What?

Government policies usually try to reduce X or promote Y. Such policy is implemented isn a set of rules that usually take the shape of subsidy or taxation. Often, these literal rules are cleverly used by people who may or may not have the intentions of the original policy in mind, but who merely want to profit.

Luckily, there are also a number of neutral mechanisms. If you aim for equality between X and Y then you can setup a model that takes the surplusses from X and diverts them to Y as a compensation. A good example of this is the Dutch system that equalises the prices of gray and green energy. What this means exactly is regularly adapted, but the general principle of an equal price remains.

Such equality avoids the instant changeover by many frmo gray to green energy, and that is good because the energy market would not be able to deal with that. Instead, a gradual transfer is now the result, at the same rate as people become aware of their place in society and their responsbilities towards future generations.

Why?

Governments exist to take care of the things we want as a society. If everything would be privatised, then all decisions would be taken on personal grounds, and a country would destroy itself. It takes a government to steer a country in the direction that we all want in our hearts, even if it contradicts with our personal benefits. Without the guidance of a government, many good intentions would strand in "but if he doesn't do the good thing, then why would I?"

There are lots of ways that subsidies and taxation can be employed to motivate people, but many of these ways are counter-productive. As an example, consider providing a subsidy to people who want to buy their first home on a market with rater expensive houses. If this would be implemented, the market prices would rise, simply because there is more capital offered by more people, and because existing home owners can afford a more expensive home if their previous home also sells at a higher price. The house prices would probably rise by the same amount that would be provided to starters, because that is the point where the balance is refound.

Another form of subsidy that is often proposed is exemption of VAT. But in the Netherlands we have seen that a higher percentage on some products just means that the client pays these higher prices, whereas a lower percentage on other products changes nothing because then there supposedly are "deferred price updates". In reality though, this is the result of how markets work: The amount of money expendable by customers remains the same, and so the sales price need not change.

Markets have a tendency to stabilise, but the driving force is always personal interest which is unrelated to the global picture of a country, or the world as a whole. More important than providing benefits or expenses, is it to steer a market in a proper way. If a rule would subsidise too little, nobody would make the supported change. And if a rule would subsidise too much, everybody would. Especially if the idea is that people gradually move from an old system to a new, it is important to find the right balance point.

A wonderful example is the way the prices for green energy are compensated with gray energy in the Netherlands. Gray energy, which currently happens to be cheaper to produce than green, is taxed and the benefits spread over green energy production, such that the prices of these two forms of energy become equal. This leads to a very stable relation between gray and green energy, causing people to make a change when they are ready for it; it is not necessary to be an idealist just to do what is right for the world as a whole.

It is the social aspect of such easy choices that would not work without a balance in prices; for instance, one purchases organic food because one is committed. The price for organic food is much higher than the price of traditional food, but when brought close together more peole would migrate to the form that does have a future. As people migrate, they increase the number of organic products sold, and so the average price of food rises slightly, but only by so little that the influence of an individual would not make much difference, and so it would not stop an individual from making the transition. This is exactly what you want to steer at as a government.

Another important aspect of good government is to provide stability. Civilians using a particular arrangements would like to be able to count on the continued existence of such arrangements in the future. That stability may be hard to guarantee for rules promising an amount X of money per annum, but it is very doable for arrangements that equate the prices of X and Y by pumping money from one to the other. The equality and its perseverence bring peace to civilias who can now rest assured that making the right choice will not harm them in the end.

The transitions from an old system to a new are stabilised by the market -- if one if the systems is in relative demand, its prices will rise and so reduce the number of customers choosing it. At the same time, such risen prices incur providers to transit to the new system as well. As more providers give the new system's choice, the price on the new market segment drops to attract customers. All that happens at the same pace as the creation of new-styled offerings. It makes producers look ahead, and profit from the changing situation.

How?

An ideal subsidiary arrangement would meet a number of criteria:

• Stable policies that can be planned years ahead
• Neutrality to civilians (making it possible for them to choose freely)
• Market mechanisms predicted and compensated according to some general model
• The possibility to find better deals, more optimal providers, and so on
• Neutral expenses to the government

Below, we will show a few examples that demonstrate how these requirements can be met pragmatically. The only thing that is needed, is the political will to make choices on behalf of a country as a whole.

Organic food. If more people are to choose organic food, it is important to let the price be (more) comparable to those of generic food. For example, in the Netherlands in 2009, it was found that organic food is 52% more expensive than generic food, whereas people were willing to pay 25% more for it. To compensate for that, a factor 1.52 / 1.25 = 1.22 or 22% would have to be compensated. (You could also go for the full 52% -- the difference being a political choice.) Since the market share for organic food in this case is about 2%, it is relatively painless to distribute these 22% over the remaining 98%. If generic food rises only 0.45% in price, it is possible to lower the prices of organic food by 22%, the result being the targeted 25% price difference between generic and organic food. If the customer buy such organic food, then suppliers will produce and stock it. And by adapting these figurs annually to the changing market situation, it is possible to attain the desired situation of popular organic food without pleeding or begging, without moral stories and exercises in guilt, without punishments or rewards, but with a gradual transition that matches a future of which we all know it is more desirable than the one we are heading at now.

Is it fair to make non-organic buyers pay for those who do buy organic? Yes, this is exactly the kind of thing for which governments exist. Nobody likes the methods of mass-produced meat, but when faced with a choice in supermarkets, most of us choose the discount-per-kilo meat which inevitably supports the mass-producing practices. This does not help us all to get away from disease-ridden, animal-abusing and rainforest-consuming production habits that have become commonplace in the mass-meat industry.

Accounting for problems. There are currently form of subsidy (or avoided expenses) that are paid by us all as taxpayers. Vegetarians pay their share for the European subsidiary arrangements for meat advertisements, those who employ only green energy also pay to develop methods of storing CO₂, pacifists pay their share of "peace keeping" missions. Countries pay their bills from shared pots of gold. Many vouch that this is unfair, because concealed expenses are not accounted for by industries that cause a variety of the world's problems. It is an excellent idea to include such expenses in the prices of products that cause them, but with some care -- for example, it should not frustrate the equated prices for gray and green energy. Such balances must be preserved, even if it means that added expenses for CO₂ produced is applied to gray energy only. It will eventually come down to higher energy prices for everyone, but also less taxation. When comparing gray and green forms, the balance will benefit the green forms all the sooner, after which the gray form can definately be retired.

Solar panels and wind mills. The harvest of sustainable energy from small power plants in/around the home is a beautiful model for the future of energy supply, and the Dutch SDE rules works well towards that. Under this arrangement, it does not matter if you purchase your solar panels this year or the next; price drops are compensated by drops in the subsidy. It always comes down to ray energy users paying the bill for green energy users, so as to equate their bills. This means that the choice whether or not to take the sustainable alternative is not purely motivated by expenses, but it is a choice that can be made in all freedom. But there still are a few things in the SDE rules that are a bit funny:

1. There is an annually limited budget for new SDE customers
2. A house should not produce more energy in a year than it consumes

Issue 1 is easily resolved by paying SDE subsidiary money from the same source as used for green energy in general, namely the funds obtained from those using gray energy. Those insisting on gray energy thus pay the bills for new solar cells. As soon as this is arranged, many administrative procedures can be abolisshed, notably those dealing with allocation of the subsidy. Also, the uncertainty and stress surrounding this procedure would vanish. After all, the available funds are now endless as the government does not have to get it from its own sources.

Issue 2 is a bit special, and appears to be caused by the fact that the network must be paid for transporting energy. But these are the kinds of concerns that make individuals uncertain about an investment in solar energy, causing them to refrain from ordering a (large) installation. What a pitty!

The political task.

Under this line of thought, the main task of politicians is to determine which things ought to be brought in balance. Depending upon which a civil servant or research bureau can construct a model from which the compensating actions can be calculated.

There remain enough issues to have a difference of opinion about; the trick is s to always find such a balance that it can be communicated brightly (almost snappy) to a civilian. Something as simple as "green and gray energy cost the same". Or "there is no gain from waiting another year for cheaper solar panels."

Aside from the fact that these issues belong in mathematical models, it is also important to attain these clear forms of communication. This is the basis onto which money is to be spent, and money by itself is already confusing enough.

Addendum 2009-11-09.

In response to this levelling approach for organic food, I got feedback that it would be bad if this applied to meat, as we are eating too much of that. I do agree that half of humanity is consuming more meat than is good for the other half, but not that this would be a reason to think badly of this scheme.

First of all, any movement towards organic food is better than staying with the old paradigm, even if it means eating as much meat as we have grown used to. My suspicion is that the price of meat will gradually rise and teach people to recognise the limitations of growing meat in a animal-friendly manner.

Second, this style of subsidising leaves a lot open for political debate. Concretely in this example, whether meat pricing should be mixed with that of fruits and vegetables. If meat is more expensive than plants to grow organically (which seems likely, as animals have a self-conscience and need more space to grow responsibly) then it is a worthy topic of debate if meat and fruit/vegetables should be pooled together. It may make sense to keep them separated.

Thirdly, there still is no solution for the fact that the rich parts of the world import cattle feedstock from a poor part of the world, where the remaining crops hardly suffice to feed those poor. Actually, this problem is neither eleviated nor worsened. Such global problems will not be solved by price balancing on the local market. Probably the best thing that this calculation model could do to defeat local optimisation at the expense of remote countries, is to find a similar balancing model for the local/remote variations.

Where?

TODO