This interview by James Stafford was first published by Oilprice.com March 18, 2014
energy policies seem to be elusive. The US policy disappoints
environmentalists and industry alike; Europe’s policy is economically
disastrous but is getting people to change their habits; and
developing-country subsidies aren’t helping the people they’re supposed
At a point in time when even the Chinese are having
second thoughts about the balance they have struck between pollution and
growth, the United States should be concerned about how much it’s
willing to give up environmentally to remain competitive with energy.
But there are ways to balance out this equation without further harming
the environment or the economy, according to economist Ed Dolan.
it comes to talk of fossil fuel prices and carbon taxes, are we stuck
in a place that makes us choose between protecting the environment and
protecting the poor?
not. As you know, I have long advocated using the language of the
market—prices—to communicate the message that we need to strike a better
balance between environmental policy and energy policy. So yes, I would
like to see higher energy prices than we have now, and yes, other
things being equal, that would pinch everyone in the budget, including
the poor. But, as I explained in a blog post
a couple of years ago, there are persuasive reasons not to use energy policy to help the poor.
biggest reason is that holding down energy prices is an inefficient way
to help the poor. Most of the benefit of low energy prices goes to
families with higher incomes. People in the lower half of the income
distribution use only about 30% of total energy, and those truly in
poverty only about 15%. If we try to use low energy prices as
anti-poverty policy, 85 cents out of every dollar it costs us misses the
If we want to help the poor, we need to do something more targeted. My favorite policy would be a universal basic income
of some kind. A UBI would provide a decent floor on a family’s standard
of living without taking away their incentive to work, as many of our
current poverty programs do. Once you have the safety net in place, then
it makes sense to use higher energy prices to give the poor, as well as
the rich, an incentive to turn down their thermostats, take the bus
when they can instead of driving, and so on.
How do fuel subsidies fit into this equation?
Fortunately, in the United States, we don’t have much by way of
absolute fuel subsidies. However, many emerging market countries,
including Indonesia, Venezuela, Egypt and Iraq, spend huge amounts on
fuel subsidies, nearly 10% of GDP in the case of Iraq. I wrote a piece
last year explaining why these subsidies don’t help the poor much. The
IMF calculates that for gasoline, some 60% of the benefit goes to
families in the top 20% of the income distribution. Instead, they
actually hurt the poor because the subsidies drain budgets of money that
could otherwise be used for investments in education, public health,
and infrastructure, which the poor need more of. >>>Read more