03 July 2007

Five dollars a year for energy independence?

In today's Philadelphia Inquirer: A tax, or any other name, would raise ire.

Pennsylvania governor Ed Rendell is attempting to create an "Energy Independence Fund" by raising the cost of electricity by $0.0005 per kilowatt-hour. The average price of electricity in Pennsylvania is between $0.09 and $0.11 per kilowatt-hour, depending on who you believe. Rendell claims that this would cost the average household "the equivalent of half a cup of coffee per month"; more precisely it's estimated that the cost of this program would be $5.40 per year for the average residential customer. (That works out to 900 kilowatt-hours per household, which is at least in the right ballpark.) This would create a fund of $850 million which would supposedly save Pennsylvanians about $1 billion per year, by encouraging the use of alternative fuels (for example, Pennsylvania has no oil, but we can grow corn for ethanol!), creating rebate programs for people who buy more efficient appliances or install solar panels, and so on.

House minority leader Sam Smith says:

I would venture a guess that any household of three or four with a few extra appliances or maybe air-conditioning will pay more," he said. "It's a big tax on Pennsylvanians, and he is using an average number to downplay a bigger tax than it is."

What Smith is saying, it seems, is that some people use more electricity than average. But any reasonable definition of "average" has this property! Besides, we're talking about raising electricity bills by half a percent here. Al Gore supposedly uses 221,000 kilowatt-hours per year; even his bill would only go up by $9 a month or so. Besides, if this encourages people to use half a percent less electricity, it's a good idea. And in the end, people's bills will be reduced assuming these programs work out.

And I'd guess that the national average of 10,656 kilowatt-hours per year per household (as cited in the article re: Gore, and implied by the $5.40/year and $0.0005/kW-h figures) is mean use, not median use. The distribution of electricity use is probably skewed to the right, so the median is lower than the mean. (A lot of distributions which occur in economics are like this; one of the standard examples these days are real estate prices. Since there are a few really expensive houses out there, it's felt that the median is a better indicator of the market as a whole than the mean is, so the median is what's cited when people talk about whether real estate prices are rising or falling.) So you could even make the argument that Rendell is overstating the impact of the new surcharge.

In case you're wondering, I figure that this tax would cost me, directly, less than $1 a year. (Indirectly it'll cost a bit more, because the people I buy things from will also see their electricity prices raised.) I could have made more than $1 in the time it took me to read the article and write this post.

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