Tax the Coal and Subsidize the Solar?

Jeffrey Sachs has written an article being a proposal for an alternative to cap and trade (i.e., emissions trading). For I just recommended a blog entry about the probable failure of a global cap-and-trade system, it is an idea worth considering.

The solution proposed by Sachs is fairly straightforward – for until now the most successful method of promoting the development and adoption of renewable energy generation seems to be the feed-in tariffs, common especially in European countries, it is a good idea to combine them with a coal tax. Since coal is the most problematic and widespread source of electricity generation (it is very cheap, unless you consider the extern costs, i.e. mainly the carbon emissions caused by its combustion), it would be a good idea to tax it anyway. And because subsidies especially for solar energy generation are high (for the time being, photovoltaic isn’t profitable on its own) – why not combine the two. At the moment, coal isn’t taxed, so the State in countries with feed-in tariffs must provide additional funds to finance them – and thus it cannot use these funds elsewhere. But with the coal appropriately taxed, the whole thing would become financially “neutral”.

Of course, this isn’t a way to solve the whole problem of global warming, not even of the carbon emissions in the electricity generation sector only. But maybe it is another step forward. To quote Sachs:

There really are effective long-term solutions to manmade climate change that are politically acceptable and feasible to implement. It is time to embrace them.



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