There is a simple way of reducing energy use - just increase the price! However to do this by taxation would be very unpopular. It would also hit poorer families because a greater proportion of their income goes on energy.
However suppose that instead of a "tax", defined as monies that go to the treasury and contribute to state expenditure, we have what I will call a "levy". Monies are collected and then distributed straight back to the population.
To illustrate this, here are some figures for expenditure on energy taken from page 22 of the dti publication, "UK energy in brief July 2003":
| Income decile | Lowest | Third | Fifth | Eighth | Highest | All |
| Total fuel expenditure | 7·6 | 9·9 | 11·1 | 13·4 | 16·4 | 11·7 |
| Levy | ||||||
| Cost of fuel with doubled price | 15·2 | 19·8 | 22·2 | 26·4 | 32·8 | 11·7 |
| Net expenditure with levy returned | 3·5 | 8.1 | 10·5 | 15.1 | 21.1 | |
| Cost of fuel with tripled price | 22·8 | 29·7 | 33·3 | 40·2 | 49·2 | 23·4 |
| Net expenditure with levy returned | -0·6 | 6·3 | 9·9 | 16·8 | 25·8 |
(Note that the expenditure data is per household but the levy would be returned per person. This means that the benefit of energy saving is shared equally between the members of the household.)
The average consumer will be no worse off but the low consumers will be better off at the expense of the high consumers. As the latter are generally also richer, this scheme will be a bit progressive. The important effect is that the financial motivation towards energy conservation and local power generation is significantly increased for all consumers.
In contrast to a tax, a levy would be much more politically acceptable provided it is kept clearly distinct from the tax-benefit system and that the operation of the redistribution was kept totally transparent. It might, with advantage, be run by an independent organisation, which would be charged with what should be a clearly defined task and do it efficiently, ie, with a very high percentage of the money raised being returned to consumers.
The details of how the levy is calculated will depend on judgments of the environmental costs of generation. Probably it would predominantly be on CO2 release but other costs factored in. This would not be levied on sustainable energy sources, so this would have the same effect a subsidy and maybe replace sustainable energy directives with a simple financial incentive.
While this scheme would be justified in isolation, once the levy machinery is in place, it is worth looking how it might be exploited to give other environmental gains.