Transcript Power Point Presentation

Green Taxes that Save People Money
David C. Denkenberger
Green Engineering
April 16, 2001
Contents
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Introduction
The future cost tax concept
Quantative example
Worker retraining
Reducing income taxes
Implications
What People Buy
• Products that pay back in less than 2 years
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Imperfect information (bounded rationality)
Sticker shock
Distrust of advertising claims
Buying on credit
Future use uncertain
Future electricity price uncertain
Bad reputation from earlier products
Irrationality
Economics Literature Search
• EconLit (economics database in LIAS)
• (((imperfect or assymetr*) and information)
or irrational* or (not and rational*) or
(bound* and rational*)) and (tax* or
subsid* or permit* or rebat*)
• Nothing relevant
Environmental Literature
• NRDC
• Rebates for efficient appliances from
electric utilities
• Only profitable to utility if it reduces peak
demand significantly (small participation)
• Bold efficiency targets (uninformed)
Supply and Demand
Price
Tax
Supply
Demand
Actual benefit
Qopt Qeq
Quantity
The Future Cost Tax Concept
• Make the perceived cost = actual cost
– Tax visible purchases to reach hidden costs
– Tax maintenance costs to encourage a new
efficient model purchase
– Tax product purchase price representing future
maintenance costs, e.g., energy
– Tax product purchase price representing future
product purchase costs: buying the product
again
Future Cost Tax Example
• Assume social cost = personal cost =
$1.50/gal
• Hidden costs (depreciation, etc) = $1.50/gal
• Need a cost of $4.50 to convince people to
get rid of old inefficient cars
• Average = $3.75
Future Cost Tax Example
• People consider one half of future costs
• Benchmark: 150,000 miles, 40 mpg, $30,000
– Societal cost = $44,060; “sting” = $37,000
• Reference: 100,000 miles, 25 mpg, $20,000
– Societal cost = $52,500; “sting” = $36,250
• Tax each vehicle to equalize gasoline sting
and societal cost in each vehicle’s life
• Tax short-lived representing future purchase
cost of that same vehicle
Other Markets
• Don’t pay electric bills for each appliance
– Don’t know efficiency
– Electric bill not more visible than depreciation
• “Simple” energy and purchase cost taxes
• Subsidy for products longer lived than
benchmark
– Saved benchmark purchases
– Saved energy if more efficient than benchmark
Benchmark
• Industry can make a roadmap, so taxes
don’t have to be adjusted every time the
benchmark changes
• The roadmap can be adjusted periodically
• Companies have a clear incentive to do
better than the benchmark
Reducing Income Taxes
• Estimate, then statistically determine tax
paid by each income group, and business
size
• Reduce withholding tax simultaneously
with tax introduction
• Taxes will be phased in to allow industry
and consumers to respond
Worker Retraining
• Campaign finance reform required
• Industry estimates required incentives for:
workers retrained = workers laid off
• Penalties for erroneous estimates
• Funded by benefiting industries?
How Much Saved?
• NRDC studied possible saved energy for
cost-effective technologies
• Capital mobility
• Assumed constant cost of efficient products
• 32% reduction in energy use compared to
reference case
• $1.8 trillion saved in 40 years!
How Much Taxes?
• $2.6 trillion on energy per year
• Tax so that if the taxes were avoided,
everyone would use the best technology
• Some taxes even on benchmarks
• Lag in industry and individuals => might
pay 1/3 of avoidable taxes
• ~ $400 billion per year ~ ¼ current gov’t
spending
• Greater because of future purchase taxes
Implications
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~ 30% reduced energy consumption
Lower resource use
~ $1.8 trillion saved
Reduced income and capital gains taxes
– Poor won’t pay any => less collection costs
• Reduced trade deficit
Acknowledgements
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Joe Geddes
Dr. Lakhtakia
Andy Lau
John Wheatley
Dr. Nelson
Questions?