Of Thoroughbreds and Clunkers

Is it possible to design policies that simultaneously reduce carbon emissions and stimulate the economy?

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This past week saw the Australian Federal opposition led by Malcolm Turnbull and independent senator Nick Xenophon unveil a controversial alternate emissions trading scheme in a bid to outflank the Labor government in terms of its "green" credentials while at the same time shoring up its support from emitters in paticular the Minerals Council of Australia by limiting the effects the scheme would have on energy generators.

VIDEO: Opposition carbon plan

The minister for climate change Penny Wong quickly dismissed the proposal as a “mongrel” of a scheme while another minister and former union leader Greg Combet suggested that it sounded too good to be true. The Business Council of Austalia through Heather Ridout assailed it for passing the cost on to consumers and industry. The scheme it was said suffered from MPS or Magic Pudding Syndrome. The question is, are such schemes truly unworkable? Is it truly unrealistic to envisage something that reduces emissions and at the same time stimulates the economy?

Meanwhile in the US, the “cash for clunkers” program which saw many motorists trading in their old gas guzzling vehicles for cash as part of the American stimulus package got an additional appropriation of $2 billion from the US Congress as the original allotment of one billion was quickly exhausted in less than a week.

As made evident by its popularity such schemes are often unsustainable because they quickly run out of funds. The unfortunate thing was that the US government had to resort to deficit spending in order to finance it. But what if its financing came instead from another source? Such a question has been answered by Todd BenDor who modelled a workable system of Feebates, or rebates offered to retire old and undesirable vehicles (or to purchase fuel efficient ones) which are in turn funded by fees charged on fuel inefficient models.

BenDor's modelling shows that such a program would be sustainable and lead to immediate and long term reductions in vehicle emmissions. Much like the “sin taxes” imposed on tobacco and alcohol products and used to fund public health programs, this type of redistribution for the benefit of the environment is yet to be explored. There are other possible policies that can be designed with similar features. Can you think any? Post your ideas and comments here (scroll down to the bottom of the screen).

image credit: http://www.flickr.com/photos/threadedthoughts/3808715790/