In Tuesday’s State of the Union address, President Obama proposed a program to divert revenues from federal oil-and-gas drilling into research for alternative energy solutions. How would that be done? Well, by raising taxes and creating another new government program.
The proposed program carries the name “Energy Security Trust Fund” as a nod to the economic woes facing many families across the nation. The idea builds upon numerous proposals, one by Securing America’s Future Energy, or SAFE.
The plan is also similar to one introduced by Representative John. Larson featuring a carbon tax to fund R&D for alternative energy solutions. It remains unclear whether Rep. Larson considers his bill inspiration for the Presidents plan, as his office did not respond to requests for comment. SAFE however did reach out, Larson’s plan was pitched as a solution to reduce household gasoline expenses, which have spiked numerous times this past year. Interestingly, the plan will only increase costs to families who can least afford it.
The current idea is to create a government run fund that would be overseen by thought leaders opposed to fossil fuel. The money received by taxing the oil and gas industry would then be spent by the government to support research for electric vehicles, biofuels, solar, and hydrogen fuel cells. The end goal is to eventually replace gasoline and diesel fuel from cars and trucks. While we do not know the details, Larson’s original bill would impose a per-unit tax on the carbon dioxide content of fossil fuels, beginning at a rate of $15 per metric ton of CO2.
Just for reference, the average passenger car obtains 20.3 miles per gallon. Therefore, a car driven 12,000 miles per year would roughly be responsible for generating 5.5 metric tons of CO2 per year. Naturally commercial motor vehicles, buses and the like would generate even more on a per unit basis. Airlines would face an even higher cost on a per unit basis.
Aside from the obvious fact that any such tax would be passed along to consumers in the form of even higher fuel costs, such an artificial increase to the operating costs of every personal, business and construction vehicle used in the country would have a chilling effect on our fragile economic recovery. Airlines struggling to avoid bankruptcy would potentially fare worse, and let’s not forget that the vast majority of trains run on fuel that would be affected by this government imposed tax.
On the other hand, the plan boasts an incentive for those who “stop contributing to global warming” by granting them a bigger payroll tax rebate.
While enacting a tax for a trust fund traditionally requires the approval from Congress, the President boldly declared, “If Congress won’t act soon to protect future generations, I will. I will direct my cabinet to come up with executive actions we can take.”
In essence, the “Energy Security Trust Fund” is an attempt to levy a new national tax affecting everything we purchase in this country. That Starbucks cup of coffee didn’t just materialize, the coffee, equipment and even plastic lids was transported to your neighborhood location. It would be somewhat untenable to suggest that the actual operating costs would not in turn, be passed along to consumers.
Given the government’s less than stellar track record at say, running any other governmental program, it is difficult to imagine how this program would result in any benefit to the average taxpayer. At worse, it is simply another attempt to artificially manipulate the winners the losers in the energy industry by raising costs on one form of energy products while subsidizing another.
Instead of trying to control the markets, policymakers should be looking at ways for renewables to compete on a level playing field with fossil fuels. That’s not to say that the government shouldn’t pursue R&D, but there’s a real difference between initial investment in experimental research and subsidizing a go-to-market strategy for private companies. Real change will occur when renewables can compete with fossil fuels. Opponents point out that the oil and gas industry, the nuclear industry, and many other industries received favorable treatment when they were in their infancy. That is a true statement, but then again, this isn’t the early 1900s, or even the 1950s when we were locked in a cold war against the Soviet Union. Moreover, the country was not staggering under a $16 trillion dollar deficit either.
A free market economy requires the government to set a level playing field by formulating and enacting a policies and regulations that foster a level playing field. Or should the government use its authority to advance certain products while discouraging the use of others?
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