Now is the time to slash subsidies

Rep. Fred Upton Contributor
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It is crystal clear that the United States is in the middle of a budget crisis. According to the non-partisan Congressional Budget Office, the past two reported federal budget deficits were the highest on record since the end of World War II. Everyone in America, with the possible exception of those folks working at the White House and within Pelosi’s caucus, understands that significant spending cuts must be made and that the government needs to get out of the business of picking winners and losers in the private sector.

There is a consensus among Republicans in the new House majority that Washington has a spending problem. In an interview shortly after the midterm elections, Speaker-designate John Boehner said, “I don’t think Washington has a revenue problem. I think Washington has a spending problem.” I could not agree more. In a recent joint op-ed with Americans for Tax Reform’s Grover Norquist, I echoed Boehner’s comments while underscoring the urgency of cutting spending while halting tax hikes of any kind.  The whopping failure of the $862 billion stimulus is the biggest case in point.

One realm that demands cuts are the renewable energy subsidies that have become so engrained in the renewable energy sector. While renewable energy has a place in an “all of the above” strategy, there is a right way and a wrong way to develop renewable resources. Carelessly throwing taxpayer money at it is the wrong way. Alarmingly, the U.S. government has spent over $10 billion a year for the past ten years on these subsidies. Imagine how $100 billion could be deployed in a far more productive manner, such as for debt repayment or tax cuts. The subsidies were originally promoted as a way to get the renewables industry going, but they have become a crutch; the businesses are allowed to ignore the rules of survival in a competitive marketplace since they know that they will get their cash flow no matter what. Things have gotten so bad that many of these businesses will not survive without the handout. Let the market sort it out! Since I am sure that the industry will never give up its free money voluntarily, now is the time for us to slash it on our terms.

Taking on these subsidies will certainly be a challenge, as the Obama administration has made “green jobs” a cornerstone of its ill-fated economic plan. The president is fond of European-style economies, but an examination of the suffering that the Spanish endured over the past several years due to their failed “green jobs” policies must serve as a lesson. A study by Professor Gabriel Calzada Alvarez, Study of the Effects on Employment of Public Aid to Renewable Energy Sources, concludes that: “Spain’s experience cited by President Obama as a model reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every four created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.” Essentially, when the subsidy spigot is shut off, the green jobs bubble will collapse, just like a Ponzi scheme. Where is the outrage here?

On top of the rampant cash handouts, many green jobs advocates also argue for a federal standard that requires utilities to purchase a significant percentage of total power supplied from renewable energy sources. This is like a subsidy in that it artificially props up the industry. The problem with this policy is that electricity prices rise as a result, killing economic productivity and putting the pinch on American households. A recent Wall Street Journal article, “Renewables Investors Fear Withdrawal of Subsidies” (Aug. 19, 2010), highlighted the European experience with renewable energy subsidies, and provided a disturbing picture. The German economy minister said that “electricity prices are slated to rise 10% because of the rapidly growing power-generation capacity from renewable energy sources”; and the Italian program “currently adds about 5% to electricity bills.” If this point sounds familiar, it is because it was our mantra during the Waxman-Markey cap-and-tax debate last year — we must not enact policies that inflict pain on American ratepayers in the form of higher monthly utility bills.

The bottom line is that the European experience has taught us that renewable energy subsidies will lead to massive job losses and higher electricity prices. Neither of these outcomes is acceptable, and next year we must determine not whether to cut, but rather how much to cut. Renewable energy sources have an integral role, but the free market must prevail without the government inserting itself — yet once again — where it does not belong.

Rep. Fred Upton (R-Mich.) is the ranking member on the House Energy and Commerce Subcommittee on Energy and Environment.