Re-Thinking Energy Incentives – By Donald E. Cole

June 27, 2011

[img_assist|nid=24109|title=energy|desc=|link=none|align=left|width=150|height=110]HR 1380, New Alternative Transportation to Give Americans Solutions (NAT GAS) Act provides a host of tax credits and subsidies to create incentive for vehicles fueled by natural gas. Some conservatives in congress support this bill. In the past, I may have been supportive as well. There is a conservative philosophical thread in the idea of tax credits to unshackle the burdens and create an incentive to use more natural gas and thereby reduce our dependency on foreign oil. However, this conservative thread could prove to be a Trojan horse which creates a host of unintended consequences.

In the 70’s, one of the answers to the oil crisis was the big push for Ethanol. “We will grow our own fuel and tell OPEC to eat sand!” The battle cry was inspiring. However, we experienced unintended consequences. Because of subsidies and tax breaks, ethanol producers could pay more for corn than other traditional markets. Farmers did just what you and I would do. They sold in the highest paying market. Food prices went up, fuel prices continued to climb, and the true cost to produce a gallon of ethanol was higher than the cost of a gallon of gasoline. Ethanol distilleries started and failed. Investors lost money, people lost jobs, and communities were left holding the bag to pay for infrastructure improvements funded by local bond issues.

Now, we have this push to encourage more vehicles to run on natural gas. Let’s review what we might be able to learn from Ethanol. Natural gas is used in more ways that powering vehicles. It heats our homes and it is also used in the production of fertilizer. When the government subsidizes vehicles that use natural gas, then the demand for natural gas rises, the price rises, and those other buyers (home heating and fertilizer producers among others) have to ante up and the consumers of their products will have to ante up as well.

Another unintended consequence is the additional complexity in the tax code and the growth of bureaucracy. Right off the bat I can see how the IRS, Department of Energy, Department of Agriculture, and the Environmental Protection Agency will need to create a new program with more staff, more office space, more equipment and communications, etc. etc. ad nauseum. It will happen and this is exactly the opposite of what conservatives fight for on a daily basis.

Our current economic conditions are forcing all of us to step back and take a fresh look at economic reality. We cannot continue to do business the way we always have and hope that it will all work out. We have to get back to a basic understanding of what drives the economic engine in America. It is not government programs to stimulate any particular sector of the economy. It is government getting off the backs of entrepeneurs and business (small ones and big ones as well) and letting people make and keep as much money as they can possibly make.

The best way to create the incentives for energy efficiency and innovation is to address burdensome regulations and restrictions on all energy related industry and unleash American ingenuity.

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