The Senate will vote this week on Senator Jim DeMint’s Senate Amendment 1589, which would eliminate all energy tax subsidies. The DeMint Amendment would end the usual games of Republicans subsidizing fossil fuels and Democrats subsidizing renewables. This vote will tell us, clearly, which senators think we as consumers should be in charge of making our own energy decisions and which senators want to make those decisions for us — at a cost of billions of our tax dollars.
In 2010, the federal government gave away $37 billion in energy subsidies — more than twice what it gave as recently as 2007. Washington gave $2.8 billion to oil and natural gas, $1.4 billion to coal, $5 billion to wind, $6.6 billion to biofuels, and $1.1 billion to solar.
Relative to output, renewables, which provide only a tiny fraction of the overall energy mix, are massively more subsidized than fossil fuels. In 2010, subsidies per megawatt-hour were $0.63 for natural gas, $0.64 for coal, $52 for wind, and $968 for solar.
President Obama looks at the billions of dollars being lavished on wind and solar and insists that we need to “double down” on these expensive, unreliable technologies. This is despite the fact that the European countries that have massively subsidized wind and solar are suffering as a result. The average price of electricity in Germany, for instance, is now more than triple the average price in the U.S., but wind and solar are still struggling to compete there.
It’s appropriate that Obama keeps using the gambling terminology “double down,” because this use of our tax dollars has less chance of paying off than a trip to the casino.
It’s not just renewables. Subsidies for fossil fuels are also wrong. They’re wrong because central economic planning is always wrong. Technologies should succeed or fail on their merits in a free market that empowers consumers to make decisions, not politicians and bureaucrats who think they know better. Washington’s attempts to interfere in the market almost always fail.
The so-called NAT GAS Act, offered side-by-side with the DeMint Amendment, is another classic example of Washington corruption and cronyism. It would provide subsidies of up to $64,000 per big-rig truck converted to natural gas, as well as subsidies for cars, fueling stations, and every other aspect of the natural gas vehicle supply chain.
If Washington intervenes in the natural gas market and artificially boosts demand in the transportation sector, there will be unintended consequences. Natural gas prices, which are now at historic lows, will jump. That means higher home heating bills and higher prices for all the industries that use natural gas as a feedstock.
Natural gas vehicles may or may not be the wave of the future. But if they are, the most important thing government can do is back off any attempts to strangle the fracking boom with overregulation, and let the market decide.
Proponents of subsidies always object that their preferred technologies need a boost from taxpayers because other technologies already have one. It’s a pernicious cycle that ends up with taxpayers footing the bill for every energy technology with backers who have enough political savvy to play the Washington lobbying game.
The DeMint Amendment gives the Senate an opportunity to get rid of all these subsidies, all at once, across the board. It’s a critical test of seriousness that will reveal which senators actually understand and believe in the free market.
The message of the 2010 election was crystal clear. Voters rejected big-government intrusion and cronyism. Cap and trade, the biggest intervention in energy markets ever proposed, was one of the big ingredients in the landslide. Senators who react to that election by insisting on vast new energy subsidies for wind or natural gas have entirely missed the point.
Any Republican who votes against the DeMint Amendment sends the embarrassing message that Republicans have no problem picking winners and losers, rewarding friends and allies, and interfering in free markets. They just prefer different technologies. Sad.
Phil Kerpen is vice president for policy at Americans for Prosperity and the author of “Democracy Denied” (BenBella Books, 2011).
