President Obama Doubles Down On Dim Renewable Energy Plan

Published in Investor's Business Daily

President Obama demonstrated again this week that the “all of the above” approach to energy policy promised in his State of the Union address was merely a short-term slogan.

The administration’s new tax-reform proposal indicates a continued stubbornness to pick winners and losers in the marketplace — slashing, among others, broad-based provisions that benefit all industries such as accelerated depreciation, deductions for interest expense, LIFO for inventory accounting along with tax provisions for the oil and gas industry in order to finance tax breaks and permanent credits for expensive renewable energy.

It’s a disturbing plan after so many failed renewable energy gambles including Solyndra. A new report by a White House-appointed commission concluded that the U.S. could lose as much as $2.7 billion as a result of the loans offered to the renewable energy industry.

Meanwhile, consumers are losing. Gas prices aren’t showing any signs of decreasing. The president’s thumbs-down to the Keystone XL pipeline cost the U.S. thousands of new jobs, economic growth and energy price stabilization.

His 2012 budget calls for cutting outlays for the Low-Income Home Energy Assistance Program to $3 billion, nearly $2 billion less than in the 2011 budget. This drastic cut will leave many homes in cold weather states suffering and is further evidence of misplaced priorities when it comes to the administration’s energy policies.

The president’s “promise of clean energy” comes with a high price tag. Data from the Department of Energy’s EIA show that new electric generating capacity using wind and solar power tends to be considerably more expensive than conventional, available and secure natural gas and coal resources.

And in a world of real tradeoffs, every dollar spent producing more expensive renewable energy is money that could be used for producing jobs and spurring economic growth. Indeed, there is a direct linkage between energy use and economic recovery, as in recent years each 1% increase in GDP has been accompanied by a 0.2% increase in energy use.

Simply put, it takes more power to turn on more light switches in more plants that employ more people.

The problem, of course, trickles down to consumers, as well. USA Today recently reported “households paid a record $1,419 on average for electricity in 2010, the fifth consecutive yearly increase above the inflation rate.” This “jump has added about $300 a year to what households pay for electricity. That’s the largest sustained increase since a run-up in electricity prices during the 1970s.”

Meanwhile, subsidizing renewables costs jobs and slows economic growth, burdening taxpayers by grabbing up a massive share of tax code subsidies.

In 2010, an estimated 76% of the $19.1 billion in federal tax incentives went to renewables for energy efficiency, conservation and alternative technology vehicle projects (while only 13% went to fossil fuels), according to the Congressional Research Service. Some renewable electricity enjoys negative tax rates: Solar thermal’s effective tax rate is -245% and wind power’s is -164%.

Yet the federal government continues pouring money on non-traditional energy sources, which is especially troubling since the wind, solar power, biofuel and ethanol industries do not meet the standard criteria used to justify taxpayer-funded subsidies for their deployment across the U.S. economy.

They are not “infant industries” or essential for U.S. economic and job growth, and they are unlikely to provide benefits commensurate with their costs. Addressing the huge U.S. federal budget deficit requires cutbacks in programs whose costs exceed their benefits.

There are much fairer policies available that do not force the government to pick winners and losers. Accelerated depreciation, Section 199, the foreign tax credit deduction and LIFO are examples of tax code provisions that are available to any industry and are not considered “subsidies.”

Perhaps even more frightening than the government’s current tax incentive structure and spending for renewables and alternative fuel vehicles is the potential for a national mandate (called a Clean Energy Standard) requiring electricity retailers to supply a specified share of their sales from clean energy sources.

This would have adverse economic impacts. A recent Department of Energy analysis shows that by 2035 the mandate will raise electricity prices by 20% to 27% and reduce GDP by $124 billion to $214 billion.

For those who support clean energy powering our nation’s economy, all is not lost: The issue is simply about responsibly looking away from the “promise of clean energy” and focusing on the reality of clean energy.

Government funding for basic research and development of renewables and conservation may be a better use of taxpayer dollars than the current suite of tax incentives and direct spending programs, for instance. Clearly, there are more efficient ways to meet our nation’s needs for today and tomorrow.

• Dr. Thorning is senior vice president and chief economist of the American Council for Capital Formation, a nonprofit, nonpartisan organization promoting pro-capital formation policies and cost-effective regulatory policies.

 

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