The Economics and Politics of a Variable, Price-Smoothing Energy Tax

Oil is down again. The price of Brent crude, which moves US gasoline prices, is below $100 a barrel
for the first time (save a single month) in five years.

Why am I not celebrating? No, I don’t own a portfolio of oil stocks. Instead, I am afraid that the recent fall in world oil prices may mean that we have missed our best chance for a better energy policy.

What would a better energy policy look like?

A better energy policy, as I have explained many times before, would be one that required people to pay the full costs of the energy they use. That would include not only costs of production, but also the external costs arising from harmful spillover effects. By and large, energy users in the United States now pay only costs of extraction, processing of fossil fuels, and generating of electricity. The result is that they use energy wastefully, pushing their consumption beyond the point where the benefits from using an additional unit fall below its full costs. (For details, see the links at the end of this post.)

And no, the full-cost argument is not just about climate change. Personally, I think there is a strong argument for counting climate change among the spillover effects of fossil fuel use, but if you are a skeptic, there are plenty of other, very tangible external costs to consider. >>Read more

Follow this link to view or download a slideshow on the economics of a price-smoothing oil tax