Dick Cheney was right

Back in 2001, when California was reeling from electricity shortages (later found to be artificially created by Enron), Dick Cheney (the vice-president of USA) made a comment:

"Conservation may be a sign of personal virtue, but it is not a sufficient basis all by itself for sound, comprehensive energy policy"

Many people, including me, were aghast that at a time of severe electricity crunch, the VP would not encourage people to reduce their consumption! The single largest economy within USA was being damaged by the electricity shortages and something had to be done and Dick Cheney, rather than leading the charge, was saying that conservation was not good enough. Well, when Californians dropped their electricity consumption by 12%, I felt vindicated. We had shown the oil-oriented bad guys that we could conserve!

7 years later, I would like to, in public, change my mind. Yes, you read it right. I am going to reparse the phrase above and come up with a whole new interpretation of what Dick Cheney was saying (or at least trying to).

Dick Cheney is a capitalist at heart. While he sees a small segment of society changing its habits solely to save the environment (my view: 10 - 20%), he doesn't see the larger society doing more to conserve unless there is something in it for them. Why do people switch from incandescent bulbs (the Thomas Edison kind) to the compact fluorescent ones that are the rage today? To save X tons of carbon dioxide? No! To prevent global warming? No! To save money on the monthly electricity bill.

This behavior can be seen all over the place. When people decide to use more energy efficient lights, carpool to work or replace single-pane windows with double-pane windows, they might be thinking about the environment but what propels them to actually take action is money. We are, after all, a capitalist society. Doing good for others is a good motivator but doing good for oneself is even better.

So, how should our society behave when it comes to energy consumption and environmental protection? While Dick Cheney may not admit it (due to political realities), I think that he feels that most efficient and effective way to reduce energy consumption without damaging the economy is to place an explicit tax on energy and channel the generated revenue towards rewarding energy-efficient behavior.

Why? Why not simply ban poor mileage cars and force people to install double-pane windows and turn down the thermostat in winter? Well, for one thing, such heavy-handed approaches do not work. Even when they do, the efficacy is not as good as a market-based approach would.

Take the case of sulfur oxide emissions. For years, the federal government tried to force coal-fired plants to install scrubbers (essentially giant gas cleaners) to reduce sulfur oxide emissions that was causing acid rain. All the plant owners balked at the requirement and applied immense pressure on the US government from implementing such a requirement. Finally, a cap-and-trade setup was created and guess what? All of a sudden, an entire industry sprung up around reducing sulfur oxide emissions cheaply.

Similarly, it is politically impossible to push for higher fuel efficiencies for cars. But look at the market. As gasoline has gone from $1/gallon to $3/gallon, the demand for higher efficiency cars has shot up. Imagine if the federal government instituted a $1/gallon tax that was funneled into better and cheaper public transportation. All of a sudden, taking the bus or train or tram would become that much more attractive to the general public. People would seek out carpool matching services. Traffic on the roads would ease and with it local pollution. Our economy would reward energy-efficiency more than it does now and so innovations in the field of improving energy-efficiency (be it for cars, homes, manufacturing processes etc.) would get an economic jump-start.

I am not saying that such a tax can (or should) be imposed overnight but imagine a 20 cent increase every year for 5 years. Dick Cheney would like that...

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