Congress, capitalizing on concerns over the future of oil supplies and
acting under the guise of reducing dependence on foreign oil, is pushing
several bills that purport to set us on the path to "energy security."
The fundamental causes of high energy prices are related to the unshakable
laws of supply and demand. Simply stated, the energy demands of our
growing economy are greater than the current ability to supply them.
For example, the federal government severely restricts exploration for new
energy supplies both on-land and off-shore. Without additional sources of
energy, demand will continue to outstrip supply and prices will continue
to rise.
In addition, lack of refinery capacity has caused bottlenecks of the oil
supplies that we do currently have. Burdensome regulations have prevented
the building of a single new refinery in the last 31 years -- confining
the industry to often-inefficient expansions of current sites.
Incredibly, Congress' answer has largely been to penalize unpopular
industries with higher taxes, enact more regulations, and provide further
subsidies to unproven, expensive alternatives.
The House's energy bill alone contains $14 billion worth of tax hikes on
the oil industry. While that policy might make a favorite talking point
for business-bashing legislators, it will only exacerbate the supply
deficit.
In 1980, Congress instituted a major tax hike on "windfall" profits to
punish Big Oil for high prices. According to a study by the Congressional
Research Service, the result was a drop in domestic oil production of 3
percent to 6 percent and a hike in oil imports of 8 percent to 16 percent.
Instead of making America energy independent, the tax hike did the exact
opposite. It also failed miserably as a revenue raiser, bringing in only
20 percent of what was estimated before it was repealed in 1987.
Unfortunately, it's not just on the tax front that Congress has failed to
learn the lessons of the past. Both chambers also propose unwise
regulations and mandates, like the Senate provision requiring a seven-fold
increase in the production of ethanol by 2022.
Although ethanol is subsidized by taxpayers to the tune of $2 billion
annually, it is still not competitive in the open market.
The Senate's answer to that problem is to simply force you to buy it. The
House bill requires that at least 15 percent of electricity be generated
by ethanol and other renewable sources -- even if that number is not
realistic.
Unfortunately, throwing a dart at a board and picking an arbitrary number
can 't account for the complexities and difficulties of a market economy.
Nor does throwing a dart at a board and subsidizing the most powerful
special interest groups help achieve energy security. For as harmful as
Congress' punitive measures can be, its policy-success rate doesn't
climb when it helps specific industries, either.
Perhaps the best example of the latter can be found in windmills. The feds
subsidize 1.9 cents per kilowatt-hour of energy, propping up a market that
would otherwise not exist.
Wind energy and nuclear energy have similar costs associated with startup,
but wind requires four times the capacity to produce the same amount of
energy. When combined with the difficulties of locating windmills and
transmission costs, wind doesn't make much sense for anyone -- except
owners of windmill firms. Though they've benefited from the subsidy,
American consumers generally have not.
Much as they might like to, members of Congress cannot repeal the laws of
economics. But if policy-makers want to provide a legislative framework
for America 's energy future, they ought to start by reducing taxes,
equalizing treatment across all industries, and allowing the market to
fuel the quest for alternative energy.
Andrew Moylan is government affairs manager for National Taxpayers Union. This article appeared nationally in McClatchy Newspapers.
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