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  • A Crossroads for American Energy Policy

    Two of the amendments offered as attachments to the highway transportation bill are completely at odds with one another. Senator Debbie Stabenow’s (D–MI) amendment continues the status quo of government dependence, technological stagnation, and wasted taxpayer dollars by extending tax credits for a whole host of energy sources: wind, cellulosic ethanol, biodiesel, alternative refueling infrastructure, energy efficient home investments, plug-in electric vehicles, refined coal, and algae, as well as cash grants in lieu of tax credits.

    Senator Jim DeMint (R–SC) and Senator Mike Lee’s (R–UT) amendment seeks to remove the federal government’s ability to pick winners and losers with the tax code by eliminating all targeted tax credits, including those for oil, renewables, nuclear, alternative fuels and vehicles, and advanced coal and gasification. And since eliminating these economically unsound tax credits would raise revenue and thus be a tax increase, the bill would offset the tax increase by lowering the corporate tax rate permanently.

    The arguments for extending the tax credits are that it would diversify the energy economy and that the U.S. would lose jobs if these tax credits are not extended. But the fundamental problem is that these taxpayer-funded programs do not create jobs; they shift them from one sector of the economy to the other. The opportunity cost of government spending is the lost labor and capital extracted from other sectors (ones that do not need government support) of the economy to artificially support the politically preferred ones. Removing the subsidies would free up these resources to be more productive elsewhere in the U.S. economy. Economically speaking, subsidizing inefficient technologies creates a net drain.

    That doesn’t mean we shouldn’t have wind, geothermal, or biofuels as a part of our energy mix. But we should allow the part of the industry that can survive without preferential treatment to innovate, grow, and compete with other energy sources. Congress shouldn’t waste taxpayer dollars trying to prop up economic losers when America has a robust, competitive energy industry capable of meeting our electricity and transportation needs.

    Look at wind. The consulting firm Navigant projects that 50 percent of the wind energy jobs will be lost if Congress fails to extend the tax credit. This means the tax credit artificially propped up 50 percent of the wind energy jobs, and the other half can survive without the credit. If wind can compete without subsidies, then the industry won’t entirely disappear.

    Such subsidies are not good for the taxpayers; they’re not good for economic growth; and they’re not even good for the long-term viability of these industries. Rather than having the subsidies promote technological stagnation in the industry, investments and resources would flow toward the most promising technologies.

    The two amendments represent a crossroads for American energy policy. We need a market-based energy economy that benefits economically viable producers and, ultimately, consumers through more competition and lower prices.

    Posted in Energy, Featured [slideshow_deploy]

    6 Responses to A Crossroads for American Energy Policy

    1. Cal Abel says:

      Great post. Energy is what enables action. Without it we would not be able to exchange goods and services as readily as we do. In other words, our economy would cease to function. I think that energy is what provides value to our currency, the economy's access to energy allows its currency to enable action. When we subsidize something we are not changing the fact that someone has to be paid to produce the component to purchase the energy and raw materials that create the component. All the subsidy does is shift who pays away from the consumer and to the society.

      I am a nuclear engineer and think that nuclear power is one of very few options available for our society to increase its available energy. It was not until the Energy Policy Act of 2005 that subsidy's for nuclear power were introduced. I firmly think that if nuclear energy is to stand on its own, it must stand on its own merit. I hope the moves to eliminate energy subsidies is effective as a subsidy only distorts the market from its most efficient point.

      • Irene Gilbert says:

        Wind energy is expensive, unreliable and the CO2 generated to produce it all but makes up for any savings. Wind farms have destroyed the views, killed and displaced wildlife, destroyed home values, and left BPA giving away clean, reliable hydro-power so us ratepayers have to pay for wind energy we don't want. A trip across the U.S. would show you that this country is becoming one huge, ugly industrial wasteland because of wind farms. Not only that, but of the roughly 2300 jobs Vestas recently cut, only about 182 were in the U.S. and Canada combined. It is a SWINDLE. We are tired of it.!!!! Irene Gilbert

    2. lighthouses7 says:

      Hogwash. Fossil fuel is an industry that is coming to a close. It needs replacing. New industry startup costs along with R&D costs are disproportionately high. The role of government for the commonwealth is to foster development through temporary subsidy. Any permanent tax cut is too rigid and far more harmful. As to the shift in labor demands, well that comes with the landscape of change and not an argument of support for an already heavily subsidized overly protected dying industry.

      • Bobbie says:

        as long as the resources exist it doesn't need replacing, when there isn't anything wrong with it!

        that's the "role" of your kind of government but your kind of government takes away at a cost what you should do all by yourself. Kind of like pulling up your own pants! Remove government from your focus when it comes to "special interests!" impractical to replace efficiency with all things opposite and call it an alternative that's just glutton for crisis.

    3. O_Henry says:

      Do you know what you pay per kilowatt hour(kwh) for the electricity you use and how it compares to other regions of the US? Do you know the costs associated with electricity production from various sources i.e. wind, solar, coal and several other misc. sources? Let me encourage all proponents of electricity usage to review the data from the US Energy and Information Administration (http://www.eia.gov/electricity/). This site gives good cost/price information with comparative data for solar, wind, coal and various other means for producing electricity on a US regional basis. Any fair minded person will find this site a welcome resource to inform their opinion in the ongoing energy conversation.

    4. @chucknfw says:

      The Obama administration evidently has successfully led you to believe that the oil and gas industry is heavily subsidized. That just isn't the case. If you want to change the tax code and increase taxes on companies that drill for oil and gas in our country, then be prepared to pay more for gasoline and electricity. I don't think that is the right solution for our economy. There are two provisions in the tax code that provide and incentive to drill. One is allowing the company to expense the costs that it incurs while drilling the well. These are all the costs that are required to drill a well that provide absolutely no value if it is a dry hole. That is a direct cost that the company can take against income. How is a direct cost a subsidy? The second is the recognition in the tax code that oil and gas aren't renewable. The tax provision provides an offset credit for the reduction of amount of oil or gas underground when it is taken out. Depletion is part of the tax code in mined resources like gypsum, sulfer, metals, coal, oil and gas. This provision provides an incentive for further investment in resources that we need especially energy resources. Natural gas prices have gone from over $10/mcf down to $2.50 and the technology used to accomplish that is being sent to oil basins which will provide more crude production in our country to help reduce and hopefully eliminate our dependence on fuels from enemy nations. Abundant cheap energy is a huge driver in a healthy economy.

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