Increased interest rates would very likely have the opposite affect on gov't debt and spending. The increased interest would force congress to cut spending and get serious about debt reduction. As it stands because interest rates are low, the gov't has no issues with deficit spending and actually incourages them to go on using credit to finance wasteful spending. Low interest rates cause wasteful spending.

>I don't see why economic activity in general is a problem.  Emission of fossil carbon in general, and use of petroleum in particular, is the problem.  Economic activity which displaces or replaces these things is to be encouraged, while a general increase in interest rates would oppose it.

To be fair, there is very little economic activity that does not use fossil fuels. I believe we will see a fairly dramatic drop in oil and gas production soon. It very likely that two largest fields, Gharwar and Cantarell are about to go into terminal decline(probably sometime in 2007 or early 2008).

>Last, this would not necessarily affect China.  China's banks are government-controlled and are unlikely to move investment away from the mainland in response to the Fed.

US interest rates do affect China's economy. There is a lot of foriegn capital that has left the US and Europe because the interest rates were so low (hense the drop in the dollars value compared to other currencies). By raising US raises investors will move capital away from China (and Asia) because of the higher yields and implied lower financial risks. Chinas gov't controlled banks would be force to follow US rate hikes to prevent capital from moving to the US. China, Europe and the majority of major central banks usually adjust their rates when the US fed makes significant changes to US rates. For instance, when the US lowered its rates (down to 1% in 2004) the ECB (european Central bank) and the Chinese central bank both lower their own rates (although not to 1%). When the US began raising rates, both the ECB and Chinese raised their rates (although not as much as the US did). If Central banks do not raise rates and print money to maintain liquidity in their domestic market, it will lead to inflation cause a whole set of new economic problems.

>A tax shift is not a tax increase.

Taxing energy always leads to inflation. This is because businesses pass on their higher energy costs to consumers, which in turn demand higher wages to adjust to the higher costs. The cycle feeds on itself causing inflation.

>Didn't you just complain that US conservation efforts would just shift consumption to e.g. China?

A higher US interest rate would force the worlds Central banks to raise their rates resulting in decreased economic growth and reducing demand for fossil fuels. Higher rates would also promote businesses and consumers use energy more efficient and spend capital more wisely. ie smaller homes, cars, etc.

>A $2/gallon petroleum tax is applied, which generates roughly $400 billion/year.  This is refunded as a deductible on Social Security taxes, averaging $2780 per wage-earner over the US's ~144 million workers.

Social security surpluses are used by politicians as a "slush fund" to pay for programs that will help encumberments get re-elected. That last place you want higher tax revenue to end up is in entitlement program funds. ie politician X campaigns to raise entitlements using the extra revenue or use it to build a new highway to create local jobs, etc.

>Mr. and Mrs. Low Income, who both work and earn a combined $30,000/year, currently use 1180 gallons of motor fuel per year between them.  Their after-tax income increases by $5560 per year, offset by $2360 in fuel taxes and some increase in consumer costs for transport.

What ever money that is refunded to them can be used to consume fossil fuels. What ever increased tax revenues received by the gov't will be used for additional wasteful spending. Over a period of about 3 to 5 years, the gas tax will result in increased inflation (proportional to the increased tax rate), as businesses pass on higher energy costs to consumers and increased tax revenue coupled with poor gov't spending managent. Higher interest rates is by far a better choice.

>And if they paid back into savings based on the embodied energy of what they bought, they'd be more likely to purchase less energy-intensive goods and services simply because they would be cheaper and yield more for their savings.

They won't consider saving money if there is inflation. Why save money if its just going to be inflated away? However higher interest rates does persuade consumers to save. Higher interest rates causes lower inflation and increased yields on savings.

>My purposes in conserving and replacing oil are to reduce GHG emissions, make the US less dependent on (and ultimately independent of) despotic regimes such as Saudi Arabia and Venezuela, and play to our relative advantages in non-fossil energy supplies and thus strengthen the USA compared to e.g. China.  There is no point in making oil last any longer than we need it.

When Oil production collapses GH emissions will increase. This is because gov'ts, consumers, and business will turn to dirty fuels that produce far more GH emissions. They will increase us of fossil fuels and use renewable sources in non-renewable ways. For instance, in the Northeast, lots of consumers purchased wood stoves to help heat their homes. As oil and gas become expensive, the demand for wood to be used for fuel will soar, causing deforestation. Before the development of Oil and gas, much of the Eastern US was deforested from the demand for winter heating, and running equipment. When Oil and gas became accessable, cheap, and easier to use, the trees grew back.

Today, the US population is more than twice as large as it was during the begining of the 20th century when oil and gas began development. It wouldn't take very long to deforest the region again (we have better technology to harvest wood and more people that need fuel). This time around it won't just be the US destroying the local enviroment, it will happen all over the world, especially in Asia. I have now doubt that GH emissions will more than double once oil and gas become expensive.