French President Macron last week scrapped his carbon fuel tax, which was designed to reduce carbon emissions and slow climate change. One million French environmentalists and others rioted against the tax. In environmentally friendly Washington State, voters twice rejected a carbon tax suggesting that even environmentalists want a less transparent solution to climate change: specifically, one that hides the costs and taxes someone else.
French and Americans prefer energy taxes to be hidden by subsidies, and managed by government enterprises. The latest U.S. Department of Energy data from 2016 show that electricity producers in the U.S. received $15 billion in subsidies with approximately $6.7 billion going to renewable energy. Thus, despite accounting for only 17% of electricity production, renewable electricity producers received almost 45% of subsidies.
Even with the subsidies, renewable electricity costs per megawatt hour (MWH) of production, including plant and equipment costs, greatly exceeds that of more conventional methods of generation. For example, relative to nuclear electricity production, costs per MWH for wind was five times that of nuclear, and solar was six times that of nuclear. But instead of producing more electricity with carbon free and cheaper nuclear, the U.S. has embarked on closing nuclear facilities, and expanding wind and solar.
The higher cost of electricity due, in part, to the contraction of cheaper conventional and opening of more expensive renewable has been differentially borne by low income Americans.
In 2016, U.S. income earners in the lowest 20% paid 34.2% of their income for utilities and fuel, while the top 20% of U.S. income earners spent only 2.8% of their income on utilities and fuel. Similarly, between 2013 and 2016, the share of income spent on utilities declined for high income Americans, but expanded rapidly for the lowest 20%.
In terms of efficiency and transparency, federal, state and local governments should implement a carbon tax that allows consumers and business, not government, to decide how to allocate scarce resources. Rebates could then be issued to families with lower incomes that are disproportionately harmed by the carbon tax.
French President Macron was finally on the right side of an issue, but the French public, like the American public, wish to ignore a market-based, transparent solution.