Up Front

« Previous | Next »

Bad Tax Policy Makes Bad Energy Policy

U.S. President Obama speaks after the House of Representatives acted on legislation intended to avoid the "fiscal cliff," at the White House in Washington (REUTERS/Jonathan Ernst).

Despite the fact that all renewable energy, minus hydropower, is projected to account for less than 10% of U.S. energy supply by 2040, Congress and the administration once again have shown themselves to be pusillanimous and are refusing to stand up to an industry which, in the absence of an extension of tax credits, cannot compete in the marketplace despite years of subsidies, paid courtesy of the American taxpayer. Under the new fiscal deal, the wind industry will receive $12 billion over the next decade, not including the higher electricity costs that consumers will pay for state mandates requiring that a portion of future electricity supply come from high cost renewable energy resources. The situation is even more egregious in regards to offshore wind projects such as Cape Wind in Nantucket Sound where the project was designed and justified based on the premise that it would lower the utility costs of hard pressed New England consumers who will now see their utility bills escalate dramatically. The Congressional/administration decision to make qualifying for these tax credits even less onerous than before is another stark example of the abnegation of public fiscal accountability. Whereas previously to receive a tax credit wind projects had to be completed and in operation by the end of the calendar year, under the revised rules, new wind farms will be able to claim either a production tax credit or an investment tax credit analogous to what just expired as long as the project breaks ground in 2013. The fact that we already have completed windmills that are not tied to the grid gives little reason to be sanguine that this loophole will not be exploited.

The wind industry and its lobbyists argue that wind farms will generate so much tax revenue (federal, state and local) that they will more than pay for the tax credits . In this regard, it is ironic that, according to the American Wind Energy Association’s own statistics, nearly 80% of the nation’s wind farms are in Congressional districts represented by Republicans as are 67% of the factories producing turbines and other components of electric wind generating facilities. To be fair to the wind industry, it was not the only recipient of a basket of goodies from the Congress and the administration. Electricity made from biomass, tidal and ocean power, technical improvements in hydroelectric facilities and landfill methane all got their tax cuts extended.

While it may be argued that given the size of our fiscal debacle, including our unfunded future entitlement liabilities, all these subsidies represent a drop in the financial bucket. What is truly sad is that this whole debate over subsidies has occurred against the backdrop of a transformation in the North American (U.S. and Canada) energy economies which offer the United States and our Canadian neighbors unique political and economic opportunities. Given this energy bonanza, we can use our new unconventional oil and gas reserves to: (1) eliminate our oil import dependency, saving over $425 billion dollars a year; and (2) revitalize American manufacturing and industrial exports, using cheap unconventional natural gas liquids (propane, butane, pentane, etc.) as fuel, while exporting some of the remainder of our vast gas resources, thereby breaking the stranglehold of Russian gas on our European allies while also assisting other allies and trading partners such as Korea, India and Japan in meeting their rising energy requirements.

Mr. President, the time has come to lead this nation towards a bright energy future using the unconventional oil and natural gas that nature has provided us. Specifically, it is time to sit down with the governors of New York and Connecticut to end the bottlenecks keeping shale gas production and transport from reaching New England. As the region of the country still most susceptible to high oil prices, nothing would do more for national energy security than to build a pipeline network that would allow oil and gas from the Marcellus to flood into New England. Second, it is time to give approval for the Keystone XL pipeline, sending a clear message to all concerned that your administration will move after sound environmental reviews to expedite the construction of all the requite pipelines that will need to be built to maximize our unconventional oil and natural gas and to get them to market. Third, with demand for LNG in the Pacific growing exponentially, it is time not only to accelerate the export of natural gas from the lower 48 states but also from Alaska. For too long, the promises made to Alaskans at the time of statehood and the Land Claims Settlement Act have gone unfulfilled. Alaska should no longer be treated as some sort of colony or as a vast national park but rather as part of the nation’s great resource heritage, albeit with the proper environmental oversight by both the federal and state governments.

Mr. President, the fiscal debate exhibited American parochialism and the lack of statesmanship by both our great political parties at their worst. It is now time for you to move this nation away from the perception held by some that our future energy situation can be met fully by renewables, energy conservation and end use efficiency. Of course, these are all important but with every leading energy forecast suggesting that for at least the next 30-40 years the world will remain dependent on fossil fuels which we have in untold abundance, it’s time to get on with the job, find ways to strip out CO2 from our oil, coal and gas production and to utilize what we can while sequestering the rest proving once again the very essence of American Exceptionalism.

  • Charles K. Ebinger is a senior fellow in the Energy Security Initiative at Brookings. He served as the Initiative’s director from 2008 to October of 2014. Previously, Ebinger served as a senior advisor at the International Resources Group where he advised over 50 governments on various aspects of their energy policies, specializing in institutional and economic restructuring of their utility sectors. Ebinger has special expertise in South Asia, the Middle East and Africa, but has also worked in the Far East, Southeast Asia, Eastern Europe, Central Asia and Latin America.

blog comments powered by Disqus