Rationalization of the Work Week - a Credible Climate Change Policy
Rationalization of the Work Week - a Credible Climate Change Policy
GangaPrasad Rao
Energy, Environmental and Mineral Economist
gprao64.blogspot.com; gprasadrao.blogspot.com
Evernote: gprao
Introduction
The global Nominal economy, despite all the hype about Green Energy combating Climate Change, continues to chug away toward a climate disaster, taking little note of the expanding consumption of carbon-intensive fossil fuel and mineral resources, and it's implications for the sustainability of human society and the animal world in the generations and decades ahead. With nations of the world unabashedly adopting the emissions-intensive, nominal per-capita paradigm of consumption-based growth, and capital markets continuing to support expansion of primary fossil-fuel exploration over responsible recycling, the likelihood of interrupting the nearly unbroken, 100 year record of rising CO2 ambient concentrations seems decidedly bleak. A continued rise in ambient CO2 concentrations from the current levels of 408ppm, to 450ppm within the next 2 decades1, could raise sea levels and otherwise spell doom to Earth's environment, and to the less fortunate billions in Humanity. If such predictions seem apocalyptic, consider the fact the rise in ambient CO2 concentrations has paralleled the introduction and expansion of fossil-fueled IC transportation vehicles, and the trend has been reinforced by an alarming growth in worldwide aggregate VMT driven on Fossil-fuels – gasoline and diesel2. VMT growth has its roots in the expansion of Resource/Fossil-fuel constituency-supported Governments and Government-subsidies, participation of the political government and firms in the Nominal economy, expansion of population and vehicle ownership, multi-laning of roads and highways, and the increasing resort to one-way urban roads and divided Highways. Concomitantly, efficiency-related reductions in fuel consumption are negated, even reversed, by price-drop-induced rebound effect, productivity-linked income growth, as well as the expansion of the road network. The import of these economic facts and technological trends is that global fossil-fuel VMT, save policy intervention, is likely to continue growing, and cause vehicular emissions and ambient CO2 concentrations to rise inexorably3. When interpreted in the context of rising emissions from Aviation, Space and Defence sectors, the likelihood of such uncontrolled rise in ambient CO2 concentrations exceeding the Climate Tipping point and triggering sea-level rises and Climate catastrophes is real and tangible.The question that faces policy makers, short of restraining air flight, holding back the Space economy, and dictating terms to the Military, is how to attenuate, even reverse the growth in Fossil fuel VMT worldwide, and stabilize CO2 concentrations4below 'climate criticality'.
The work week, in the context of rising VMT, is a fundamental rhythm of economic activity. Although certain Utility, Emergency and Security services operate on a 24x365 basis, worldwide, Employers enforce a 5/6 days Work-week, and factories longer. This rhythm implies millions of employees commute to work and back home in their personal (fossil-fueled) vehicles. As populations rise, as incomes rise, and politicians expand the Nominal economy to perpetually generate jobs, aggregate commuting-, commercial- and freight-VMT rise, and so does global transportation emissions. It then turns imperative upon us to control vehicular transportation-related emissions as integral to the larger strategy to control aggregate global emissions, lest ambient CO2 concentrations cause temperatures to exceed limitations of the human biological system in the long. This blog focuses upon rationalizing the Work week globally as a strategy to obtain significant and permanent VMT (and fossil fuel emissions) reductions at modest economic cost.
The Rao 3-pronged Strategy
If the focus of the blog is on reduction of VMT globally, then it’d be necessary to seek instruments with as wide a domain. Though taxing fuel at the pump to obtain VMT reductions might seem an expedient answer, such taxes are bitterly contested in Right-infested, nominal-friendly political and government institutions. Besides, the lack of any significant price elasticity implies fuel taxes required to obtain the desired VMT reductions would be large and significant, further reducing its practicability. Capping and Trading Road Vehicle-Miles Traveled, VMT, on the other hand, is a readily feasible solution given an existing physical-, documentary-, and digital infrastructure that may be leveraged to obtain targeted, individual-, jurisdiction-, and vehicle-specific access and control. Hence, this proposal prefers the Road VMT Cap and Trade to any Fuel quota as the preferred instrument to contain GHG emissions. The suggestion is that Government, Non-Government, Business and Corporate entities would, either pro-actively strategize to limit commuting Road VMT as proxied by the length of the Employee Work-week, and as obtained by coordinating location and work-day choices with employees and other Building lessors or, be required to pay an EPS(/Budget)-decrementing (and hence capital market-sensitizing) ‘environmental tax surcharge’ over current rates of business-, or corporate taxes5.
Toward such purpose, consider Environmental taxation of Capital which may be enforced either at the sourcing of investment funds by incrementing the cost of PV funds with intent to internalize the externality by incrementing the threshold ROE required for economic viability, and/or by targeting 'undeserved' returns to nominal unsustainability by imposing environmentally-graduated taxes on EBITDA/Net Earnings prior cognizance of the stock market in EPS statistics. Such overt and formal environmental taxation of EBITDA/Net Earnings prior computation of EPS, and consequent reduction in investments returns from re-pricing firm equity stock, is a less-practiced, but particularly effective instrument to obtain expeditious reaction to policy stimuli within a globally-competitive, 'FV-discounted-to-PV' capital market context. The effectiveness obtains when capital market investors react to current and expected future earnings downgrade by re-pricing the stock price immediately to the extent of reductions in current and future EPS vis-a-vis the universe of other traded stocks, policy-impacted, or otherwise6.
With this intent, and pre-assuming the existence of a 370ppm Cause Bond-sponsored Tradable VMT7Permit system that enforces an involuntary and universal, dynamic, jurisdiction-specific cap on miles traveled8on fossil-fueled vehicles upon all its citizens and businesses, consider a 3-tier Tax-based VMT reduction strategy9upon Businesses (Organizations, Institutions and Government offices) that induces them to re-configure their Work week (in conformity with other leaseholders within the building), and possibly relocate within, or without the jurisdiction, to minimize the impact of the Work-week-cum-Location Tax on costs and profits. Let's then conceive of an over-riding 'enforcer', such as the 370ppm Cause Bond, sponsoring sub-ordinate, albeit complementary programs, such as would be the globally-implemented Jurisdictional Fossil-fuel VMT Cap-and-Trade Permit System. Administrators of the jurisdictional VMT Permit System would require alljurisdictions accept a 3-pronged Tax strategy, revenues from which would support subsidies and refunds in the 'Cap the VMT and Trade'system10. The first of the 3 taxes would target the Climate-change externality-exacerbating role of Nominal Corporates worldwide for enforcing a 5-, or 6-day Work-week, the second permitting Precincts to impose a 'Crowd-out'tax upon Corporates located far from commuting employees, and the third, a 'Building Recalcitrant-Minority Tax'incident upon those leaseholders in the minority who obstruct 'Majority Will' in the matter of deciding Building hours and days that impact upon facility operation and (shared) commercial energy consumption. Together, these 3 taxes would rationalize employer location, work-week and hence, employee commuting, in a manner that obtains substantial (low socio-economic cost) reductions in VMT, fossil motor fuel consumption, Building energy consumption, and CO2 emissions. Let’s examine each in turn.
Consider, in the matter of rationalization of the Work Week, the manipulation of the existing Corporate Tax in jurisdiction j, Tcjmeasured in percentage of Taxable Net Earnings (or, EBIDTA). The 370ppm Cause Bond Administrator, on the advice of the VMT Permit System Administrator, could require Governments worldwide to modify jurisdiction-specific Corporate tax rate to:
Tcj(revised) =Tcj(1+ dj*tsJ)EMRJ, (1)
where 'dj'denotes number of Work days for the particular Business in the jurisdiction, j; tsJ, denotes the Jurisdictional VMT tax surcharge11, and EMR, the 'Energy Mix Ratio', of vehicular transportation energy computed as aggregate consumption of fossil fuels relative renewable sources in jurisdiction, J12. The construct, by inflating corporate taxes non-linearly with the length of the Work Week, and with the imbalance in fossil-fuel consumption, incentivizes capital market-disadvantaged Corporates to either shrink their Work-week, provide or subsidize sustainable transportation, thus contributing to a reduction in fossil fuel VMT within the jurisdiction, or, to a reduction in fossil fuel consumption if it moves to a greener jurisdiction13(See Figure). Consider an example. A Corporate is taxed 15% in a certain jurisdiction A, on its annual net taxable earnings of $100 Billion. Under the proposed modification, with its Corporate office working 5 days a week, ts at 1%, and the jurisdictional 'Energy Mix ratio, EMR' at 10, the Work-week-based, modified Corporate tax rate would compute to 0.15*(1+5*0.01)^10 = 0.15*1.629 = 24.4%. As shown in the Table below, should this Corporate elect to stay in the same jurisdiction, but reduce its Work-week to 3 days, its effective tax rate would fall to 20.16%; should it choose to relocate to a 'greener' jurisdiction, B, with the Energy Mix ratio at 4, its effective tax rate, with ts unchanged, for a 5- and 3-day Work-week would compute to 18.23% and 16.88% (relative 24.4% and 20.16%). This Corporate, hit with an incremental Work-week Tax of $94.4 Million for a 5-day Work Week, would stand to save $42.7 Million merely by switching to a 3-day Work Week, and up to $75 Million for switching to Jurisdiction B and adopting a 3-day Work Week.
Corporate Tax Rates | EMRJ | Work-week Days | |||
| 5 | 4 | 3 | 2 | |
A: 10 | 24.43% | 22.20% | 20.16% | 18.28% | |
Base rate 15%; ts 1% | B: 4 | 18.23% | 17.55% | 16.88% | 16.24% |
TheCorporate, traded in the Capital markets on its current and expected growth in EPS, would seek to reverse the impact of the incremental tax burden on the valuation of its stock in the capital markets, by choosing to either shrink its Work-week to 2, 3 or 4 days, as appropriate to the revenue-importance of its jurisdictional office, or move its office to a greener, lower-tax jurisdiction. The reaction would be graduated by the degree of sectoral competition, as well as competition in the capital market, by employee productivity and wages relative those in other jurisdictional offices, and by various locational, social and economic factors14, and rely critically on flexibility in decision-making afforded by the availability of short- and long-run choices. Whether by inducing a compression of the Work-week, or forcing Corporates to pay an incremental tax that permits the greasing of the VMT Cap and Trade system, the 'Shrink the EPS' ‘environmental taxation of capital returns’ strategy, when enforced on Corporates universally, is likely to obtain significant gains in reducing VMT globally. On the other side of the tax, the Civic Administration of the Jurisdiction, realizing the potential to attract Corporates seeking a lower tax burden, might choose to promulgate, or subsidize environmentally-sustainable transportation policies that lower the 'EMR' and permit Businesses siting within, a tax leg-up in the capital markets. The combination of these tax-, capital market-, and jurisdictional business incentives would induce Corporates and jurisdictional authorities to respond to the 'Tax-the-Net Income' dis-incentive in a manner that significantly reduces Employee- and Corporate VMT even in the short-run, and incentivizes low-carbon, sustainable, public transportation in the long.
Beyond Corporate offices listed in the Capital markets, one must account for private, unlisted firms, Government offices, and other Institutions and Organizations. The logic of a Work-Week tax applies in a less-correlated manner to private, unlisted firms. Though the computation of Work-week taxes would be similar, such firms would have an attenuated incentive to respond early, or significantly, since they would not be in PV-competition with other firms in the capital market. Government offices would adapt to the Work-Week Tax by replacing TcJwith the Social Security Tax rate, SSJ, and apply the resultant rate to their jurisdictional Office Wage and Salary bill. Much like the incremental Corporate Tax, proceeds from the increment to Social Security Taxes would be channeled to the VMT Administrator of the jurisdiction. Governments, with offices in various precincts and jurisdictions, too, would adapt to the Work-week VMT tax by rationalizing their Work-week, moving employees from one office to another, moving offices closer to public transport facilities, or arranging sustainable transportation alternatives. Other public Institutions and Organizations could be taxed at Tcjagainst their annual Budgets. So taxed, they too would react similarly(or, to a degree correlated their difficulty of securing the budget, or raising funds), thus, and on the aggregate, obtaining significant reductions in jurisdictional VMT and fossil fuel consumption, even in the short- to medium-run.
A Precinct Commuting Tax?
The geographical distribution of fossil-fueled, vehicle-owning employees relative their work place is an important consideration in the VMT Cap and Trade system. Typically, Corporates are crowded in the central urban district, and vehicle-based commuting employees spread in the districts/precincts around. If, as is presumed, the workplace is fixed in the short-run, but flexible in the long, it could be advantageous to further levy a Precinct Commuting Tax that obtains local governments revenues to streamline their transportation policies with regional and global imperatives. The Precinct Commuting Tax, imposed concurrently with the Corporate Tax, would require Corporates pay a tax proportional Employee VMT originating in Precincts beyond the one in which the Corporate entity is sited15. Denoting this tax, TP, one could consider a form such as:
TP= C0.5r * ΣKEPVMTK (2)
where EPVMTKdenotes Extra-Precinct Employee VMT from Precinct K, 'r' denotes radius around the Corporate office for which extra-Precinct VMT is excused, and C, a constant to be calibrated across jurisdictions. The tax would be incremental to the Work-week length-based Corporate tax, and levied upon the same base. The formulation encourages employers to seek employee commuting configurations that minimize the Precinct Commuting Tax. Since Employee commuting patterns are frozen in the short-run, the opportunity involves medium- to long-run adjustment of Employer locations and Employee residences. Such re-adjustment could involve either the Employer re-locating closer to Employees, or offering the latter explicit or implicit subsidies for locating in compliance with its Precinct Commuting Tax-dictated geographical siting preferences.
The Building Minority Tax
Finally, it is further necessary to offer an incentive, or force a dis-incentive upon distinct Corporate lessors, with offices in multi-storeyed buildings, to induce them to seek a common Work-week pattern with intention to leverage the Work-week policy and generate positive externalities in the form of reduced Building energy consumption that obtain when such Buildings conserve on energy consumption for common/shared facilities upon synchronized reduction of their employee Work weeks. A random, Building-level synchronization, as opposed to a Precinct-level synchronization, ensures smaller commercial establishments, that seek business from Corporate Lessors and their employees, are not hurt grievously. Consider then, a Building Minority Tax, TBM, imputed within an expression for the revised, conformance-dependent lease rate:
RLR = LR*(1 + TBM)CALYR (3)
where LR denotes the annual lease rate, RLR, the revised lease rate, TBMthe VMT Administrator-imposed tax upon Minority Lessors for obstructing a super-Majority decision as concerns a common Work-week and related synchronized arrangements. CALYR denotes year after the tax proposal is implemented. An exponentially-increasing Minority Tax either induces Corporates to dove-tail and streamline their Work-week at an early date, or move to a different Building within the same, or if apposite with the Precinct tax, another Precinct.
where LR denotes the annual lease rate, RLR, the revised lease rate, TBMthe VMT Administrator-imposed tax upon Minority Lessors for obstructing a super-Majority decision as concerns a common Work-week and related synchronized arrangements. CALYR denotes year after the tax proposal is implemented. An exponentially-increasing Minority Tax either induces Corporates to dove-tail and streamline their Work-week at an early date, or move to a different Building within the same, or if apposite with the Precinct tax, another Precinct.
Every Corporate, Private, Government and Non-Government entity would face these 3 incremental taxes, across Precincts, Nations and Continents. By shrinking the bottom-line relevant to the Capital market, enlarging the Salary Bill, tightening the Budget constraint, or ceding a lease premium not paid by co-lessors, these taxes incentivize reaction appropriate to intent of reducing VMT and fossil fuel consumption. Such reactions take the form of a) rationalization of the Work-week, b) either re-locating the office, subscribing to sustainable modes of transportation, or offering co-locating incentives to employees, and c) participating in a consensually-chosen, synchronized Work-week with other Building Lessors.
Recycling Tax Revenues: The 2-way Tug of War !
The universal and comprehensive nature of the Work-week Tax implies jurisdictional VMT Administrators would manage significant resources – resources necessary to resolve the various issues that extend from the incidence of distribution of tax revenues offered as inducements and subsidies between parties to VMT Permit trades, to the resolution of pecuniary losses suffered by commercial establishments that serve policy-targeted jurisdictions. The strategy adopted here, involves dynamically varying the partitioning of Work-week Tax revenues, REVWWTAXbetween, on one hand, VMT Permit Traders, PERMITRDR, and on the other, permanent and mobile Commercial establishments, COMEST, in the jurisdiction. This ZS-allocation is conceived as a 2-tier process. In the 1sttier, the time-varying share of revenues from the 3-pronged tax directed at subsidizing participants in the VMT Permit system, SPRMTRD, tin the opposite of the REVWWTAXrevenues directed at Commercial establishments in the jurisdiction, SCOMEST, twould be determined by multiple factors including the number of Work-week Days, DAYS, median salary of commuting employees in the jurisdiction, SLRY, Small Business Tax rate, TSB, Commercial rental rates, RENT, and the price of Gasoline, PGAS). That is,
REVPRMTRD= SPRMTRD, t* REVWWTAXt (4a)
REVCOMEST= SCOMEST, t* REVWWTAXt (4b)
Clearly, SPRMTRD, t+ SCOMEST, t= 1
These 1sttier shares could be empirically determined as:
SPRMTRD, t/ SCOMEST, t = SPRMTRD, t/ (1- SPRMTRD,t) = f(DAYS, SLRY, TSB, RENT, PGAS) (5)
This expression, upon estimation or calibration, would obtain optimal, time-varying shares of revenues from the Work-week tax that would be channeled to the Permit trade system, and in its opposite, impacted permanent and mobile commercial establishments in the jurisdiction. Thus, and should the Precinct favor 4 or 5 day Work-week, a larger share of the Work-week Tax revenues would be channeled the VMT Permit Administrator for further allocation as subsidies favoring VMT Permit traders; conversely, should white collar salary, small business space rental rates, or the price of gas rise, more of the 3-pronged Work-week Tax revenues would be channeled to impacted Commercial establishments in the jurisdiction.
Post the allocation of revenues from the 3-pronged tax between VMT Cap ‘n Trade participants and Commercial Establishments, allocations from the 1sttier would be further apportioned in the 2ndtier between, on one hand, the Buyer (VMTBYR) and the Seller of VMT Permits (VMTSLR), and on the other, between the Permanent (PRMCOMEST) and Mobile Commercial (MOBCOM) Establishments. This apportionnement would obtain from estimating, or calibrating a logistic expression in shares. Thus,
SVMTBYR/SVMTSLR= SVMTBYR/(1-SVMTBYR) = g1(PVMTPRMT, PERINCGAP, FLEETEFF,...) (6)
where SVMTBYR is the share of REVPRMTRDissued to the Permit Buyer Group as ‘ex ante’ subsidies for their permit purchase, and SVMTSLR, the share channeled to the VMT Permit Seller Group as ‘ex-post’ subsidies. These shares would vary by the trading price of VMT Permits, PVMTPRMT, the gap between the 66%ile and the 33%ile Per-capita income (of fossil-fuel vehicle commuting employees) for the jurisdiction, PERINCGAP, as well as Fossil-fuel Fleet average Fuel economy, FLEETEFF.
Conversely, the share of revenues channeled Commercial establishments, SPRMCOMEST, that is further allocated to Permanent and Mobile establishments, could be estimated from the following expression:
SPRMCOMEST/SMOBCOM= SPRMCOMEST/(1-SPRMCOMEST) = g2(MINWAGE, TSB, RENT, PGAS, ……) (7)
The share of REVCOMEST that accrue Permanent and Mobile establishments would vary with such variables as Minimum wages, MINWAGE, Tax on Small Business, TSB, Realty rental rates, RENT, the price of gasoline, PGAS, and other jurisdiction-specific relevant factors. Thus, should Minimum Wages rise, forcing a disadvantage upon permanent commercial establishments, the same would be taken cognizance of in the allocation of revenues, which would incrementally favor permanent commercial establishments relative mobile establishments. Conversely, should gas prices rise significantly, the calibrated, or estimated allocation mechanism in (7) would issue larger shares to mobile commercial establishments.
Thus conceived, estimated, or calibrated, revenues from the 3-pronged Work-week tax would be channeled dynamically to the participants in the VMT Permit system, and commercial establishments negatively impacted by the Work-week Tax. These subsidies and apportionnements, recycled within the jurisdiction, would grease the permit system and enhance its popularity, reduce pain suffered by impacted entrepreneurs and small business, and facilitate easier acceptance, and implementation of the system, thus obtaining significant reduction in Commuting VMT.
Caveats
It could be claimed that a reduction in Commuting VMT, by shrinking the Work-week, merely shifts VMT away from Work to Family-related commuting. While this could certainly be true, the same is anticipated by the VMT Cap and Trade system which is blind to the nature of the VMT. Commuting VMT freed up by shrinking the Work-week tax policy would not increment the jurisdictional cap on VMT, though it might deflate the price at which VMT Permits are bought and sold. Conversely, reductions in Commuting VMT, particularly if accompanied by a rationalization of the Corporate Work-week, might shift transportation demand over to family Air travel. This ‘leakage’ reduces the effectiveness of the tax policy in obtaining reductions in fossil fuel consumption and CO2 emissions. If significant, such leakage could necessitate redesigning the proposed policy with an ‘Umbrella Road VMT-Air PMT Cap’ that anticipates, and conditionally permits substitutions across modes of travel.
A global system of Corporate, Precinct and Building-level taxes will necessarily cause significant disruption to the Corporate, Investor, Employee, and Transport sector beyond the fossil fuel sector. Prominent would be impacts upon white-collar employee salary and employment, returns in the capital market post a re-pacing of nominal activity, and indeed, Fossil fuel sales. Shrinking the work-week could cause wages and salaries to either rise or fall depending on reactions in employee productivity and the strategic importance of the jurisdictional office relative offices elsewhere. The global Nominal economy would experience a corresponding, one-time change in the pace of economic activity, although attenuated by cloud-based access to office duties (and lagged responses over a period of time). Investors would rationally expect a one-time adjustment in stock market valuations as they internalize the impact of a change in economic pace upon profits in the present and future periods. Permanent and mobile commercial establishments would likely be impacted significantly. However, that pecuniary impact is anticipated, and partly resolved by sharing with them revenues garnered from the Work-week tax.
It might be argued that the 3-pronged Work-week Tax is redundant in the context of an existing and operating VMT Cap and Trade system. The argument, though, factual at first glance, ignores the externality faced by employers who care little for the Commuting VMT generated by enforcing a 5-, or a 6-day Work-week. A barebones VMT Cap and Trade system is unlikely to be sufficiently focused, or targeted for such Corporates, Businesses and Institutions to react in a manner as would be obtained from a focused Work-week Tax. The Work-week Tax, as proposed, feeds in to the larger VMT Cap and Trade system, and would obtain more efficient and effective control of VMT-PMT and CO2 emissions than a barebones VMT Cap’nTrade, particularly in its 3-part tax configuration under an ‘Umbrella Cap’ variant. On a tangent, it seems expedient to employ a Tax at a lower tier within a Cap and Trade system, for the revenues so raised permit a financially neutral subsidy-intervention that proactively incentivizes the goals of the Cap ‘n Trade.
Though an environmental benefit, the reduction in Fossil fuel consumption sourced in a reduction in Commuting VMT, would hurt refiners, marketers and gas station employees. Physical and financial impacts upon the Fossil fuel sector are better handled through the Administrator of the 370ppm Cause Bond, who makes various cooperative or strategic deals with parties – friendly, or otherwise. On a tangent again, shrinking Road VMT and Air PMT under a Cap and Trade regime would reflect in attenuated demand for transportation fuels. Such a demand surprise could be resolved either by reducing the severity of refining while running the same volume of Crude – implying a ‘retro’ swing to a heavier product slate, or, by accepting a larger reduction in Crude volumes while maintaining, even increasing, the share of light motor fuels obtained from refining. Over the long-run, the attenuation of fuel demand is best resolved by transitioning petroleum refining firms from volume- and profit-maximizing Nominal capitalist markets over to the Resource Cause Bonds that maximize a social return to resource capital16.
Discussion
Despite 3 decades of growth in renewable energy production and consumption, ambient CO2 concentration, fueled by the continued expansion of global transportation CO2 emissions, continues to rise. With no credible technology to sequester ambient CO2, the outlook for even an attenuation in the trend appears bleak. Thus, policy-makers must rationally anticipate ambient CO2 concentrations to increment to 450 ppm with in the next 2 decades. Such unprecedented concentrations imply far-reaching climactic impacts upon plant and animal life beyond humanity. The attenuation of those impacts in the interim, and resolution in the long-run, is essential to the survival of animal species and human life, as we know it. Policies that reduce existing and incremental CO2 emissions are therefore of immediate interest. The proposal to require Corporates, Government and other Office establishments to participate in a Commuting VMT reduction program engendered by a 5/6 day Work-week is not entirely new. However, this blog weaves it in to a larger framework of a tax-revenue funded, subsidized VMT Cap and Trade proposal, that represents a more expedient, effective and efficient system to scale back fossil-fuel-based Commuting VMT and associated CO2 emissions - verily, the last low-hanging emissions reduction fruit. Further, and unlike conventional Cap and Trade schemes, this proposal provides for an interventionalist, revenue-neutral subsidization of the scheme that furthers the Cause and expedites outcomes. Crucially, it offers compensation to those pecuniarily impacted, beyond ensuring regional re-circulation of revenues to mitigate impacts, thus obtaining broader employer, employee and business/commercial acceptance.
The advent of Autonomous driving, by freeing up driver time and attention, is likely to shift demand for personal transport, and could induce a further expansion of (fossil-fueled) VMT17. If Autonomous Vehicles find specific favor with long-distance travelers, and with Commuters along long and/or congested roads, then a policy such as the one proposed above, could be particularly effective at obtaining VMT reductions. As indicated earlier, reductions in CO2 emissions from reining in inter-city and commuting VMT is particularly welcome in the context of rising CO2 emissions from Space, Military and Aviation sectors18.
Policies that obtain positive externalities are the darling of politicians, bankers, and economists. The proposed policy has many ancillary benefits to boast of. Beyond a reduction in Commuting VMT, and emissions from fossil fuel consumption, the proposal would obtain a significant reduction in vehicle accidents, Building energy consumption and associated emissions, as well as congestion, noise and light externalities. The recycling of revenues from the 3-pronged Work-week Tax back as subsidies favoring participants in the VMT Trading system, and as compensation to permanent and mobile small business, limits damage to the local and regional economy, while obtaining Precincts the revenue they seek to pursue sustainable transportation initiatives.The 3-pronged tax is flexible and efficient; it is likely to minimize corporate and capital market disruption, accommodate and even resolve impacts upon the local economy, while securing its primary environmental goal and secondary benefits efficiently. The ease of implementing an universal VMT-based Cap ‘n Trade, the effectiveness of ‘Compete-to-minimize EPS Impact’ Work-week tax strategy, and the significant benefits associated with the many positive externalities, point to a highly-efficient proposal associated with low-costs, and high net benefits. It is offered to the Public and the Policy-making community as a credible tool to address an exacerbating Climate Change externality.
1 Its worthwhile noting that Green investments made to date globally, haven’t derailed the 2+ ppm rise trend in ambient CO2 emissions. The apparent implication of this observation is that Green investments, far from substituting carbon consumption, merely complemented them (for reasons as varied as the origin of subsidies and ‘strategic competition’).
2 Aviation constitutes a growing market for fossil-fuels. It also competes with vehicle-based personal transportation, and for that reason, deserves close policy focus. Though this blog limits its attention to Road VMT, it is cognizant of the larger ground-air transportation paradigm.
4 and fugitive methane emissions
5 It could be argued that offering 3 or 4-day Work-week to white-collared employees could only worsen the matter by facilitating frequent air travel, thus exacerbating rather than abating Climate change. The solution, should it be necessary, would be (non-)trivial; individuals could be issued a joint and aggregate Cap on Travel Miles across Road and Air modes, with distance-graduated, or free, 1:1 substitution between the two – as determined by the Cause Bond/VMT Bond Administrator. Accounting for shared road, or air travel while ensuring an incentive to travel environmentally sustainably is yet another issue. Since Permit trades occur prior travel by road or air, and it is impossible to determine either the mode, or the number of co-passengers a priori, Permit trades would perhaps witness large volatility in prices that depend on intents and purposes behind the trades.
6 This strategy may be applied universally to solve long environmental externalities such as Climate change. If the externality were measured with standard, public procedures, and charged to the Income Statement at EBITDA, as for example as an exponential Environmental Charge graduated in the aggregate Carbon Intensity (Tons Carbon emitted per Million $ of revenue) of firm operations, and netted out prior computation EPS, then firms in the Capital market would take immediate cognizance and compete against each other to expeditiously reduce Carbon Intensity, minimize the Carbon Charge on Net Earnings to remain EPS-competitive, in the process obtaining expedited reductions in Carbon Intensity, and thus attenuate Climate Change.
7 As suggested above, the 370ppm Cause Bond Administrator could seek a Cap and Trade on passenger-weighted aggregate of Road VMT and Air PMT. An umbrella-cap avoids ‘leakages’ due substitution of Air travel for Road, and vice versa. Permitting such 2-way substitution would be (almost) neutral upon fuel consumption, but utility-positive to the Consumer who gains from the flexibility in choice while conforming to the bi-modal Cap.
8 Differences in fuel economy across jurisdictions (and vehicle classes) could be taken cognizance of by the 370ppm Cause Bond Administrator who’d then vary jurisdictional Caps accordingly. VMT reductions matter more to emissions savings in jurisdictions where Fleet Average Fuel economy lags behind, and less where it leads. For this reason, the Cause Bond Administrator might just prefer allocating caps in line with those efficiencies – higher the fleet average fuel economy higher the Cap, and vice versa. Such logic in the allocation of VMT Cap is advantageous for the incentives it induces; ie, the induced incentive to increment fleet fuel economy as a means to secure an incrementally-relaxed Cap in the annual revisions.
9 It might be argued that a VMT Cap is inefficient and inferior to a cap on Fossil fuel consumption. However, a VMT Cap and Trade may be justified for reasons lesser transactions costs associated with interacting, monitoring and enforcing individual VMT quotas and Permit transactions (as opposed to Fuel sales/purchase/consumption data which could be difficult to collect, even confidential).
10 As conceived in my blog '...and Nero fiddled while Rome burned' at gprao64.blogspot.com
11 Modified by the share of employees commuting by fossil-fueled vehicles, as ascertained from the VMT Cap and Trade Permit Administrator. That is, if Ek were the total number of employees at firm k, and Eff,k, the number of employees commuting on fossil-fueled vehicles, then (1+ dj*tsJ) would modify to (1+ dj*Eff,k / Ek * tsJ) tsJ*.
12 So designed, the exponent would be robust to Coal-sourced EV Charging. One could, equivalently, substitute the Carbon-Intensity of aggregate Transportation Energy in jurisdiction, J, CIJ, measured in Carbon Tons consumed per Billion (Aggregate) Miles as the exponent, albeit scaled against an Administrator-determined goal, CIGJ.
13 The incentives engendered by the Work-week-based VMT taxation could, paradoxically, in certain less-developed cities, induce the construction of emissions-intensive, and emissions fast-forwarded Public transportation networks, such as Metros.
14 Other factors determining the choice of the length of work week in a particular jurisdiction would be various fixed costs (including Labor Benefits), Taxation, Lease rates, Work week chosen by other lessors in the same building, international synchronization of business, etc.
15 With an exception that excludes VMT from those extraneous Precincts, albeit within a 2 mile radius.
16 As elaborated upon in my blog ‘Stop the run-away train that Climate Change is….How ‘bout a bowl of restructured Capital Soup’ at gprao64.blogspot.com.
17 Much as micro-processors, and AI are efficiency-enhancing for green technologies, and polluting production processes as well.
18 The latter strongly arguing for a VMT-PMT Umbrella-Cap variant.
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