Much regulation occurs because there is no competitive suppliers of services. This is particularly so in infrastructure industries where it makes sense to have one infrastructure and only one supplier. The electricity industry, the communications industry, roads, water supply are all cases where it makes sense to have one physical infrastructure to deliver the service. In the electricity industry competition is achieved by separating the delivery mechanisms (the wires) from the electricity that is supplied. While this achieves competition it does not bring competition into the “wires” or infrastructure part of the industry.

Competition can be introduced into infrastructure by bringing competition to the investment side rather than to the supply side. For example as a policy decision it might be decided to direct new electricity generation capacity to generating sources that produce little or no greenhouse gas emissions and that the funds to build this capacity or to make savings shall come from existing consumers of polluting energy.

This can be achieved in a competitive way as follows:

Put a fixed surcharge on energy that produces greenhouse gases according to the greenhouse gases produced for each unit of energy. The size of the surcharge will be adjusted according to the outcome and so does not have to be exact. Distribute the surcharge back to consumers but require consumers invest the money in ways to reduce greenhouse gas or to save energy consumption. Any organisation that wishes to obtain access to these funds has to go through an approval process and prove that their technology will reduce greenhouse gas emission.

A true market is now created in the technologies to reduce greenhouse gas emissions. There are a large number of buyers and there will be many ways for them to invest their money and they will each choose the best investment for them. Whatever investment is chosen will reduce greenhouse gases. If the rate at which greenhouse gases are reduced is too slow then the surcharge is increased.

The same process can occur with broadband infrastructure. All existing communications technologies could have a surcharge attached to their use where the slower the speed the greater the surcharge. This money is given back to the consumers but they must invest the money in faster infrastructure. Any organisation can make proposals on how they will achieve higher speeds and the ones approved will then compete for funds from the people holding the money obtained from the surcharges.

This process removes investment decisions from the monopoly suppliers and forces them to compete for investment dollars. The current system with monopoly suppliers is that they charge more to consumers and they may or may not invest in ways to improve their service. With the surcharge approach there is money available to be spent and it will be invested in improving the system even if the monopoly supplier continues as the dominant supplier.

Water Rewards is an implementation of the idea as a way to remove the need for water restrictions and increase investment in water infrastructure.

Transport Rewards is a suggestion on how to use the approach to make better use of existing transport infrastructure.

The approach is superior to other approaches to encourage investment through pricing such as Carbon Trading or Water Trading because it is difficult for the system to be perverted and will result in the lowest cost to achieve the desired objective. For example and Energy surcharge will always result in lower prices than Carbon Trading because with Trading the cost of Carbon credits has to rise to marginal cost of producing green energy otherwise investments will not be made in less polluting ways of generating energy.

All improvements require investment and it is difficult for new technologies to gain a foothold against old technologies without some assistance and support because the immediate return on investment is almost always greater with the old technologies. Rather than giving direct assistance and picking winners the approach of giving many people funds and requiring them to choose between different technologies will bring competition to infrastructure.

The surcharge (or Rewards) approach is superior to a tax approach because taxes do not create a market. The government collects the taxes then decides how to spend the money. In effect there is only one buyer and this does not lead to efficient markets.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s