This "Green GasCap" proposal works against two problems at once: our lavish purchases of foreign oil and the penance we'll have to pay for swimming in the greenhouse gases we produce. It will not be an evolutionary approach, like cap and trade, which works primarily upon suppliers. Their prime directive will always be to support the market demand they actually see. Instead, it attempts to create an economic disruption; it modifies the demand that suppliers see. It realigns market forces coherently and presses a balanced, directed force against the status quo.
It will not be a tax; but it will affect consumer psychology even more strongly than a tax. It acts at those critical times when we make purchase decisions that affect our nation's use of oil: at the pump; the automobile dealership; when we pay our monthly bills. It requires that we also purchase deposits when purchasing certain products of oil. There will be a constellation of different options through which those deposits can be redeemed. Usually they will be redeemed for even more value than the extra cash we originally had to pay. But all those options are designed to affect the economy in ways that reduce our need for carbon based energy -- and especially for foreign oil.
First some meta: I have struggled over the politics and practicality of what follows for several months, reworking my ideas in order to lessen those bites and formulate them more coherently than in their original form. If you have concerns about their political or practical realizability, please read the section concerning how this can be administered and the discussions at the end. You may find some of your considerations addressed there.
I. Introduction
Some background: (DKos regulars may want to skip these three paragraphs)
I have always been a fan of programs like the Carbon Tax, the Cap and Trade bill and the American Clean Energy and Security Act of 2009 variant of Cap and Trade that is sponsored by Senators Cantwell and Collins and sometimes referred to as Cap and Dividend. I supported the Acid Rain Program several decades ago and was gratified when it turned out to have met its goals earlier than expected and to have cost only about one forth of the advertised amount. I still support these approaches for the purposes of climate change; because we still have time for an evolutionary approach toward solving that problem; the runaway effects of CO2 emissions are still about a half century away.
But the economic threats posed by our dependence on foreign oil are probably only a decade away. We spend more than one billion dollars per day on foreign oil purchases and that is based on the current price, around $75 per barrel. This price can double soon; it has already been that high. Furthermore, we spend at least another billion dollars per day on the preparations and actions we take to keep those oil supplies secure and to offset the negative reactions that some in the rest of world project toward us.
If we continue on our present course there are grave dangers approaching. For no nation can continue to project its importance in the world without also preserving a healthy, strongly functioning economy. We can not afford to carry all that extra weight, especially if this "great recession" becomes a "lost decade," such as recently befell Japan. We may devour ourselves like the USSR did two decades ago, consumed from within by our own internal contradictions.
The Green GasCap approach recognizes that we need an economically disruptive program, not just an evolutionary one. That entails directly changing consumer demand, not just our suppliers' offerings to the market. This program enacts change in two ways:
- At the point of sale of products made from oil, (for example when gasoline is purchased,) a substantial deposit must also be purchased. This is disruptive because it sequesters the cash used to buy such deposits. Even though more than the amount paid for such deposits will normally be returned, this will create a constant psychological force that will cause the primary demand curve for gasoline to change.
- Those deposits will be redeemed as part of other purchases, each contributing in some fashion to our nation having less reliance upon oil. Each increases our conservation of energy or our production of energy from home grown, clean, renewable, reliable sources.
This program acts by "compartmentalizing" a portion of the total energy economy. The deposits create new types of money, "colored money", useful only in the green energy economy. This affects consumer demand for certain kinds of products, increasing it for some, decreasing it for others. That will change the demand curves seen by suppliers in all sectors of the energy economy, not just those that are green.
More meta: The color "green" is already taken. It's used for normal money. We will use particular shades of the color green to distinguish the two new types of money described here. They will be called "light green" and "heavy green."
II. Basics of the Plan for Gasoline
Our oil landscape is depicted in this chart. It shows the percentage of all oil consumed in the USA in the year 2005 broken down by product type. it lists the three main products as gasoline, 46%; diesel fuel, 26%; jet fuel, 9%; and all others, 19%. This table indicates our consumption of petroleum in 2009 was about 19.5 million barrels per day and of that amount about 9.0 million barrels per day was used to consume gasoline.
All petroleum product types can be treated similarly but gasoline, the most important one, will be described in detail. At the end of the diary a brief description will show how to modify the plan to include diesel, jet fuel and some others.
For gasoline the relevant parameters that we need to measure are:
- R: the retail offering price (before any taxes) per gallon of gasoline, use $3.00
- C: the Federal CAFE, (fleet average mileage standard.) Current value 27.5 mpg.
- S: a relatively constant factor, strength, adjustable by law. Use 1.0 .
- E: the fuel efficiency in MPG of any particular automobile. Varies per example.
- F: the foreign fraction of all oil used per gallon of gas. Assume 2/3.
Using the parameters above we compute the redemption value, (not the par value), of the light green deposit, Dlg:
Dlg = (S*F)*R
The quantity S*F is shown in parentheses in the above formula to emphasize that it is relatively constant. It has the value two-thirds for all of our examples below. The retail price R varies from one pump to another but for purposes of example we are assuming that value to be $3.00. That means every purchaser from this pump gets credited with a deposit worth $2.00 in light green money for each gallon of gasoline purchased.
But that is what the purchaser receives; it is not usually what is paid. The formula for the cash paid per gallon, Pmt, is:
Pmt = Dlg*(2C-E)/C
This can be either more or less than Dlg; it depends upon the fuel efficiency of the actual vehicle that receives the gasoline. If one's vehicle gets exactly the CAFE fuel efficiency, then E = C and (2C-E)/C becomes equal to 1.0; so one pays exactly Dlg, or two dollars per gallon. Drivers of more efficient cars will get those same two dollar per gallon light green deposits for less than their par value. Gas guzzlers will be charged more than two dollars.
Don't worry, though, even gas guzzlers will break even. Most will do better than breaking even. More about that below.
III. Some Examples: for Different Types of Cars
- Car gets exactly CAFE mileage C: As explained above, customer breaks even.
- Car is a Hybrid and gets 55 mpg? This driver pays nothing for each two dollars of light green deposit money received.
- Car that gets about halfway between the above two examples. This driver pay one dollar for each two dollars of light green deposit money received.
- Car is a hybrid and averages 82.5 mpg, (equal to 3 times CAFE). That driver's efficiency factor comes out to negative 1.0. So in addition to getting a two dollar deposit the entire cash value of the retail price of the gasoline is also wiped off the bill: only the federal, state and local taxes are charged. (The federal government pays the retail price. It won't go broke because few drivers will have such cars and such cars do not use much fuel. Besides CAFE mileage goes up gradually.)
Beyond the fuel efficiency of 3 times CAFE mileage or better no further cash rewards are offered. Still, there will always be that extra reward of having to make very few stops at a gas station every year.
- Now for gas guzzlers: An SUV that gets 13.75 mpg, half the CAFE standard, pays three dollars per gallon for two dollars of light green deposit money plus one dollar of heavy green deposit money to compensate for the difference. (Heavy green deposits are discussed below)
IV. Redemptions of Light Green Money Deposits
Here are some examples of how light green deposit money can be redeemed:
- Bus, ferry or other mass transit fares. Parking fees to use their "Park & Ride" lots.
- Commuter lines, inter-city trains, high speed rail, and long distance bus fares.
- Reasonable reimbursement amounts for car pool drivers.
- The portion of federal, state or local tax payments attributable to green energy/high speed rail/smart grid projects, etc.
- The portion of utility charges associated with renewable or reduced carbon sources, smart grids, etc.
- Electricity charges paid to Green Energy Cooperatives.
- Prescribed portion of the automobile down payment or loan payments toward bicycles or any powered vehicles that exceed CAFE mileage standard
- Cost to purchase and install household solar/insulation equipment.
- Part of the cost of electricity used to recharge plug-in hybrids or pure electric cars.
- Cost of replacing batteries used in plug-in hybrids or electric cars.
- Half the cost of vehicle emissions testing, full cost of emission control repairs, that portion of manufacturer-recommended automobile maintenance costs that return fuel efficiency to nominal values.
- Part of the cost of energy efficient household appliances, lighting, etc. Items must be rated above average efficiency relative to prior year sales and eligible fraction of the cost increases with efficiency.
V. Heavy Green Deposits Money and their Redemption
All heavy green deposits are received as compensation for the situation where the drivers of vehicles that get less fuel efficiency than CAFE are charged more than $2 for the $2 light green deposit they actually receive. That difference is always received in the form of heavy green deposits. This kind of money is restricted in use to only one purpose, the purchase of an automobile that gets CAFE fuel efficiency or better. There is no limit to how much heavy green money is used to pay for any such cars. This makes heavy green deposits valuable when purchased on the open market.
Light Green money can also be used for purchasing fuel efficient cars. The major differences are that only a limited percentage of the price of the car is allowed to be paid with light green deposits and the discount for light green money is given only at point of sale of the gasoline that was is purchased. Heavy green deposits, however, are always bought at par value. They are generally redeemed, however, at a premium that depends upon the amount by which the expected mileage of the purchased vehicle exceeds CAFE.
This happens according to a formula:
Heavy Green deposits are redeemed for cash at 100*(1 + (E-C)/C ) percent of par value, where C is CAFE mileage and E is the expected mileage of the vehicle that is purchased. If E is less than C, the heavy green deposit money cannot be redeemed for that car.
Once again the value of E is pinned, this time at 150% of CAFE. Therefore the highest premium one can receive when purchasing a new car is 50% in addition to par value for heavy green deposits.
VI. Trading of Deposits
There will be consumers who would rather not participate in this program at all. They can sell their deposits in an open market to the highest bidder; it can be done immediately or at any later time. To insure a floor in the redemption value of all deposits, the government will act as the buyer of last resort by virtue of a standing offer of 75% of par.
It is possible that some such "bail out consumers" will not receive the full par value of their deposits. But supply and demand might determine otherwise. For whereas the driver of an SUV cannot use heavy green money to buy another SUV, she can always sell it on an open exchange, probably for more than 100% of par. Someone else would still come out ahead by paying a premium of 25% in order to use those heavy green deposits at 50% over par when purchasing a brand new plug-in hybrid on the very next day.
Light green deposits may also be sold at more than some gasoline purchasers actually pay for them: because those who fill up hybrids or other very fuel efficient cars will get their light green deposits at quite a large discount. It matters little who actually uses their deposits to buy fuel efficient cars so long as those cars get out of the showcase and onto the roads.
VII. Administering the Plan
We Can Do It If We Try! The war mobilization associated with World War II added 30% to our labor force and almost an equal number of soldiers to our war effort. At the height of the war we were building almost one naval vessel per day. In 1940 we manufactured only 1,800 combat aircraft. By 1942 that number was almost 47,000 and it peaked at almost 75,000 in 1944, about 200 aircraft per day.
To stabilize the economy in the midst of such drastic changes we commanded or enticed:
- the rationing of food and goods needed for the war effort,
- an increase in the income tax reaching 90% at the highest marginal rate,
- huge numbers of women to enter into the labor force,
- the automobile industry to cease making cars and make jeeps, tanks, trucks and guns instead,
- other measures of the same kind.
People earned much more money than could be spent for buying things. The economic power of ordinary money had to be sequestered, even more strongly than money would be sequestered under this plan. It was the public's pride and willingness to participate in the war effort that was used to effectively "compartmentalize" that vast unusable economic power. People were enticed to invest in war bonds, instead.
Once enough of us recognize that there now looms another existential threat upon our own horizon we will regain the political motivations needed to take disruptive measures that can counter it. We willingly took such steps for fighting World War II; we can surely take these moderately disruptive measures to get us out of the economic problems we seem to be headed for today.
With today's technology it is simpler to compartmentalize monetary power; we no longer need ration cards nor "script." Our technology has improved immensely since the 1940s. Our computers can easily keep track of which shades of green each portion of all the money in a bank account should be tagged. We also have the internet with which to communicate transactions; and all of our banks have already enrolled.
The bank that managed one of my credit cards account used to send me yearly summaries of how much I charged for different classes of transactions during the previous year. That implies the bank was able to tag every penny I spent with its own particular "color". If banks can do that for me for free, it must have been cheap. So they can manage the accounting of this plan as well.
Our government needs to remind banks that they "owe" the public something for having bailed them out.
Sure, the banks will want extra money to do so. But it need not be much, especially if the government does not take immediate possession of the cash used to purchase these deposits. That cash can remain with the banks, at least for a time, and they will use it to add to their reserves. This is important to banks; they need to keep their total leverage less than what is legally allowed. Banks should actually pay for the privilege of managing this program. And those who will not wish to comply will lose their customers' checking, credit card and debit card accounts to other banks who will.
How to prevent cheating? To help in that we will actually replace the gas caps in cars with new ones, permanently attached, colored green and having smart chips attached as well. They will have a small processor and maintain information using flash memory. They will communicate with the gasoline dispenser in RFID and with the automobile's computer by cable. The gas cap will will identify the car by VID, its registration, and give its recent history of refuel amounts and odometer readings, etc. Electronics in the dispenser will communicate with the pump and beyond that to the computer database systems at the bank.
Drivers of older cars will provide odometer readings manually, at the keypad of the pump when their credit card is scanned. Only the last three digits before the decimal point on the odometer will need to be supplied. The credit card account will keep track of all vehicles authorized for use by that account. If the vehicle receiving gas is not authorized, the maximum deposit will be charged, a receipt will show that, and adjustments can be made later, by the driver, online.
Attempts to cheat by filling gas into the tank of a fuel efficient car but then siphoning that gas into an SUV just wont succeed. Software computes the apparent mileage for each car. So after a driver does this a few times the apparent mileage of the fuel efficient car will be become worse than the SUV. The cost of deposits will become huge, a call will be issued to have maintenance done and alarm bells will ring, triggering an investigation that can possibly result in huge fines or even jail time. Altering or lying about odometer readings can have the same effect.
The administration of other oil products can be implemented in a manner similar to gasoline provided that the end users of the product can be suitably defined. The end user need not always be a human being: it could be an organization, such as an airline or the pentagon, which together account for most of the consumption of jet fuel. It could be a mixture of people and organizations, such as the truckers and trucking corporations who consume most of our diesel fuel. For heavy fuel oil, most users are homeowners, who use it to heat their house. Their plan would be quite similar to the one for gasoline.
In each case it is necessary to identify how, why, when and where the user class purchases the targeted oil product type and what other product purchases those user classes can make in order to lower the amount of the primary oil product they will need to purchase in the future. For airlines it would include more efficient engines to replace current engines on existing planes. Or it could be newer aircraft purchases that are more efficient that those they would replace. For trucking, it would be replacement engines that run on natural gas, newer truck designs based upon hybrid technology, etc.
Once that is settled, CAFE standards must be defined by law and lists of eligible product types established for the redemption of light and heavy green deposits. Probably 80% to 90% of all our oil product purchases could be included in some variant of the Green GasCap program.
This Is Not A Tax! For those who are of the mind to think of colored money deposits as just another form of taxation please note that even if analyzed as a tax it would be a negative tax. Also, the government does not even take possession of the cash used to purchase deposits -- the banks do. Finally, there will be no deductions to take or income to report on any IRS filings for the following year. The entirety of these transactions will be completely invisible to the IRS.
VIII. Discusion
The Green GasCap CAFE: cap and trade pour tout le monde!
Some like the appetizers, some, the tasty deserts!
We are almost ready for such a plan. A recent Jed Lewison diary starts by summarizing the thinking of the American public, as indicated in a recent poll:
According to the latest New York Times/CBS News poll discussed earlier by DemFromCT, nine out of ten Americans support a significant overhaul of U.S. energy policy, with 58 percent supporting "fundamental changes are needed" and an additional 31 percent saying our energy policy needs to be "completely rebuilt."
59 percent of Americans (including 56 percent of Gulf region residents) believe that within 25 years there will be a viable alternative to oil, but most Americans (51 percent) say they are not willing to pay a tax on gas to accomplish that goal. 45 percent say they would pay higher gas taxes, but when asked if they'd pay one dollar per gallon more, support drops to 32 percent. Support drops to 19 percent on a fifty cent tax, suggesting that tax supporters want it to be high.
I'm not baffled by the implication that the public says they are not willing to pay a tax on gas while also indicating that if there is to be such a tax it should be high. So, here is the deal! Green GasCap! It's not a tax; but acts like one; and it's high.
Some secondary effects, serendipities, attributes, etc. are not obvious at first glance:
- There is a built in feedback loop that works like a thermostat, automatically controlling the strength of the plan as conditions change. The parameter F, the "foreign factor" changes each quarter with the proportion of oil that is purchased from abroad. As we conserve, we purchase less from abroad and the amount of colored money sequestered in deposits goes down. If we fail to conserve those deposits grow larger.
- The parameter S, the strength of the plan determines the size of the demand that this plan directs toward the the sub-economy determined by the lists in sections IV and V, above. The value 1.0, used in the examples, would be expected to move more than a half billion dollars per day into that sector. That is almost 200 billion dollars per year, probably too large for the first few years. So a five year phase-in plan would be reasonable, starting at S = 0.2 in the first year and increasing by the same amount each year for the next four years, when it reaches 1.0.
- Even when the strength reaches 1.0, the deposits, $2 on average, are quite a bit lower than European taxes added to gasoline. And the consumer does not fork up the total cost of the deposit; the government chips in some of it.
- The foreign factor can be different for each brand of gasoline if the refiner keeps a train of custody for all its petroleum sources. Oil may no longer be fungible. When Alaskan oil is sold to Japan, only to be imported in equal amounts at east coast ports, the foreign factor goes up and so do the deposits registered at the pump. If that oil is rerouted instead, so as to never leave the United States, refiners may be able to lower the effective price of gasoline plus deposits, when bought at their gas stations. This may drive more customers to them, reduce our actual dependence on Mideast oil, and add jobs related to the interstate transportation of that oil.
- For reasons similar to 4) this plan would encourage the production of bio-fuels and synthetic gasoline made from coal or natural gas. It also encourages more oil extraction at home; by tertiary extraction from depleted oil fields and shale, for example. I've read that there is more oil still in the ground at depleted wells than was already produced. It waits there for the economics to change and support tertiary extraction.
- The mathematics of light green and heavy green deposits and their redemptions favors a change in behavior for multi-car families: many will gain considerably by balancing the use of just one SUV, to provide comfort for long family trips, with one or two highly fuel efficient "second cars" to use for driving to work and ordinary trips around town.
- It lowers the economic costs to their customers when power companies switch from coal fired to renewable sources of electricity, even when the latter are temporarily more costly because they still lack all the benefit that economies of scale will eventually bring.
- Likewise, governmental agencies will see reduced opposition to bond measures that qualify for tax payments using gasoline deposit redemptions. In particular this could speed up our national adoption of high speed rail, and lead to a public works program that provides almost as many new jobs as Eisenhower's Interstate Highway System did a half century ago.
- It magnifies the influence of gasoline prices on the energy sector of our economy immensely. But the focus is upon demand rather than supply, which will forever be subservient to demand. (Did anyone actually believe in that "build it and they will come!" maxim? I mean, really?)
- The sub-economy whose products will be discouraged by this plan is largely one that is controlled by foreign and multinational corporations. The money associated with that sector is fickle; it knows no borders and except for the sovereign corporations based in China and the Middle East, it long ago shed its national loyalties.
- The sub-economy that will be encouraged to grow is almost entirely local to the United States and contains many of our establishments that are in dire need of a kick start. A few years of this plan can be enough to get our national economy out of its funk and start it moving again in a better direction.
In comparison to the Carbon Tax, Cap and Trade, or Cap and Dividend, this plan is approximately equal to or greater than those in strength. Perhaps one of those can be used in conjunction with this, each at half strength, if necessary.
IX. Final Thoughts
We are in danger of sacrificing our democracy. We seem to have lost sight of ideas about rule "by the people, of the people and for the people?" Have we become willing to accept rule by "the divine right of kings" once again? Even worse: rule by the "divine right of corporations," rather than kings?
Corporatism wields an army of many apparatchiks, in congress and in the media. They are still foisting that "build it and they will come" slogan upon our national psyche. That meme was used as the basis for the "Laffer Curve, which in turn was used to convince us that endless unpaid for tax cuts would lead us to a certain utopia. That has finally been discredited by recent actual events.
For fifty years corporations, through TV commercials and other media, have learned how to tell us what we need, what we should wear, what we should eat, how fat we should allow ourselves to be, which new patent drugs we should encourage our doctor to prescribe, even what political values we should admire. At first they did those things only under the radar; but insidiously, nonetheless. Now, SCOTUS, in "Citizens United," has given them vast new mercenary armies of cash with which to coerce us into defending their "divine right of corporations", even at the ballot box.
But corporations have no long term goals. This is especially true with respect to moral and ethical goals. Corporations are like machines, without a soul, without the self consciousness of beings that can examine how they, themselves, behave. They react infrequently, quarter to quarter, and mechanically to boot. They resemble those particles of dust that Einstein studied: the ones that float steadily in liquids until something jostles them, the random events of Brownian motion.
The force that moves a corporation is narrowly defined; it's the profit motive. Our national power to plan confuses them; and so it threatens them. It diverts their focus, restricts their ability to predict from whence their next profits will arrive. It competes with their ability to wield the kind of power that creates changes that they wish to see: changes in us, mostly -- their loyal subjects.
We are almost at the point where corporations have entirely neutered the governmental architecture that was originally meant to help us decide things for ourselves -- things that concern the important issues of our lives. They would turn us into robots if they could: entities that are just like them. But not even the narrowest human being will continue to behave as mechanically as a corporation does.
Meta for Justice Roberts: Corporations have no business trying to engage us anywhere in proximity to our ballot boxes. Neither should we let them; unless, that is, we wish our country to become as rudderless as corporations are!
And so our nation drifts, clinging to its status quo, while countries like China take charge of their own fate. China is already building the most wind mills of any country in the world. They are at least matching other countries in the fabrication of solar cells, and they are within two years of passing everyone in miles of track laid down for high speed rail.
The earlier discussion, about how FDR was able to mobilize this nation at the start of World War II, points out what could happen if our government were to become strong again, competent and respected. That mobilization benefited by having immediately followed a decade during which public faith in corporate leadership was totally discredited. We were also fortunate that during those ten years we also renewed the competence of our Federal branch, and the public's confidence in it.
History seems to be repeating itself. We must take advantage of that. We are almost ready now to prove again that there is a vital role for national planning. For countries like us, marketplace democracies, national plans must exert their forces indirectly, within the market, not against or oblivious to it. This is as things should be!
And that is what this plan attempts to do.