolies, so unless you have a revolution, you are stuck.
Pork isn't (only) a problem of campaign finance and the power of corporations. Roads get built as an alternative to public transportation because roads employ people in a representative's district instead of where the train is built.
The point here is that in the US, Congress does exactly what we don't want them to do--bring home pork, subsidize their constituents, etc.--because that is exactly what each of us wants our members of Congress to do. As long as we elect people with single member districts this is going to be a problem.
Not to say that this means that the power of corporations isn't one, of course. But it isn't the only one.
"Start with true campaign finance reform. Make ALL political campaigns be funded by 100% taxpayer money. Severely limit lobbyist access to public officials."
You seriously think this will make a difference?
As long as a politician's job is "power", it will attract people who want power. Finance reform won't magically make normal, disinterested and well-adjusted people become politicians. It will be the same people because it will be the same carrot, they'll just get elected differently.
"Give the power of governance back to the people. Only then can we be a truly 'free' society."
Isn't there a contradiction there? Give power back to the people, except don't give it to the people themselves, give it to the government so they can decide for the people.
A politician's job is to be elected. They can make speeches about serving all they want, their real job is to be elected and then to use their power to benefit themselves and their friends, allies, party, etc, all the while doing just enough decent things to be re-elected.
That has always been like that, will always be.
I agree with Karen. Politics doesn't attract productive people. There's maybe 1 in 100 that is a decent individual, and that's not enough to be in charge by any count. Politics would attract power-hungry maniacs even if running a campaign was free. These type of slimebags just want the job more than anybody else... Politicians will only turn green when the rest of society has showed them the way. Don't count of them to lead, cuz controversial position don't win elections.
Get rid of taxes (including for "bad" things), get rid of regulations, get rid of subsidies. The market will then work itself out.
The main reason alternatives cant compete with oil is because of the subsidies and taxes. For example, oil imports have a 0% tariff but ethanol from Brazil has a 100% tariff. If it wasnt for the tariff, Brazilian ethanol could easily compete with imported oil. So stupid...
You make several wonderful points Michael.
The framework needs to change, because we doubt it's possible to convince everybody to think before they consume.
So true. You can't dupe consumers with scare tactics regarding climate change. We have to encourage companies to take the reigns to develop and innovate. Demand will increase as technology becomes widely available.
This biases the system in favor of the dinosaurs.
Cap and trade is a perfect example of standards that fail to address the need for competition in the economic sector. Furthermore, we have to level the playing field by providing means for smaller, start-up renewable programs the funds and equal chance to enter the game. Simply capping emissions or suggesting that corporations help smaller businesses piggy-back won't work. Neither will regulating the ability for companies to innovate and streamline renewable technology.
Our current tax system tends to discourage activities most of us believe are good for society; earning income, owing property, purchasing goods, and being employed. But other activities are worth discouraging; air pollution, water pollution, and solid waste disposal. Implementing a carbon tax is a smart way of improving economic efficiency and human and environmental health.