The Senate has already killed the big items on the agendas of both the environmentalists (higher auto‐mileage standards) and the oil industry (drilling in the Arctic National Wildlife Refuge). Some Washington insiders smugly say that since now no one is happy with this bill, it must be a good one. Wrong.
The legislation does nothing to improve the efficiency of energy markets or to remedy any market failures. In fact, it makes matters worse by further distorting these markets with billions of dollars of taxpayer subsidies and other handouts to well‐connected energy industries.
This shouldn’t come as any surprise. When politicians lack the courage or wherewithal to solve problems, they reflexively subsidize politically potent industries that supposedly offer solutions. So let’s start at the top: What’s the problem that the House and Senate bills supposedly solve?
It’s not energy supply or price. There is no national energy shortage, and prices are moderate in constant dollars. In fact, the House and Senate bills will almost certainly raise gasoline prices by ramming down consumers’ throats a poorly conceived, environmentally damaging and expensive ethanol mandate.
It’s not oil dependence. For those to whom this is important, the legislation would have only a trivial effect on domestic oil production or consumption.
It’s not gasoline refining capacity. Even those in the oil industry acknowledge that when new capacity is needed, they’ll add it; profit opportunities, or the lack of them, are the only real barrier — and the ethanol mandate might actually create spot shortages on the coasts.
It’s not consumer protection in electricity markets. The bill gives the Federal Energy Regulatory Commission a green light to continue restructuring the industry in an experiment that looks more dubious by the minute, especially for consumer interests.
The bill passed by the Republican House last August boils down to little other than $33 billion in tax breaks and subsidies, the great majority of which are awarded to the coal, oil and nuclear industries. It has dozens of new federal studies and other benefits for virtually every energy technology represented by a lobbyist. Since when did conservatives believe in picking winners and losers in the marketplace?
The Senate bill crafted by the Democrats, with a price tag of merely $14.5 billion, isn’t much better. It, too, has a hurricane of subsidies, tax breaks and regulatory preferences for every energy industry you can imagine. And despite Democrats’ green rhetoric, the Senate bill rains roughly the same level of subsidies on the fossil fuel and nuclear power industries as it does on “green” energy technologies such as solar and wind.
Conservative legislators have conveniently forgotten the economists’ admonition that if a technology is economically competitive, no public subsidies are necessary, and if a technology is not economically competitive, no amount of public subsidy or special favors will make it so. Liberal legislators, on the other hand, are so hypnotized by the handouts to their favorite industries that they overlook the far greater sacks of largess bestowed on their economic competitors.
We would hope it’s not too late for something better. Devotees of Adam Smith and Rachel Carson should join together to propose an alternative bill, one that would simply strip away all energy subsidies and preferences from the budget and the federal tax code.
Environmentalists would be happy if renewable energy sources and energy‐efficient technologies were just allowed to compete with the fossil fuels industry on a level playing field. The only way to level it is to end the ever‐escalating arms race of corporate subsidies that guarantee green technologies will never win, no matter which party is in power. Likewise, many economic conservatives are more interested in freeing energy markets than in rigging them, but they’ve lacked the ability to fight the pork‐barrel crowd in Washington.
Not only would energy markets operate more fairly and efficiently but taxpayers could realize billions of dollars of savings by saying “no” to this grotesque bipartisan avalanche of welfare for the well‐connected. If it is too late for something better, then let’s just kill these bills and call it a day.