S P E E D I N G - U P T E C H N O L O G Y A D O P T I O N C Y C L E S F O R M I T I G AT I N G T H E R I S K S F R O M C L I M AT E C H A N G E : W h i l e G e n e r a t i n g Government Revenues, Creating New Jobs, and Reducing the Federal Deficit

The power of taxing people and their property is essential to the very existence of government.  — James Madison, U.S. President

Cleantech de-carbonizing industry market development mechanism. Today, Americans, as well as citizens from virtually all other countries of the world, find themselves living under a state of exception, where normal rules of business and engagement are suspended. Essentially, we have all become detainees in a land of Neverland where climate change threatens not only national economies, but life itself on this planet.1 Climate change generated predominantly anthropogenically. Supposedly rational humans, who otherwise should be concerned for their survival, discounting to zero the cost of using the earthʼs atmosphere as sink for carbon (and other GHGs) emissions. The science is about as solid today as the quantum physics used to build the first atomic weapon, demonstrated at the Trinity test on July 16, 1945, was at that time. Yet, today, there is

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still a debate whether the science is solid. And, no Manhattan Project to mitigate the carbon climate war between business as usual vs. doing something different has yet to emerge. Instead, climate change, is just another policy challenge scattered among many urgent and pressing issues in the U.S. such as health care reform, a $9,000 billion ten-year government deficit, arguing the regulatory changes to address the 2008 financial meltdown of Wall Street that destroyed almost $50,000 billion of value worldwide, the collapse of the U.S. automobile manufacturing industry, decisions on escalating the unnecessary and destructive war in Afghanistan, strategy for extracting the U.S. from the never-ending war in Iraq, expanding the covert war in Pakistan, securing cyberspace, etc. Not only is there little apparent prioritization as to what is more or less important, budgets often appear to have little analytical basis for deciding, given a finite amount of capital, where do we obtain the highest return for our invested capital or even how much capital is required to actually adequately address this particular problem? What is particularly alarming is that business-asusual urgency regularly takes precedent over the important issue of climate change. Thinking about climate change economically, investing in industrial activities that ameliorate or mitigate anthropogenically-caused climate change should produce the greatest economic return on invested capital (EROIC). Why? Because, the opportunity cost for not investing to address climate change is so large. Our economic accounting still assumes GHGʼs as an externality, where the cost of using the earthʼs atmosphere as a carbon sink is discounted to zero. Thus, the markets send false signal as to where positive returns on invested capital can be obtained. Wall Street imagines that real returns can be achieved through financial engineering, even as no real wealth is created through, for example, the buying and selling of CDOs (collateralized debt obligations).2 Today, there is a downward destructive cycle of allocating capital to activities that pollute the earth and add carbon to the atmosphere which generates a negative real return on invested capital. As global warming and pollution gets worse, this adds real economic cost to the economy, producing a drag on GDP growth, more human immiseration, and further misallocation of capital that continues the downward destructive cycle. Instead, what we so badly

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need to create new jobs, to produce sustainable economic growth, and to enable human development that lifts persons to a state of capability and real freedom is to invest in mitigating the risks from anthropogenic climate change. This will create a virtuous cycle of producing real economic returns on invested capital. Various schemes to reduce carbon have been proposed. However, all these schemes, some of them relying on setting voluntary targets for CO2 or creating carbon derivatives and carbon offsets markets (just what we need, more dis-economic financial engineering) do not adequately address the structural aspects for decarbonizing the global economy. That is because, in one way or another, all these proposed schemes address carbon mitigation in a Band-Aid fashion. Instead, we propose addressing carbon (and other GHGs) as a cost of industrial input and output to the economy. The objective is to discontinue forever the practice of discounting the use of the earthʼs atmosphere as a carbon sink to zero. Since there is real economic cost for emitting carbon to the atmosphere, this should be costed, just like any other industrial input or output. If national or global governments also wish to impose firm limits on carbon emissions or drive these limits to certain minimums by a specific date, then tow mechanisms may be readily employed; adjusting the cost of inputs and outputs and setting rules for trading emission permits. However, given the state of GDP growth, government deficits, unemployment statistics, and stresses on the average citizen and their families, I would like to propose a program that generates government revenues, creates new jobs, reduces the federal deficit (and lowers the existing federal debt), while at the same time speeds-up technology adoption cycles for industrial growth that decarbonizes the global economy. The objective is to free up significant amounts of capital that can be invested productively in cleantech, producing some of the highest real rates of economic return on invested capital available today. Below, are the recommended changes to the tax code, and other federal and state government structural changes to accomplish these objectives and to initiate a virtuous cycle of jobs creation and sustainable economic growth while decarbonizing the industrial activities of the global economy. Starting with payments by citizens and corporations to the Internal Revenue Service (IRS):

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Eliminate all payroll taxes for Social Security and Medicare for all employees earning less than $100,000 annual income; Eliminate all income taxes for personal gross income from all sources less than $100,000 annual income per person ($165,000 for married persons filing jointly); Institute progressive taxation of all personal annual gross income exceeding $100,001 annually ($165,001 for married persons filing jointly) until a maximum rate of 95% tax of all gross income for annual personal or joint income over $5,000,001. Gross income is income from all sources, no deductions are allowed; Eliminate any tax on transfers of assets upon death up to an assessed value of $50,000,000. For values above $50,000,001, assess a wealth transfer tax of 85%; At any time in an individual taxpayer’s life, a citizen may transfer assets of any amount to a charitable not-for-profit, tax-exempt organization without incurring any wealth transfer tax; All tax-exempt organizations that have endowments must disburse 2% of the sum of their endowment and any annual income from this endowment for the charitable activities that enable the tax exemption; Institute tax on corporate gross revenues from products and services sold in the United States of 3.50%. This applies to all companies selling products and services to citizens of the United States irrespective of their domicile; Institute surcharge on corporate gross revenues from products and services sold in the United States of 2.50% for corporations that provide compensation to executives, employees, and interested parties who earn over $1,000,000 in compensation from all sources annually, whether this compensation is paid outright or deferred, where such compensation collectively exceeds 10% of free cash flow for that firm’s operations that support the provision of annual revenues from the sale of products and services to U.S. citizens. No deductions are allowed; Corporations and all businesses are hereby relieved of any requirement to provide health care insurance coverage for their employees; Federal government will implement Medicare for all ages. No more 65-year age limit for Medicare.

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Institute a cost adjustment surcharge of $42.00 per metric ton, with corresponding prices, based on their reactivity and residence times, for heat-trapping methane, nitrogen compounds, low-level ozone and soot emissions responsible for half of the man-made emissions driving climate.3 This is an accurate, economically-derived charge that prices the systemic risk of anthropogenic CO2 emissions to the atmosphere;4
GREEN HOUSE GAS (GHG) CO2 methane CH4 nitrous oxide N2O HCFC-12 HCFC-22 perflouromethane CF4 sulfur hexaflouride SF6 GLOBAL WARMING POTENTIAL (100-YEAR GWP) 1.0 21 310 7,100 1,400 6,500 23,900 COST ADJUSTMENT SURCHARGE PER METRIC TON $42.00 $882.00 $13,020.00 $298,200.00 $58,800.00 273,000.00 $1,003,800.00

Institute a fossil fuels end-user surcharge that progressively raises the equivalent price of gasoline to $9.00/gallon over a 12-year period to stabilize energy markets and to encourage clean-tech technology innovation and market adoption;5 Implement feebates program for stimulating demand and retooling national transportation fleet to double CAFÉ total fleet mileage within 10 years.6 This is a self-funding program that requires $40 billion in stimulus funds for seed capital to initiate the program.7 Institute a freshwater withdrawal surcharge from surface waters and ground water adding a $0.10/kgal (per 1,000 gallons) surcharge for withdrawals and provide a refund of this surcharge for each kgal of water returned to the source in substantively the same or better quality of water than what was withdrawn. Implement Waste Stream Escrow Fees for waste stream producers as an alternative to after-the-fact fines and penalties. This avoids lengthy court battles and costly legal fees that attempt to recover externalized costs borne by public taxpayers.8 Offer return of this

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escrow fee when waste stream producers eliminate the volume of and toxicity of their waste stream and/or storage.
ENDNOTES: Neverland - a small imaginary island where Peter Pan lives his never-ending childhood with the Lost Boys. Neverland was first imagined by the Scottish novelist and playwright J. M. Barrie (1860–1937) in the 1902 adult novel, The Little White Bird.
1

That no real economic wealth was ever created through these financial engineering schemes was readily borne out by the 2008 financial crisis. As the asset values of the real estate that provided the collateral for collateralized debt obligations derivatives (CDOs) collapsed, the CDOs themselves became toxic assets. As systemic risk was not priced into the cost of the CDO contracts, there were inadequate reserves to back the fall in value of these insurance contracts. The end result is that the U.S. taxpayer, through a variety of mechanisms is now on the hook for $17,489 billion in reserves that provide the financial insurance for these toxic assets. If the banks default on these loans, that will mean no real economic profits were created on Wall Street since maybe 1970, or maybe ever.
2

For each quantity of fossil fuel derived production, a per ton CO2 surcharge is added to the economic costs of production and paid by the producers of fossil fuels.
3

U.S. 2007 CO2 emissions were 5.984 billion metric tons @ $42.00/metric ton = $251.33 billion in revenues + comparable revenues from other GHG emissions = a grand total of $502.7 billion in revenues to the federal government for Cost Adjustment Surcharge to address systemic risk.
4

In Venezuela and Saudi Arabia, gasoline use is subsidized and costs twelve cents and forty-five cents a gallon; in Europe a gallon of gasoline costs $9.00 because it is heavily taxed, with revenues going to support single-payer national health care and public transportation. The U.S. has the lowest cost for gasoline among industrialized countries. Thus, between 1980 and 2008, oil use in the U.S. is up 21% whereas in the United Kingdom oil use has remained flat from 1980 to now, while in France it's dropped 17% (Energy Information Administration).
5

A “feebate program is a self-financing system of fees and rebates that are used to shift the costs of externalities....onto those market actors responsible for the taking of the public goods in question” (Wikipedia).
6

Transportation vehicles rated less than 40 mpg/combined comparable city/highway mileage would pay a prorated annual fee. Transportation vehicles with greater than 40 mpg/combined mileage would receive a prorated annual rebate.
7

Example: the December 22, 2008 spill of 5.4 billion cubic yards of coal ash from the TVA Kingston coal electricity plant into the Emory River and across 300 acres in Roane County, Tennessee. The escrow fee would be used to pay for the clean-up and encourage waste reduction.
8

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