Energy taxes

What would be the result of:

Exempting renewable energy from taxation, but (continually) compensating that by raising the tax on non-renewable energy.

You are suggesting taking on the strongest, wealthiest and politically connected industry on the globe. It is a nice idea but we do not build for the future. We build for the highest profits today.

I did not suggest anything, I only asked what the result would be.

Question is not “Can it be done?” but rather “What would the result be of it happening?”.

More money and effort would be put into alternative energy systems.

Not to nitpick but it’s between renewable/non-renewable, not conventional/alternative.

What does “not taxing” it mean?

Electricity is a commodity.

The power grid your computer is running on may have power generated by coal and nuclear and wind and solar and geothermal and hydro and biofuel.

Electricity is fungible.

So, you are at home with all those sources supplying the grid.

You eliminate taxes on the renewable ones. Great, they make more money which can, maybe, change the equation for whether you decide to build another coal power plant or a solar plant next. For the consumer at home you will be paying about the same.

Thing is coal is cheap, cheap, cheap. There is a huge installed base and economies of scale have been realized for it. All renewable sources of power generation are nowhere near competitive. What keeps them alive today are subsidies else you’d never hear about them.

I doubt removing taxes on renewables would change the current economics enough to make a big difference. It’d help some but not be a game changer in the near term (next 20 years or so).

How would this proposal differ from a carbon or more broadly GHG tax? True net carbon neutral renewables would be exempt and the more CO2 or broad based GHG intensive would be taxed in proportion to the magnitude of its CO2 or broad GHG emissions.

The effects of such a proposal would lie in the details. The usual critique is that the poor would end up shouldering the tax the most, especially as a percent of income. The usual response is that making it revenue neutral and returning all the monies raised evenly to all consumers would prevent its potentially regressive nature and maintain the competitive incentive on producers to move towards less GHG intensive power generation. Another problem would be that certain regions of the country have much less renewable resource potential than others.

How much it would effect behaviors would of course depend on how high the tax is and how responsive behavior is to changes in cost.

You simply won’t be able to keep the total amount of revenue constant, if that’s what you’re thinking. Once the cost of nonrenewable energy climbed high enough, it’ll reach a tipping point where most people stop using it, so to keep revenues up you have to raise the tax even more, so most of those who are left stop, and so on, until very quickly you’d have nobody at all using them, and so no energy tax at all coming in. This is fine, of course, if you consider the lost revenue an acceptable price to pay for supporting renewable energy.

You would hurt the poorer and lower classes the hardest.

However the cost of renewable energy is not a constant. We have a long way to go with solar cell technology, for instance, and there are a bunch of Silicon Valley startups around this. The biggest danger is that the Chinese, who are pushing this, will capture the market.

I suspect the cost of extracting traditional energy sources is pretty well fixed, since those industries are pretty mature.

For example, we get a lot of sun where I live. The incentives has meant that we have a company which basically rents solar cells to you. They install them on your roof for free, and you sign a contract paying them every month, at least partially funded by the decrease in your electric bill. Cheaper solar cells will make this a going proposition for a lot more people. I’d do it if I were going to stick around here for 10 years, so I haven’t checked the math.

I don’t quite understand why you put a maybe there. Making more money will always change the equation for whether you build another power plant. It may not change the result, since it is binary, but it will change the equation.

You will be paying EXACTLY the same. This will not affect the consumer, only the provider. It’s a zero sum game.

But the external costs of coal, such as pollution and climate change are expensive, expensive, expensive.

Here we don’t have coal power. We have mainly nuclear and water power (about the same of each), and energy is cheaper here than the rest of the EU.

You offer no argument here so it’s kind of discuss it. Could you explain why you think that making one thing a lot more profitable than the other while systematically making the other progressively less profitable would not make a big difference? This would be a game changer.

I’m not really interested in discussing an option even if it seems like a good one, I started this thread to discuss the results of one specific option.

This is cost neutral to the consumer.

You don’t have a national power grid? Regions with lower potential would take longer to reach 100% renewable energy. It may never get there, it will only get exactly as far as it can get without subsidies.

The tax is self regulating. Here’s how you calculate it:

Say 99% of your energy is non-renewable right now, they would now share the 1% cost that the renewable energy providers previously paid. So that 1 is shared among the 99. Meaning everyone providing non-renewable energy gets 1/99 extra cost. Which is about 1% increase for coal power, 100% tax break for wind power.

A few years later renewable makes up 10%. Now the 90% have to split 10% cost between them. So they get 1/9 added. Which is about 11%. So they now pay 111% compared to what they did earlier.

At 30% renewable, non-renewable now pays 3/7, ie 143%.

At 50% renewable, it’s up to 200% (double) compared to when we started.

Once renewable grows bigger than its counterpart, the cost for coal power really takes off since the increase is superlinear. At 70% renewable energy the remaining 30% would have to share 7/3 of the cost. That’s 333% compared to the original. Once the last non-renewables converts, renewable energy will be taxed the same as non-renewable was when the whole scheme started. So it will be revenue neutral all the way. Government gets no more or less money. Consumers pay no more or less money. The switch to renewable energy is made exactly as fast as the market can support it. I think.

The slowest/worst companies will die, the quickest/best ones will profit the most at their expense. Sounds like optimal use of capitalism to me.

Once there is no non-renewable energy left, the tax exemption expires. This will be made clear from the get go. So the rational thing is to make sure you will make money once it goes anway. That means building as energy efficiently as possible, and that re-investing ALL your profits into development and investment is the most rational choice. The stockholders will demand re-investment rather than dividends.