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A Crossroads for American Energy Policy

Posted By Nicolas Loris On March 8, 2012 @ 5:20 pm In Energy,Featured | Comments Disabled

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.


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