A German Solution
OK, so the Americans might find it hard to get the green new deal through.
But what other option do we have? Countries have tried imposing carbon taxes as well over the years. But they have come to be so loathed that politicians around the world are afraid to use the word ‘Carbon Tax’ in any climate change policy.
Take a look at this hilarious video from the Canadian parliament where prime minister Trudeau tried to explain the importance of ‘Carbon Pricing’ and mistakenly used the word Tax. The response from fellow parliamentarians is amazing.
Jokes apart, its a fact that if we have to move to greener sources of energy then someone in the economic system will have to take a hit.
It is going to pinch people’s wallets for sure. How do we decide who gets hit the most and by how much?
The Germans found an interesting way to deal with the issue in the form of a ‘Feed — In Tariff’ policy.
Essentially any German citizen can put up solar panels on his roof and generate electricity and sell it to the government at fixed price. This fixed price is higher than the average price in the country, and is valid for a fixed period of time. So the panels pay for themselves in due course.
The price difference is borne by the citizens who don’t shift to greener energy.
Economics is the study of incentives. It implores us that to affect behavior change we must align people’s incentives to the results we want to achieve.
People act on incentives. Period.
The ‘Feed in Tariff’ system in Germany incentivises green energy and disincentivises electricity produced through carbon. Some may even call it a ‘Carbon Tax’. Nevertheless it seems to work, it has led the Germans to produce about 50% of their energy through renewable sources. Its a system that can be emulated across the world.
Listen to this podcast from Planet Money to understand the policy better.
Das Green Old Deal
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