Propeller Fatality Tax, Cap and Trade Background Information

We discuss Propeller Fatality Cap and Trade With a Tax on Over Cap Fatalities as a means to reduce recreational boat propeller fatalities in another post. While developing those concepts, we explored some other venues as well. The less desired approaches are provided here as reference material.

In general, they present an approaches similar to cap and trading of emissions.

Two such approaches are presented here

  • Propeller Fatality Tax
  • Propeller Fatality Cap and Trade

The numbers presented in bold are merely placeholders to generate discussion.

Emissions Taxing – Propeller Fatality Tax

Emissions taxing tends to be based directly on the amount of oil, gas, or coal consumed by a company. Since governments are unable to determine the exact amount of damage done by each company’s emissions, they just tax the fuels each company consumes that create the emissions. However, with boat propeller fatalities, the government should be able to precisely identify the number of recreational boat fatalities in the U.S. Coast Guard Boating Accident Report Database (BARD) for each year that are associated with each marine drive manufacturer. The U.S. Coast Guard could directly tax each drive manufacture $500,000 for each fatality (sort of a fine). The taxes collected could be used to fund propeller safety initiatives, such as those described on our Propeller Fatality Cap and Trade With a Tax On Over Cap Fatalities post.

Some drive manufactures have millions of drives in the field. Even if they made current production drives perfectly safe, it would be decades before they were able to reduce their annual number of propeller fatalities to near zero. These drive manufacturers would have to separately address their legacy drive population. Approaches might include those described in our Propeller Fatality Cap and Trade With a Tax On Over Cap Fatalities post.

Bombardier purchased the marine drive assets of Outboard Marine Corporation (OMC) in early 2001 and do not consider themselves liable for OMC’s legacy drives. However they did recall some FICHT 1999 and 2000 drives that were catching on fire to help restore confidence in their brand.

That leaves Mercury Marine (Brunswick) with the largest population of marine drives. It would seem unfair to tax them for every single propeller fatality from their pool, so we will evaluate some other alternatives.

Emissions Trading – Propeller Fatality Cap and Trade

Under emissions trading the government decides the maximum amount of emissions permissible (the cap) given the technologies available or anticipated to be available. The government creates and issues permits (credits) for that amount of emissions and distributes them to the companies. Each company must have permits equal to its emissions. If they emit more than they have permits for, they must purchase additional permits from other companies.

If USCG followed this model and said 15 propeller fatalities a year were acceptable, USCG could issue 11 permits (credits) and give two credits to each major drive manufacturer (like Mercury Marine, Bombardier/OMC, Yamaha, Suzuki, Honda) and give one permit (credit) to a lottery winner of the remaining firms (like Tohatsu, Yanmar, Nissan, Selva, Parsons). Then at the end of the year, each company would need to have as many permits (credits) as it had U.S. recreational boat propeller fatalities. Firms with more fatalities than permits would need to purchase additional permits from the other firms. Their distaste for paying their competitors, and desire to lower their own costs should drive the the larger companies to reduce the number of propeller fatalities by some mix of propeller safety programs and hardware.

Smaller companies would also be driven to improve propeller safety because although their legacy populations are much smaller, they could still be caught with some propeller fatalities and need to purchase permits. The one lottery winner each year would be able to sell their permit if they did not require it themselves.

In reality, a few firms have a much larger exposure due to their legacy drives in the field. The funds they would pay to competitors with smaller legacy populations would not likely be used for propeller safety initiatives. Payments would probably go to improve the bottom line financials at the smaller firms, for current and capital expenses, and to a self insurance account to be used if they ever have more than one propeller fatality a year. Payments to firms owned by much larger parent companies might just flow back up the food chain.

Even if drive manufacturers took some extremely drastic actions on current production units and deployed propeller safety programs targeting legacy populations, chances are that annual propeller fatalities might still exceed the target of 15. There would not be enough permits to go around. Drive companies unable to secure enough permits (credits) could be forbidden to manufacture more than 2/3 of their current annual drive production rate next year. No one really wants to limit marine drive production when the boating industry already has plenty of economic problems.

With the cost of permits likely very high, some firms might scout accident reports for those involving competitors drives to “turn them in”. This bounty hunter mentality might increase the number of BARD reported propeller fatalities.

Bombardier does not consider itself responsible for legacy OMC drives. This creates a problem with the Cap and Trade approach unless the OMC fatalities are left out and a correspondingly lower target is selected. We feel it wrong to leave out the OMC legacy drives because many of them can be made safer by propeller safety initiatives.

Cap and Trade works best for constant flow applications (such as dialing up so much power from the power plant and leaving it at that setting). Propeller fatalities occur with some randomness. The exact number of permits a firm would need cannot be predicted with precision until the year ends and all the accident data is in.

Randomness, not having enough permits, funds trading hands inside the industry vs. being applied directly to propeller safety initiatives, and how to handle the legacy OMC drives are some of the problems with this approach. We will now evaluate a hybrid propeller cap and trade alternative.

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