The real green solution: Tax the bad stuff

By Allan Sloan, senior editor-at-large

FORTUNE -- It's much easier to look for a magic solution than it is to adapt to reality. Take energy, for instance. These days "clean energy," also known as "green energy," is being presented as the magic solution for global warming, our dependence on foreign oil, and the BP (BP) disaster in the Gulf of Mexico. Maybe even for warts and bad breath. A typical example of the hype, from one of President Obama's speeches about BP: "The tragedy unfolding on our coast is the most painful and powerful reminder yet that the time to embrace a clean energy future is now."

But embracing a future -- whatever that means -- isn't the same as solving a problem. That's a lesson I learned almost 40 years ago, the first time I realized there was an energy problem in this country. That was during the Arab oil embargo of 1973, which is history to most people but a scary memory to those of us for whom it was current events. We had huge lines at gas stations, a horrible sense of vulnerability, and the same helplessness-and-outrage combo so many people have when it comes to BP. Government price controls, designed to protect people from the higher crude oil prices resulting from the embargo, made a bad problem much worse.


The magic solution? "Energy independence." Sounded great, would fit on a bumper sticker, made for a terrific slogan. We'd finish the trans-Alaska pipeline, drill for more oil, beef up natural-gas production, step up nuclear generation, apply technological wizardry to use our vast coal reserves to generate clean electricity, liquefy coal to reduce our need for petroleum. We wouldn't be dependent on foreigners (except for maybe Canada, then as now our biggest outside oil source). It was all going to be great.

Do those things sound familiar? They should, given that stepping up nuclear generation and cleaning up coal are integral parts of plans to reduce carbon dioxide emissions, though they haven't gotten the buzz green energy's gotten.

Alas, the energy independence thing hasn't exactly worked out. In fact, things have gotten seriously worse. When the Arab embargo hit, we were importing 37% of our oil, according to the U.S. Energy Information Administration. When the Shah of Iran fell in 1979, sparking another oil crisis, we were importing 43%; currently it's about 52%.

Flash-forward to the present magic plan. Green energy, which is promoted endlessly by business as well as the government and various pols, is a great idea. It sounds great, and it would be great. But it's being way oversold and will take years -- or decades -- to have any major effect.

That's because green energy is starting from such a low base. Wind power, solar power, and biofuel, the three most-highly touted new technologies, together accounted for less than 3% of U.S. electric generation in 2009, according to the Electric Power Research Institute, a nonprofit group.

So even when we step up production sharply, we have a long way to go before they make a serious impact on the overall electricity situation. "I think it's going to take 20 years for these technologies to mature, provided that the economic conditions are attractive," says Revis James, director of the institute's technology assessment center.

Even if we had windmills on every front lawn, we'd still have an energy problem, because vehicles account for so much of our oil use. And green technologies aren't without economic or environmental problems. We'll be outsourcing lots of green-product manufacturing to low-cost places like China, which will help their economies, but not ours.

Then there's the whole lithium question, which is integral to stepping up battery-run vehicles. Imagine our becoming dependent on countries like Afghanistan -- not exactly a model of stability -- for an essential mineral.

So now, you ask, since I don't believe in a magic solution, what should we do? It's easy, though not politically palatable. You put a heavy tax on electricity, gasoline, and other energy sources whose use you want to discourage. You make that tax refundable -- at least quarterly, maybe even monthly -- for people who can't afford it.

Of course, nothing like that is likely to happen. Because "Raise prices, support some energy research, but don't shove solutions such as compact fluorescent bulbs down consumers' throats" doesn't make for a good bumper sticker or sound bite. It's not magical. It's just right.

--Reporting by Marilyn Adamo. To top of page

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