I am curious if I can get this group to agree on the following proposal:
The part conservatives/libertarians will like:
1) Cut all energy subsidies to wind, solar, and especially ethanol.
2) Get rid of all ethanol requirements for gas.
3) Get rid of all fuel economy requirements on cars. This acts as a hidden tax on bigger vehicles.
The part conservatives/libertarians won't like (but combined with the next part, should)
4) Raise the federal tax on gasoline by about $1.50 per gallon.
5) Raise the federal tax on coal and natural gas so that each is taxed $1.50 per energy equivalent to a gallon of gas.
The part, along with 1-3 above, that should make conservatives be willing to swallow 4 and 5:
6) State by state, rebate all revenues from 4) and 5) to households as a general energy tax credit on a per person basis.
That is, if the Federal Government raises $X from Minnesota residents from the energy taxes, the next year all Federal tax filers would receive an $X/(number of residents of Minnesota) credit on their 1040 per household member.
So what's the point of raising a tax only to give the money back? The idea is to raise the domestic price of energy while cutting the world price. Suppose no one changes how much energy they use. Then if the Saurus family uses more energy than the average Minnesotan, they lose under this plan - the amount they get back won't cover the extra taxes. If they use less, they win. This creates an incentive for everyone to cut back on the energy they use.
So why should the government interfere? What's so special about energy? (We don't see the need for the government to try to create an incentive to cut back on our purchases on, say, wheat.)
The basic idea is that the US is a big net consumer of energy. If we enact policies to cut back our demand (which the above tax system will do) we will help drive down the world price of energy. The price of gas to us won't go up by $1.50. It will go up by $1.50 less the amount the world price drops due to this policy. This helps us a nation because
1) The loss in profits due to a lower world price is disproportionately born by foreigners.
2) Many (if not most) of these foreigners are our enemies. It's a good thing to defund your enemies.
In all seriousness, we should do this. This should be our national energy policy and cut out all the complicated subsidize this crap to alternative energy sources. Nothing acts as a better subsidy to alternatives than a high price.
UPDATE: One of my graduate school professors, Nobel prize winner Gary Becker agrees and is, perhaps more persuasive, here