- The Washington Times - Friday, June 20, 2008

Our nation’s current energy situation is the result of a serious lack of a coherent and consistently applied energy policy - and Americans are paying the price. Our energy policy consists of a maze of uncoordinated mandates, subsidies and other incentives, many of which have yielded unintended consequences such as the exceptionally high gasoline and corn prices we hear about in the news today.

To address the cause of these problems, it is critically important that Americans understand some fundamental truths. Regardless of any realistic energy or climate-change policy we might adopt, there are certain realities that are being ignored in the current political climate that must be acknowledged.

It is a fact that by 2030, the world will still be receiving close to three-fourths of all of our energy from oil, natural gas, and coal. It is impossible to achieve independence from fossil fuels in the short term no matter how desirable that may be, nor what policies we adopt. Equally important is the fact that any efforts we make to curb greenhouse-gas emissions (all presidential candidates support some form of “cap and trade” climate legislation) will result in lower energy consumption and higher energy prices. It is impossible to reduce greenhouse gases without reducing energy consumption, and it cannot be done without higher energy costs.

Most people agree that it would serve us well to diversify our energy resources and technologies, but it is also a fact that most of the alternatives available today or envisioned for the future are more expensive than fossil fuel-based options. Our elected officials would better serve us by being honest about this reality as they work to develop a comprehensive energy policy.

So given these harsh realities, what kind of government policies would make sense? Most economists would argue for a carbon tax (or a market-based, well structured cap and trade system). None of our leaders have been courageous enough to lead the charge for a revenue-neutral carbon tax. That can be achieved by a carbon tax that increases the cost of emitting greenhouse gases and increases the cost of any energy supply in proportion to greenhouse gasses emitted.



But the cost would have to be offset by reductions in income taxes, increases in tax credits for the poor and other budgetary offsets to render the carbon tax neutral in terms of size of government. Such a package could, for example, eliminate income taxes for all families making less than $35,000 per year, increase earned income credits, and reduce income taxes for millions more. This approach would provide an environment that moves energy goals forward without hurting those least able to absorb the added costs.

The advantages of a carbon tax or carbon trading is that each energy alternative would gain market share in proportion to the savings in greenhouse gases it achieves. For example, making ethanol from corn residues reduces the amount of greenhouse gases emitted more than making ethanol directly from corn thereby reducing the impact of the use of corn, which has an important role in livestock feed. Wind energy, solar energy and nuclear energy – all of which reduce greenhouse gases – would then become more affordable and ultimately more attractive.

Government mandates and/or federal subsidies will not address the need for energy or the costs associated with any shift from fossil fuels. Markets and American ingenuity should be the tools used to determine the mix of conventional and new energy options that best supply our energy needs and address climate concerns. Adjustments would be required for everyone - every producer and every consumer. But these adjustments would be driven by clear objectives and a coherent energy policy.

America would have a market-based policy designed to achieve important societal objectives by giving each and every American and every company strong incentives to change behavior to achieve these objectives.

Wally Tyner is a professor of agricultural economics at Purdue University.

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