On June 25, 2003, the United States and the European Union agreed to collaborate on the acceleration of the development of the Hydrogen Economy. Billions of dollars were earmarked for development of the use of hydrogen in transport and for applications such as lighting, heating, cooling, and cooking.
That is now almost five years ago. Why hasn't the Hydrogen Economy eventuated? What went wrong? The answer is that ineffective policy instruments were chosen to facilitate things. Taxpayers money ended up with companies that used it to parade showcase concept cars never meant to end up with consumers. Consumers paid the taxes to finance such programs, while bureaucrats and selected companies feasted on administering the programs and consuming the money. Sadly, such programs were only creating an illusion that things were changing.
Let's compare such a combination of taxes and subsidies on the one hand with FeeBate policies on the other hand. Today, we can still see governments subsidizing hydrogen development. As an example, the Japanese government has earmarked $309 million a year support for fuel cell development, as part of plans to have 10 million homes — about one-fourth of Japanese households — powered by fuel cells by 2020. Similarly, European governments have agreed to spend $731 million developing fuel cells and hydrogen technology for cars.
At the same time, many governments impose taxes on cars and on gasoline that are a lot higher than what's common in the US. In conclusion, many governments do impose fees on cars and on fossil fuel, while they also support alternative energy and development of hydrogen. Thus, a mere 10% fee on fossil fuel and on gasoline cars in the US would be less than the extra taxes that people in Europe and Japan pay for gasoline and cars.
Yet, I am convinced that this mere 10% fee on both cars and fossil fuel, as part of two Feebate policies, will be more effective. Feebates are so effective, as they discourage less desirable activities, while encouraging better alternatives. In doing so, feebates send out a clear signal to both consumers and investors that it makes financial sense to make the shift. The fees will create a pool of money big enough for the better alternative to take off. As a result, both consumer actions and investor confidence will back up commercial initiatives. People will recognize the alternative industries as good job and business opportunities. On top of the reduction in prices facilitated by the feebate policy, economies of scale will over time further reduce the price of products.
The problem with the current policy is that it leaves it up to politicians to decide on support and subsidies. This invites vested interests (i.e. fossil fuel) to spend huge amounts of time, effort and money on lobbying with politicians. As a result, clean cars and alternative energy industries have to compete with huge subsidies and support given to fossil fuel, nuclear energy and existing car manufacturers. Where clean and safe alternatives do get some subsidies, it's typically given on a temporary basis, with strings attached and for specific technologies only, while administrators keep changing conditions as they please.
By contrast, feebates send out a clear signal to both consumers and investors that it makes sense to shift away from fossil fuel to clean and safe energy and cars. Feebates articulate the determination of all the voters who want a specific shift.
As Amory Lovins puts it: The U.S. wind industry has been crashed at least three times, quite deliberately, by Congress messing with the tax credits from year to year and in a stop-and-go fashion. You can't run an industry that way and develop the capacity and the jobs. That's why we import most of our wind turbines.
Similarly, solar thermal power plants have been sabotaged by Republicans in the past. In 1991, Governor Deukmejian vetoed the property tax exemption bill passed by both houses of the Legislature which applied to companies building thermal solar plants in California. This exemption was focused towards the SEGS (Solar Electric Generating Stations) plants built by Luz Limited International (LUZ) in the late 1980s. The veto resulted in the bankruptcy of LUZ and a worldwide halt in the construction of solar thermal power plants for fifteen years.
With a FeeBate policy, investors can be confident that there is a growing pool of money that will go towards rebates. While any policy can be sabotaged by politicians, a feebate policy minimizes the risk of nurturing a government bureaucracy that feeds on tax revenues and wastes money by favoratism and nepotism. The risk is not just that the money gets wasted. Additionally, such a bureaucracy will consume ever larger parts of the proceeds and will seek ways to maximize the proceeds, e.g. by giving undeserved support to the industries that generate the proceeds, thus making the policy counter-productive.
Feebates set a clear direction, while minimizing the risk of political favoratism. Feebates can optimize consumer choice and market mechanisms, by leaving it largely open who qualifies for rebates. In the case of a greenhouse gas feebate policies, fees can be imposed on what causes emissions, while rebates can be allocated using simple and straightforward criteria, such as to insist that facilities must be clean and safe.
This will also ensure that funding is allocated according to what makes most economic sense in a given area. A feebate policy becomes most effective by using the proceeds of fees to fund local alternatives in that very area, ensuring that most money is used where change is needed most.
In conclusion, the best way to facilitate the Hydrogen Economy is by means of a framework of feebates, each tailored to achieve a specific change away from activities that cause emissions of greenhouse gases, towards better alternatives.
References:
Cooperation on the Development of a Hydrogen Economy - Press Release, The White House
http://www.whitehouse.gov/news/releases/2003/06/20030625-6.html
Fuel cells in the home? Japan is big on idea - MSNBC
http://www.msnbc.msn.com/id/23451723
Europe ponies up for fuel cell, hydrogen cars - MSNBC
http://www.msnbc.msn.com/id/24892118/
Power Q&A: Amory Lovins - Interview in Mother Jones
http://www.motherjones.com/interview/2008/05/interview-let-the-little-guys-play.html
George Deukmejian - Wikipedia
http://en.wikipedia.org/wiki/George_Deukmejian
A Framework of Feebate - by Sam Carana
http://www.gather.com/viewArticle.jsp?articleId=281474977277617&grpId=3659174697251134
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Comments: 16
The feebate system sounds very feasible and you make a good case for it.
And thanks for posting to "News, Politics and the Economy."
Ed: "Are there places where Feebates are being effectively utilized now? Are there active feebate initiatives in progress?"
Canada has an excise tax on imported vehicles starting at $1000 for vehicles using 13 or more liters per 100 km, rising to $4,000 for vehicles using 16 or more liters per 100 km. Canada also gives rebates ranging from $1,000 to $2,000 on sales of more fuel-efficient vehicles.
In the US, a feebate (Bill AB 493) has been proposed in California in both 2007 and 2008, which - if passed - would link fees and rebates even more closely. For decades, there have been proposals to enact some form of fuel efficiency or feebate legislation in efforts to reduce vehicle emissions. Detroit and Big Oil typically finance campaigns against such proposals, while the Bush administration (ab)uses the EPA and presidential veto to overrule such legislation.
Ed: "In order for people to take this seriously on a larger scale, they would need to see it functioning, know the decisions made are transparent, with tax levied fairly and rebates made equitably. Nobody wants to go first without serious momentum."
It works well in Canada. My preference is for a 10% fee on gasoline cars, funding rebates on zero emission cars. Thus, the cheaper the car, the less tax. Taking decisions on fees and rebates locally - as I propose - will help to make things fair.
Ed: "No matter how good the principle, we are talking about human beings who dislike change and distrust government, taxes and committees."
As the article explains, an emissions feebate policy minimizes government bureaucracy and is the most effective way to achieve a reduction in emission.
Ed: "And of course, there will always be arguments about what deserves tax and what deserves rebates, no matter how solid the science."
Sure, and - as said - the decision on this should as much as possible be taken locally.
As I wrote further, electric cars in the UK are exempt from the London congestion charge and exempt from road tax. The UK has sliding scale levels of road tax corresponding to the CO2 emitted by cars, set to increase to £950 in the 2008 budget on the most polluting cars. Electric car owners can get free parking in many London locations and they can be recharged from a growing number of public charge points around London. As a company car, electric cars allow companies 100% corporation tax write-down in the first year.
France has a system called Eco-pastille, which sets a 'break-even' point at around 130g/km of CO2. Buy a car that emits this level of CO2 and you pay 0 extra carte-gris charge compared to last year. But buy a car that emits more, and you now pay up to 2600 euros more on a Band G (250g/km) car. However, if you buy a car that emits less than 130 g/km of CO2, the French Government actually starts to pay you back. So buy a 'voiture electrique' (electric car) and they give you a 5000 euros rebate.
In a comment there, I also described how Ron Erb's brother-in-law had a Ford Ranger that had just stopped running, but the body was still in good condition. Ron converted the truck into an electric vehicle for $7,700. A rebate program offered by the state of Illinois, called Green Fleets, gives rebates of up to 80% of the conversion cost up to $4,000. So it looks like he's got an electric vehicle for about $3,500. Furthermore, he may have tax advantages and he'll make savings on the cost of driving and on maintenance, so he'll practically have a good, clean truck for free. Also, there are employers who give financial assistance to staff purchases of or conversion to electric cars. I can imagine that companies can get tax deductions for expenses on cars, as well as on opportunities for staff to recharge cars at the office.
In conclusion, there are many ways in which governments can and do support cleaner cars. Over the next eight years and starting this financial year, Japan Post phase out its current fleet of about 22,000 lightfreight vehicles that are used to deliver mail and about 1,000 passenger cars that are used for business purposes, to replace them by electric vehicles. Last year, France's La Post began testing electric-powered mail-delivery vans as part of a five-year plan to replace most of its 48,000 vehicles with electric vehicles. One of the winners will be Nissan, Japan's third-biggest automaker, which is owned 44% by Renault. Nissan/Renault will also supply electric cars in Israel, where the government plans to offer tax incentives to get the electric car industry established there.
My point is that feebates are the most effective way to reduce emissions. Efforts to implement feebates in the US date back to the early 1990s, but they were blocked by the Bush administration.
Renault/Nissan will introduce electric cars in Israel, as part of Project Better Place. Israel has a 72% import tax on normal cars, but just 12% on electric cars. Renault/Nissan announced they will launch a pure battery/electric vehicle in California in 2010.
http://www.telegraph.co.uk/motoring/main.jhtml?xml=/motoring/2008/05/10/mnlekkie110.xml
Meanwhile, oil prices continue to climb, to above $139 a barrel.
http://timesofindia.indiatimes.com/Oil_prices_break_record_surge_to_139_a_barrel/articleshow/3108567.cms
With its stock approaching a 26-year low, GM announced that:
- the Volt will be for sale with dealers at the end of 2010
- GM is looking at selling its Hummer brand
- GM will close four truck plants
- there's board approval to fund the Colt, GM's extended-range electric vehicle.
http://news.cnet.com/8301-10787_3-9958406-60.html
Toyota has announced the FCHV-adv, a Fuel Cell Hybrid Vehicle, powered by hydrogen and electricity, that can travel more than twice the distance of its predecessor model without filling up. It will be available for leasing in Japan later this year. Maximum cruising range is 516 miles (830 kilometers) and it can start and run in temperatures as low as minus 22 degrees Fahrenheit (minus 30 Celsius).
http://ap.google.com/article/ALeqM5gEfH9poSJfZRQKYLYOLSuaDopuZQD914FR3O2
Toyota plans to make a Camry Hybrid later this year in Thailand and in 2010 in Australia, using existing production lines for its standard Camry model there. Australia has allocated A$500 million towards development of low-emissions vehicles. Critics point out that Australia still imposes all kinds of tax on clean cars, such as a 10% import tax on a Lexus hybrid, while imported 4WDs attract only 5% tax. Furthermore, A Lexus will attract a 10% GST (sales) tax and state stamp duties of up to 6.5%.
http://afp.google.com/article/ALeqM5g9k5S83LruyaxAofOFB6p24EnSug
http://www.reuters.com/article/rbssConsumerGoodsAndRetailNews/idUST27010420080607
http://www.theaustralian.news.com.au/story/0,25197,23824339-5010800,00.html
In the UK, road tax for owners of cars emitting more than 255g of CO2/km will be £425 ($865) per year in 2009 and up to £950 ($1,934) per year in 2010 onwards. Currently, vehicles that emit more than 225g/km pay the maximum tax of £300 ($610) a year. On the other hand, cars that emit less than 130g of CO2/km would be exempt from the annual road tax. In the Netherlands the biggest polluters are charged up to €1,600 ($2,494).
http://www.motorauthority.com/news/news/uk-looking-to-triple-taxes-on-high-polluting-cars/
Good point, Debra, while the political will is still lacking, there's no lack of clean and safe alternatives. A new congress and president can be expected to act more responsibly, and it's important that the most effective policies are chosen. As you know, I advocate a number of feebates that would benefit hydrogen.
One feebate that I advocate imposes fees on fossil fuel and uses the proceeds to fund local rebates on safe and clean energy. When rebates are given on both the generation and storage of clean and safe energy, wind turbines and hydrogen can both benefit. Wind energy is already quite competitive and combines well with hydrogen -- since much wind energy is produced at night when demand for electricity is low, much of the energy could be turned into hydrogen.
Another feebate I advocate imposes fees on gasoline cars, with proceeds used to fund local rebates on zero emission cars. Such a policy can also be applied to larger vehicles, such as trucks and buses, as well as ships and airplanes. The proceeds could be used to fund rebates on fuel cells, electrolyzers, hydrogen storage tanks and hydrogen filling stations, which will boost R&D into ways to store hydrogen, such as in the form of compressed gas, in liquid form or in metal hydrides.
Finally, I advocate a feebate that imposes fees on polluting fertilizers and that uses the proceeds to fund rebates on AgriChar, which increases soil fertility and is produced by burning biowaste in oxygen-starved ovens (pyrolysis). In the process, hydrogen can be produced -- this could be boosted by such a feebate.
"You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time."
Abraham Lincoln, (attributed)
16th president of US (1809 - 1865)
http://gristmill.grist.org/story/2008/7/1/224846/2307