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Con: Democrats’ bills do not add much new energy to U.S. supply

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Andrew Moylan
November 13, 2007
EDITOR’S NOTE: The writer is addressing the question, “Will the Democrats’ emerging bills help make the U.S. more energy independent?”

Congress, capitalizing on concerns over the future of oil supplies and acting under the guise of reducing dependence on foreign oil, is pushing several bills that purport to set us on the path to “energy security.”


Unfortunately, they are all wasteful, quick-fix solutions that rely on the same old sure-to-fail strategies: more taxes and more subsidies.


The fundamental causes of high energy prices are related to the unshakable laws of supply and demand. Simply stated, the energy demands of our growing economy are greater than the current ability to supply them.


For example, the federal government severely restricts exploration for new energy supplies both on land and offshore. Without additional sources of energy, demand will continue to outstrip supply and prices will continue to rise.


In addition, lack of refinery capacity has caused bottlenecks of the oil supplies that we do currently have. Burdensome regulations have prevented the building of a single new refinery in the last 31 years—confining the industry to often-inefficient expansions of current sites.


Incredibly, Congress’ answer has largely been to penalize unpopular industries with higher taxes, enact more regulations and provide further subsidies to unproven, expensive alternatives.


The House’s energy bill alone contains $14 billion worth of tax hikes on the oil industry. While that policy might make a favorite talking point for business-bashing legislators, it will only exacerbate the supply deficit.


In 1980, Congress instituted a major tax hike on “windfall” profits to punish Big Oil for high prices. According to a study by the Congressional Research Service, the result was a drop in domestic oil production of 3 percent to 6 percent and a hike in oil imports of 8 percent to 16 percent.


Instead of making America energy independent, the tax hike did the exact opposite. It also failed miserably as a revenue raiser, bringing in only 20 percent of what was estimated before it was repealed in 1987.


Unfortunately, it’s not just on the tax front that Congress has failed to learn the lessons of the past. Both chambers also propose unwise regulations and mandates, like the Senate provision requiring a seven-fold increase in the production of ethanol by 2022.


Although taxpayers subsidize ethanol to the tune of $2 billion annually, it is still not competitive in the open market.


The Senate’s answer to that problem is to simply force you to buy it. The House bill requires that at least 15 percent of electricity be generated by ethanol and other renewable sources—even if that number is not realistic.


Unfortunately, throwing a dart at a board and picking an arbitrary number can’t account for the complexities and difficulties of a market economy. Nor does throwing a dart at a board and subsidizing the most powerful special-interest groups help achieve energy security. For as harmful as Congress’ punitive measures can be, its policy-success rate doesn’t climb when it helps specific industries, either.


Perhaps the best example of the latter can be found in windmills. The feds subsidize 1.9 cents per kilowatt-hour of energy, propping up a market that would otherwise not exist.


Wind energy and nuclear energy have similar startup costs, but wind requires four times the capacity to produce the same amount of energy. When combined with the difficulties of locating windmills and transmission costs, wind doesn’t make much sense for anyone—except owners of windmill firms. Though they’ve benefited from the subsidy, American consumers generally have not.


Much as they might like to, members of Congress cannot repeal the laws of economics. But if policy-makers want to provide a legislative framework for America’s energy future, they ought to start by reducing taxes, equalizing treatment across all industries, and allowing the market to fuel the quest for alternative energy.


Andrew Moylan is government affairs manager at the National Taxpayers, 108 N. Alfred St., Alexandria, VA 22314.

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