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Renewable energy is needed to reduce our emissions of carbon dioxide. But there are other reasons that we need to start developing renewable energy. Fossil fuels like oil and natural gas are a finite resource. As we use up our limited resources, the price will continue to rise until the point where alternatives become economically feasible. The tax credits help the renewable energy industry develop at a faster rate so that point where the cost of renewable energy is equal to the cost of fossil fuels is reached sooner. This not only reduces our carbon emissions, but will strengthen our economy in the long run.
One way to pay for the renewable energy tax credit would be to put a tax on fossil fuels; i.e. a carbon tax based on the carbon content of the fuel. Anything you tax you generally get less of it so a carbon tax would also cut current consumption slightly. How big a carbon tax do we need? Ideally we would want a very small tax so as not to injure current users of carbon fuel. How much more would you be willing to pay at the pump per gallon to fund renewable energy?
Congress needs to find about $7 billion dollars per year to fund the tax credit. We consume about 317 billion gallons of oil each year, 23 trillion cu. ft. of natural gas each year, and 1,146 million short tons of coal each year. A carbon tax equivalent to one cent per gallon on gasoline would raise $3.17 billion from oil consumption. Based on carbon content the same tax rate on natural gas would be about 6 cents per thousand cu. ft. That would raise an additional $1.38 billion dollars. Assuming a gallon of gasoline is equivalent to 11.5 lbs of coal, a tax of 0.0011 cents per lb would raise $2.54 billion dollars. That totals $7.13 billion dollars. Seems like a small incremental cost to start building our renewable energy future.
Because an increase in price will decrease demand, the new equilibrium price will not equal the full price of the tax so fuel producers actually will end up paying a part of the tax out of profits.


