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Expanding RFS to Natural Gas: Typically Terrible DC Idea
Sadly for taxpayers, it’s no longer surprising when, as the market economy evolves, Washington is called in to try and “rebalance” things – with predictably disastrous results. So it is with a recently introduced bill, H.R. 1959, which would expand the terrible Renewable Fuels Standard (RFS) to include natural gas derived ethanol.
NTU has weighed in extensively on the damaging ethanol mandate enshrined in the RFS. Pouring ever-increasing gallons corn ethanol into our fuel tanks has led to higher food and fuel prices, environmental and economic damage, and has even exacerbated hunger problems in developing nations. An urgent reform, or better yet, repeal of the RFS is long overdue.
Lumping bad policy on top of bad policy is far from a good fix. Despite strong pushes for reform from dairy and livestock producers, anti-hunger groups, taxpayer groups, engine manufacturers, and environmentalists, the powerful corn lobby ensures that corn ethanol remains entrenched in our public policy, even in the face of damning evidence of its harm. Though supporters of H.R. 1959 say the bill will help to cut Big Corn’s influence in Washington, this noble goal will almost certainly backfire. Extending the same guaranteed market to another energy source will only further cement the feds in the energy sector and create another rent seeker at the government trough.
As the incredible natural gas boom drives prices down, relying on the market, not federal favors, is the best response. That means pursuing free market solutions to boost profitability such as exports and technology that will help consumers use more affordable natural gas as an energy source. And in turn, Congress should make sure that big government isn’t standing in the way. Getting government out of the energy industry by leveling the playing field and not picking winners and losers be they renewable or otherwise, is a far better path for consumers and the natural gas industry than tweaking current bad laws.
If H.R. 1959 goes forward, it might help to ease the pressure on feed stocks, but consumers will still be facing many of the same problems the RFS presents today. Even worse, when tomorrow comes, the natural gas industry will have an incentive for urging the EPA to push for E-15 and higher blends of ethanol regardless of the cost or damage to many engines, in order to use increasing volumes of their products as refineries inch closer to the dreaded “blend wall.”
By artificially increasing the demand for natural gas, H.R. 1959 would spawn its own wealth transfers and market distortions. For example, higher gas prices would inflate household utility bills and could erode the competitiveness of U.S. manufacturers.
Natural gas has no need of special privileges to flourish in the motor fuel market, as two articles in the June 20, 2013 Wall Street Journal clearly show. Worldwide, gas demand in road transport increased tenfold from 2000 to 2010. The International Energy Agency expects gas in road and maritime transport to “do more to reduce the medium-term growth in oil demand than both biofuels and electric cars combined.” This spring Cummins released two new long-haul truck engines that run on gas rather than diesel. The company developed the engines “without a penny of government support.”
Rather than attempt “fixes” that create new carve-outs (and encourage more lobbying to retain them), NTU urges Congress to consider bills that will help truly reform or repeal the RFS. Several good bi-partisan reforms are currently on the table in both chambers including the “Renewable Fuel Standard Reform Act” in the House led by Congressmen Goodlatte (R-VA), Costa (D-CA), Womack (R-AR), and Welch (D-VT) and the “Renewable Fuel Standard Repeal Act” in the Senate led by Senators Barrasso (R-WY), Pryor (D-AR), and Toomey (R-PA).
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Lower Taxes + More Oil = North Slope Economic Growth
Oil companies are now committing massive investments to Alaska’s economy in response to reduced taxes. Conservatives have long claimed that reductions in taxes help to encourage market investment and prosperity. Without business, there are no jobs, without jobs there cannot be economic growth. The situation concerning the Oil and Gas Production Tax (SB 21) in the North Slope of Alaska is a prime example of this truism. The Tax Foundation ranked Alaska as the fourth-best state tax climate for business for 2013, and the prospects keep improving as this new law begins to take effect. The long-standing fact that Alaska is one of only two states without an individual income tax or state-level sales tax (the other being New Hampshire) greatly contributes to its favorable business climate.
Before SB 21, the task of funding state services and government fell mainly to the oil companies, which paid a progressive tax on net profit with a maximum of 75 percent being collected by the state as part of the 2007 Alaska’s Clear and Equitable Share (ACES) Act. This staggering burden upon oil producers, who bring so much investment to the state, was advocated and pushed through by then Governor Sarah Palin. It is ironic that this national icon for lower taxes touts ACES as one of her major accomplishments in office.
For the past three years, Governor Sean Parnell has pushed for the rollback of this tax and finally succeeded with the passage of SB 21 this past April. In response to this reversal, which now sets a flat 35 percent tax on profits, BP has announced plans to invest $1 billion in further investment into Prudhoe Bay in Alaska, which BP lists as the largest oilfield in the United States. BP’s promise to create two new drill rigs by 2016 will add 200 new jobs to the already 2,300 that they support in Alaska. Exxon and ConocoPhillips, which each own 36 percent of the Prudhoe Bay oilfield, are looking into plans to team up with BP to commit $3 billion to add 110 more wells to their portfolios.
A look at the past shows that while some may criticize this tax reduction as a “giveaway” to big oil, it is far from that. Alaska is able to enjoy low taxes due to the finances that BP, ConocoPhillips, and Exxon invest in the state. Too often the oil industry is seen as easy plunder for tax hiking politicians, however, the tax reductions were essential for the industry and economic prosperity in the state. Currently, the oil flow from existing rigs is waning and low capacity is threatening to render the pipeline inoperable. The miles of pipeline were built to transport 2 million barrels of crude oil a day—the amount that was being transported at the height of production. A severe cut to the oil flow could cause remaining oil to freeze. Without oil companies’ additional and substantial investment it is likely that the Alaskan economy would fail to thrive. Rather than push policies which would make exploration in Alaska less lucrative than pursuing oil elsewhere, the latest actions from Governor Parnell have already been shown to foster continued economic development. So while the rest of the nation remains confounded on how to resurrect the economy, let them look to the North as lowered taxes spur investment and growth.8 Comments | Post a Comment | Sign up for NTU Action Alerts
Satirical Video of ActionAid Canvassers Promoting “Drive Aid”
Check out this satirical video created by ActionAid to highlight the need for reforms like those in the “Renewable Fuel Standard (RFS) Reform Act", which NTU supported.
The reforms would prioritize food for families over fuel for cars.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Bipartisan House Foursome Reveal Bill to Fix Costly Ethanol Mandates
Yesterday, NTU announced its support for the bipartisan Renewable Fuel Standards (RFS) Reform Act, which will reduce ethanol mandates that drive up food and fuel costs. In addition to our letter to Capitol Hill, NTU staff joined a wide range of the bill’s supporters at a press conference to push for this needed relaxation of federal regulation.
This public unveiling of the bill took place on the House Triangle and featured the bill’s four sponsors: Reps. Bob Goodlatte (R-VA), Jim Costa (D-CA), Steve Womack (R-AR), and Peter Welch (D-VT). Industry leaders, and anti-hunger activists also spoke.
In a prior statement discussing the problems with RFS mandates and their motivation to work together, the four aptly said:
“The RFS debate is no longer just a debate about fuel or food. It is also a debate about jobs, small business, and economic growth. The federal government’s creation of an artificial market for the ethanol industry has quite frankly triggered a domino effect that is hurting American consumers, energy producers, livestock producers, food manufacturers, and retailers. The broad coalition of organizations supporting this legislation echo the same sentiment: the RFS is not working.”
Mike Brown, president of the National Chicken Council, explained how the mandate adversely affects the food industry, raising the costs of poultry feed, and subsequently, the prices consumers pay at the grocery store:
“What we are against is a government mandate that artificially inflates the price of corn, picks winners, and punishes losers among those who depend on it,” Brown said. “Taking half of the corn crop from the food chain hurts consumers.”
Demonstrating how broad the unintended consequences of the RFS mandates have been, Actionaid USA’s Kristin Sundell explained how the RFS Reform Act would help to alleviate hunger by lowering food prices, and set a global example that puts human wellbeing above fuel:
“The Renewable Fuel Standard Reform Act will alleviate some of the pressure that US biofuel mandates are putting on food prices and agricultural land around the world. We urgently need to rebalance our food and energy policies to make sure that people eat before cars."
As taxpayers and consumers know, it is high time for this government burden to be removed. The RFS Reform Act offers common sense solutions that remove market distortions, help lower food costs and alleviate hunger, and minimize the harm of ineffective fuel mandates that are out of touch with reality. Here’s to hoping Representatives on both sides of the isle join their colleagues and vote for reform.0 Comments | Post a Comment | Sign up for NTU Action Alerts
The Late Edition: April 10, 2013
Today’s Taxpayer News!
Reason takes a walk down memory lane to honor the late Margaret Thatcher and the limited government efforts she inspired. These included opening up local services to competition to save taxpayers money, something NTU commissioned an influential study on.
NTU recently urged the House to support H.R. 3, the Northern Route Approval Act, which would begin clearing way for the Keystone XL pipeline.0 Comments | Post a Comment | Sign up for NTU Action Alerts
The Late Edition: February 6, 2013
Today’s Taxpayer News!
NTU’s Pete Sepp weighs in on the economic harm of bad energy policy in this US News op-ed.
Forty states have declared today ‘Ronald Reagan Day’ in honor of what would be the former President’s 102nd birthday.1 Comments | Post a Comment | Sign up for NTU Action Alerts
ExxonMobil released some good news today – its profits have reached a five-year high. Exxon’s competitor Chevron also experienced a large fourth quarter bump in earnings. But before employees and shareholders start popping champagne corks, they should keep a close eye on Washington DC.
Already, politicians are seizing upon this news as an opportunity to raise taxes on “Big Oil.” Both White House press secretary Jay Carney and Senate Majority Leader Harry Reid have suggested that these just-announced profit figures could create a better political opportunity to raise taxes on the industry.
They would do so by eliminating a so-called tax loophole for oil and gas companies. Of course, this loophole isn’t really a loophole at all. It’s a broad-based manufacturing tax deduction that is utilized by virtually every company in the Dow Jones index. The deduction should probably be eliminated altogether as part of comprehensive tax reform in which credits and deductions are scrapped and the rate lowered for all companies. But that’s not what the White House and Reid are talking about here. Instead, they want to single out one industry to punish it for being successful. They would keep the manufacturing deductuion for all companies except those in the oil and gas industry.
If the oil industry wanted to curry favor with tax-hike proponents, it would probably be better off losing scads of money and rocketing towards bankruptcy. In that case, they might become the beneficiary of a large taxpayer-funded bailout. Instead, they could see their taxes raised dramatically as a punishment for making profitable business decisions.1 Comments | Post a Comment | Sign up for NTU Action Alerts
Sen. Vitter and Rep. Pompeo Launch Opposition to Proposed Carbon Tax
Members of Congress are trying to hang their hats on anything that might help them avoid making any serious spending cuts ahead of the looming “Fiscal Cliff.” Among the many truly bad ideas that are being floated all in the name of raising “revenue,” as if there was any tax large enough to get us out of the hole our unbridled spending has dug, is a potential carbon tax. While past carbon tax proposals, aimed at curbing greenhouse gases, have also included components aimed at revenue neutrality and other ways to mitigate the regressive nature of such a tax, the current carbon tax talk is pure cash grab.
Senator Vitter (R-LA) and Representative Pomeo (R-KS) have introduced concurrent resolutions opposing such a carbon tax in an effort to get ahead of the harmful tax. As they state in a join press release here, a carbon tax would have a detrimental effect on taxpayers and our already struggling economy:
“There’s a lot of talk in Washington about raising taxes, and finding ‘revenues’ in creative ways, to avoid going over the fiscal cliff,” Vitter said. “But a carbon tax – which would force more financial hardship upon family budgets, energy consumers and job seekers – needs to be completely taken off the table. Our resolution would enshrine that.”
There’s virtually no part of the economy or everyday life that wouldn’t be negatively impacted by a “revenue-raising” carbon tax. For consumers it would mean higher costs on everything from food and manufactured goods to transportation and heat for the winter months ahead. This would be a massive burden on our economy and would further slow what little growth we have.
Instead of looking for quick cash gimmicks that will only hurt in the long run, Congress needs to make substantive spending cuts and reforms to put us back on the path to long-term prosperity. Higher taxes rarely bring in the revenue that was expected and at the end of the day, we’ll still be left with a growing debt and no one left to tax.
For a good reminder of just how urgently we need to cut spending and what little higher taxes will do, check out this new video from NTU.1 Comments | Post a Comment | Sign up for NTU Action Alerts
EPA Offers Taxpayers No Relief from High Prices During the Holidays
On top of all the other bad economic news taxpayers got last week (a gloomy stock market, the end of Twinkies, need we say more?) and just as consumers get ready to kick off a season of spending on food, travel, and gifts, the Environmental Protection Agency (EPA) dismissed the opportunity to give hurting Americans some relief. TheHill.com reports:
The Environmental Protection Agency is rejecting requests from states and meat industry groups to waive regulations that require the blending of ethanol into gasoline.
A temporary waiver would have immediately freed up already tight corn stocks, easing feed prices for livestock growers and dairy producers who are struggling to survive, thanks to a double whammy of a corn ethanol mandate and drought that have depleted the corn supply and sent prices soaring. NTU has written previously about how the Renewable Fuel Standard (RFS) has hurt livestock producers in general, and threatens the future of bacon specifically, here.
Based on the EPA’s rejection of commonsense and thousands of well-thought out comments, including over 800 from NTU members, what we wrote back in September still holds true:
While the government can’t make it rain, the EPA can waive costly ethanol mandates that require fuel producers to blend corn ethanol into the gasoline supply, thus diverting much-needed food to our fuel tanks. NTU is working with a broad coalition of groups ranging from livestock producers, anti-hunger organizations, and environmental advocates to urge the EPA to waive the ethanol mandate, relieving the pressure on corn markets. Unfortunately, right now it looks like more not less corn will be going into our cars in the near future.
Rather than letting the market determine our fuel needs –it’s clear that the EPA is willing to continue to plow forward with their ethanol schemes regardless of the outcome.
Taxpayers are currently facing a perfect storm of economic challenges. Unless Congress takes action during the current lame duck session, taxpayers will see the 2001 and 2003 tax cuts expire. Millions of middle class taxpayers could find themselves suddenly hit with thousands of dollars in higher taxes without an AMT patch. The death tax is on the brink of shooting back up to 55% putting thousands of small businesses and jobs on the line. A slew of ObamaCare taxes also goes into effect in 2013 – to say nothing of the looming debt limit increase, the continued high unemployment, and struggling economy.
In sum, things are not so great. Not for consumers, not for taxpayers, not for the food producers, the environment, and the world’s poor - who have all been detrimentally impacted by the broken RFS policy.
The EPA’s rejection of even a temporary waiver adds insult to injury for taxpayers at a time when they can least absorb the costly consequences of the corn ethanol mandate
The upcoming Thanksgiving festivities are probably more on the minds of taxpayers this week then the latest EPA outrage, but when consumers head to the store to stock up for Thursday’s feast, they can thank Washington for the higher food prices that are expected to only keep rising as the repercussions of the corn ethanol policy continue to ripple through the livestock industry.
The all-important turkey is facing serious challenges due to the high price of feed. Though many grocery stores are choosing not to charge the higher prices on turkey this year, with even higher costs expected next year, it’s unknown how long stores can continue to subsidize customer’s turkey-dinners. Today.com reports on the struggles facing turkey growers:
"I used to feed a turkey for 22 cents a lb, now it costs 45-50 cents," Burkel said. "When you go to the bank and say, 'I need a line of credit that's twice what I typically have,' they look at you and say, 'Are you out of your mind? How are you getting that back?'"
Industrywide, farmers and processors say they have scaled back their flocks, and further production cuts are expected as grain prices remain high. September's egg set placements fell 6 percent from a year earlier, according to USDA data.
A step up the “food chain” from the livestock producers, food product companies are also feeling the squeeze from increasing food and ingredient costs attributable to the RFS. The Grocery Manufacturer’s Association issued their reaction to the EPA’s decision stating:
The EPA’s rejection of requests to waive the Renewable Fuels Standard requirement for 2012-2013 is both disappointing and unfortunate for consumers.
GMA, as well as numerous policymakers, NGO groups and other associations, sought the waiver to provide temporary relief to consumers who have seen food prices rise steadily since the implementation of the Renewable Fuels Standard (RFS), which diverts nearly 40 percent of the corn crop away from livestock feed and food production. The RFS has and will continue to disrupt commodity markets and exacerbate the impact of last summer’s devastating drought on food prices at a time when Americans can least afford it.
The high cost of corn have also hit dairy producers particularly hard as the Environmental Working Group reports:
There is little hope in sight. U.S. corn futures remain well over $7 a bushel, prices boosted by a shrinking corn harvest, dried-up pastureland and a misguided mandate for greater use of corn ethanol in the U.S. fuel supply.
Dairy farmers across the country are taking extreme measures to stay afloat. Milk cows are being culled at the fastest rate in more than 25 years, with more than 2 million slaughtered nationwide in the first eight months of this year. In California, farmers are supplementing corn feed with local commodities like almonds and apples, but neither alternative provides animals with enough nutrients.
For an increasing number of dairymen, last-ditch efforts just simply aren’t enough to survive. Unable to pay bills or make loan payments, some families have been forced to sell off homes and dairies inherited from parents and grandparents.
The entire article is well worth your time.
As you can well imagine, egg producers have also been hit hard by high corn prices. In fact, apart from the ethanol industry, it’s hard to think of anyone who isn’t hurt by keeping the mandate in place. Michal Rosenoer of Friends of the Earth summed up the situation this way:
“If the worst U.S. drought in more than 50 years and skyrocketing food prices are not enough to make EPA act, it falls to Congress to provide relief from our senseless federal support for corn ethanol. The RFS is a broken policy — rather than giving us clean energy, it’s incentivizing biofuels like corn ethanol that are exacerbating our economic and environmental problems.”
And corn ethanol hasn’t helped with the high cost of gasoline at the pump, especially when the lower energy content forces consumers to fill up their tanks more often. That means the EPA and RFS in particular have made not just this year’s turkey and pumpkin pie cost more, but also the trip over the river and through the woods. If there’s one bright spot to be had it’s that the EPA has still left some traditions unscathed. But give them time and they’ll definitely find away to regulate the fun out of football and board games.
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California’s Cap And Trade: Circumventing Taxpayer Protections to Hammer Energy
California residents just can’t seem to catch a break. Scarcely a week after being socked with a $6.8 billion to $9 billion per year tax hike in the form of Proposition 30, taxpayers are now being saddled with a new cap-and-trade initiative that could cost as much as $70 billion.
On Wednesday, the California Air Resources Board (ARB) began auctioning off permits for greenhouse gas emissions as one of the key components of its ambitious attempt to force statewide levels of greenhouse gas emissions back to 1990 levels by 2020. The auctioning process is a key element of the 2006 Global Warming Solutions Act (also known as AB 32) signed into law by Governor Schwarzenegger. According to the ARB website its primary premise is to:
“Adopt a regulation that establishes a system of market-based declining annual aggregate emission limits for sources or categories of sources that emit greenhouse gas emissions, applicable from January 1, 2012, to December 31, 2020.”
The program follows the typical cap-and-trade design that many European nations have adopted in a quest to limit carbon emissions through stringent market regulation. Bloomberg describes how California’s program will work:
“The state will set a maximum for carbon emissions from power generators, oil refineries and other industrial plants and cut that limit gradually to achieve a reduction of about 15 percent by 2020.”
According to the California Chamber of Commerce, this forced reduction-or-pay-up stranglehold on business is akin to an illegal tax, because it never received the required two-thirds vote by the Legislature which new taxes require in the state. Citing the unconstitutionality of the initiative, the Chamber filed a lawsuit Tuesday. Steven Merksamer, an attorney for the Chamber, said in a statement:
“What the Air Resources Board is doing is illegal. This tax wasn’t approved by the voters. We believe the auction is unlawful.”
Regardless of whether the cap-and-trade portion of AB 32 turns out to be illegal, from a fiscal perspective it is simply bad policy, especially during tough economic times. Ben Lieberman, a Senior Policy Analyst on Energy and Environment for the Heritage Foundation, noted the well documented failures of European cap-and-trade schemes under the Kyoto treaty in a 2007 paper:
“European efforts have racked up significant costs while failing to reduce emissions. Nearly every European country participating has higher emissions today than when the treaty was first signed in 1997. Further, despite ongoing criticism of the United States from Kyoto parties for failing to ratify the treaty, emissions in many of these nations are actually rising faster than in the United States.”
Besides being relatively ineffective at their intended aim---reducing emissions---the European cap-and-trade schemes carry with them a whole host of injurious economic side effects. Lieberman's research went on to explain the higher costs, regressive-tax nature, and stunted economic growth associated with Europe’s fanatical obsession with forcing down carbon emissions.
There is little dispute that forcing businesses to reduce carbon emissions and taxing those who cannot comply will increase the costs associated with energy production, which will in turn reduce their ability to hire new workers and increase the costs consumers pay for their basic energy needs. After being pummeled with the massive new tax increases under Proposition 30, and with unemployment remaining resolutely over 10% in the state, additional barriers for doing business and creating jobs coupled with higher energy costs are the last things California residents need. As the legal challenges against the initiative continue, it will be imperative that lawmakers consider what is at stake for the Golden State’s economy as a whole.
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