The Democrats "Fairy Dust" Energy Plan
Mackubin T. Owens
September 1, 2007
After the Democrats took control of Congress last year, party leaders said that one goal of the new majority was “to achieve energy independence, strengthen national security, grow our economy and create jobs, lower energy prices and begin to address global warming.”
Yet the Democrats’ energy bills do just the reverse—thwarting energy independence by taxing oil producers and keeping substantial reserves of oil and natural gas locked up, while favoring “fairy dust” alternative energy and fuel sources that won’t be able to compete with oil and gas for decades (if ever).
Now that Congress is back, a major order of business will be to iron out the differences between the House and Senate energy bills and bring the final version to the floor. But it will be a compromise between two sets of bad ideas.
The House bills, sponsored, respectively, by Reps. Charles Rangel and Nancy Pelosi, do nothing to increase oil and gas production in America—which is necessary if we’re to reduce our dependence on imports. Indeed, they would make it more difficult to produce oil and gas, adding new limits on access to domestic reserves and raising costs to producers by levying $16 billion in taxes on oil companies, by repealing a tax credit for exploration, production and refining and by changing the tax treatment of overseas oil-related income.
The House’s measures also raise false hopes by promoting the fiction that “renewable” energy sources such as wind, solar and biofuels can replace oil and gas in an economically viable manner any time soon, mandating that 20 percent of electricity be generated from renewable-energy sources.
The reason such energy sources need subsidies in the first place is that they have intrinsic shortcomings. Energy available from wind and solar is dispersed rather than concentrated—which means that windmill or solar-panel farms must be huge to generate much power. (Even then, clouds and/or lack of wind can slow or stop production, so utilities would need non-fairy-dust backup generators.)
These alternatives are far too expensive and unreliable to compete on the market. By forcing such costly options on the public and subsidizing them via tax breaks and the like, this bill would hit Americans both as ratepayers and taxpayers.
As bad as the House bill on fairy-dust energy sources is, the Senate’s bill is even worse, mandating a sevenfold increase in biofuels production. To see the problem, consider the most popular biofuel, ethanol.
Ethanol producers have benefited from big subsidies (and mandated use of their product) for decades. The hope that the fuel would become viable in a few years and get “off the dole” has never been realized. In reality, these are just unearned subsidies for agribusiness giants, made politically palatable with (false) environmental rhetoric—pork painted green.
Biofuel mandates have caused another problem: Rising ethanol production has diverted land and corn from food production and animal feed, increasing food prices for U.S. consumers. Even if the nation’s entire corn crop were devoted to ethanol production, it would still only meet a fraction of U.S. gasoline demand.
If it’s serious about energy independence, Congress should expand access to abundant domestic supplies, increasing access to non-park federal lands in the West, Alaska and under the waters off our coasts. The estimated recoverable resources in these areas: 635 trillion cubic feet of natural gas (enough to meet the annual needs of the 60 million American homes fueled by natural gas for over a century) and 112 billion barrels of oil (enough to produce gasoline for 60 million cars and heat for 25 million homes for 60 years).
Congress should also not be hiking taxes on domestic oil producers: That discourages new domestic production, increasing our dependence on imported oil—the reverse of improved energy independence.
The historical record drives home the facts about taxes on domestic producers. For instance, the Carter-era “windfall profits” tax cut U.S. production by as many as 1.2 billion barrels, the Congressional Research Service reported. The report found that, by reducing domestic production by 3 percent to 6 percent, the tax boosted oil imports by 8 percent to 16 percent, “[making] the U.S. more dependent upon imported oil.”
In the House and Senate bills, the new taxes on oil and gas producers would go to subsidize fairy-dust “renewable” energy sources. This repeats the mistakes of the ’70s and early ’80s, when the government tried to micromanage the energy market and pick winners and losers. The results were dismal then. There’s no reason to believe the outcome would be any different today.
The President has threatened to veto either energy bill—as well he should. Congress needs to get serious about energy—by increasing access to domestic sources and putting an end to punitive taxes. Above all else, stop favoring make-believe energy sources over real ones.
Mackubin T. Owens is an Adjunct Fellow of the Ashbrook Center and an associate dean of academics and a professor of national-security affairs at the Naval War College in Newport, R.I.