Sunday, May 25, 2008

Tax Shifting

I thought I would offer this "real" world example of how a tax shifting policy could be an attractive option. One of my neighbors is currently considering putting in a geothermal system for his home. The cost is quite high, between 25-30 thousand, a large sum for an average middle class family. My neighbor is debating the pros and cons, he would have to borrow the money to install the system, but it would result in knocking off 80% of his fuel and hot water expenses. You do the math, factor in you yearly savings, add a reasonable projection on future traditional fuel costs, to calculate how long it would take for the investment to pay for itself. It's still a fairly daunting proposition, especially when you factor in the interest on any upfront loan.

We were talking about this option, and it really is something to wrestle with, because the bottomline for most of us, while we want to do our part, it comes within the reality of affordability. Anyways, I mentioned the tax shift policy, without knowing the details, just the general thrust. With a heavy emphasis on IF it happens, you could see how an income tax reduction, coupled with a price on carbon, would provide the last push, to make installation economically feasible, far more attractive. If my neighbor did go ahead with his plan, within a tax shift framework, then he essentially would avoid any additional taxes on his energy usage, while simultaneously gaining considerably on the income tax side. The net result of going geothermal, he would end up paying less taxes overall, more money in his pocket, making the initial cost of the system far more sensible. In other words, if this tax shift idea was in place, all of the current hand wringing would be a far easier decision, it would tip the economic consideration, it would actually make the jump far less risky.

It's just one example, but it does serve as some indication of how the carrot and stick could provide the necessary incentive for people that want to change behaviors, but struggle with the economics. IF we had a tax shifting policy, the numbers are far more attractive, the internal debate almost a no brainer.

UPDATE:

Interesting perspective on the politics of a carbon tax.

13 comments:

Anonymous said...

Good example. However, if makes me wonder how (or whether) this tax shift strategy could be tied in to other goals such as poverty reduction and job development.

Anonymous said...

It would also make it much more economical for someone to burn wood from free sources to heat their homes as well and the economic incentive might make the extra work worth while.

The Jurist said...

But wouldn't the incentive to install the geothermal system be far stronger through a targeted program which directly supports that particular step as opposed to other choices (e.g. grants to reduce the effective price and/or eliminate the interest cost), rather than relying on the bare hope that the system will be the neighbor's top spending priority?

Steve V said...

jurist

What if you have both? We need to see the details, but there could also be a rebate component, as well as the eco audit, which he has already had done.

The Mound of Sound said...

It makes clear sense to me. There are a number of regions in Canada, particularly here in BC, where geothermal ought to be exploited on a community level.

Anon 11:25 raises wood burning. I was surprised to read George Monbiot endorse wood as a fuel in his book "Heat." He considers it environmentally viable but only for those who live in immediate proximity of ample supplies of deadwood (again, much of rural BC). Once you factor in oil-based transportation, however, wood doesn't make sense and, of course, you have the smoke issues associated with larger cities.

Steve V said...

Mound

When I lived in rural B.C., I would say 80% of homes used wood for heating. You were allowed to go in the bush and take any fallen or dead trees. The fact you could heat your home for basically no cost was a definite lure. The only hesitation I had to such widespread use, the town would have a thick haze over it, if the winds were light.

sassy said...

Good post, the environmental gain is very stong selling point with me. I also think that a home with a geothermal system would have higher resale value, and if the cost of heating a home continues to go up the way it has in the last few years said home would be in demand.

JimmE said...

Good ideas, my sister & brother inlaw put in a pool heater last year, they went through the same considerations solar vs gas - he now regrets the choice of gas. If the gas heater had a 20% tax bill & the solar 2% it might have tipped the balance toward solar. I would suggest the focus of the shift be on the tools that use energy rather than the energy itself. Any plan needs to say the present tax on gasoline will not be changed. Other things may be changed, but the present gas tax is what it is, & what it will be.

Steve V said...

"I also think that a home with a geothermal system would have higher resale value"

Sassy, I should have mentioned that, because we talked about that too. Quite a selling feature to say your utilities would be a pitance.

jimme

If they directly raise the gasoline tax, I'll be stunned.

Steve V said...

One other thing to consider, how this would affect developers. I suspect developments, like we've read about in Okotoks would become more cost effective, a tax shift might start a "rush" on housing that doesn't use carbon.

JimBobby said...

Whooee! Here in Ontariariario, we got quite a few incentive programs aimed at alternative energy. I think most otehr provinces have soem simlar programs. Coupled with the tax-shift, these programs can help make the decision to go green much easier.

Here's some info on Ont. programs.



JB

Mark Dowling said...

the biggest challenge is going to be how the tax works for low income families in multi-residential accommodation but with individual metering and no option to retrofit their heating, cooling or insulation. You can be sure Layton is going to find some of those people and stick them in front of cameras.

To be honest I'm not sure the choice of one pool heater over another is the consideration we need worry about first.

JimBobby said...

The fact that Layton and the Dippers will be able to trot out a few examples of negative consequences for a few sectors does not spell the death knell for tax-shifting.

The tax-shift/carbon tax idea has been Green Party policy since way back when Dion was backpackin' to university. The Greens coupled their tax-shift with comprehensive anti-poverty ideas and tactics. The Liberals have been out front about adopting GPC policy wrt tax-shifting. They may as well build on our anti-poverty plans, too.

I think that for every negative example that can be trotted out by the NDP and the Cons, tax-shift proponents can produce more examples of benefits and net gainers.

Demographics will play a big part, too. The baby boomers are a big bloc. At middle-age, we are only surpassed in voter turnout by seniors. Baby boomers are becoming grandparents. When that happens, we tend to project further into the future. we start to be much more concerned with the state of the planet 75 years from now.

So far, the big "losers" are being identified not so much as urban apartment dwellers but as low income seniors and rural folks who rely on private vehicles and must heat free-standing drafty old shacks. At 59, low-income and living in a tiny town 100 miles or so from Trawna, I sorta fit that demographic. I ain't sure about all my neighbours but I'm embracing the tax-shift. I owe it to the grandkids.

IMHO, Dion et al need to release details ASAP. Then, they need to get out there and sell, sell, sell. We Greens gave you a good policy. Don't mess it up with a poor sales job.

JB