Bill Clinton famously said, “The era of big government is over.” Well, it didn’t work out that way. But something truly remarkable is happening in our national conversation about energy subsidies: outrage, mounting opposition and, we hope, a swift end. This would be great news for taxpayers and consumers.
Subsidy folly has been bipartisan and commonplace. For the past three decades, both parties have intervened in the energy industry. In 1978, a Democrat-controlled Congress and President Carter created an investment tax credit for solar, wind and other renewable energy sources. In 1992, a Democrat-controlled Congress and Republican President George H.W. Bush passed the production tax credit for electricity produced from wind and biomass. Then in 2005, a Republican-controlled Congress and President George W. Bush passed the Energy Policy Act of 2005, which included massive tax subsidies for seemingly every energy source under the sun, including alternative vehicles, advanced nuclear power and, of course, solar power. The latter legislation created the infamous Department of Energy loan-guarantee programs that produced the ongoing Solyndra scandal.
After three decades, what have we learned?
c Energy subsidies distort the free market by funneling billions in taxpayer dollars to politically favored energy sources and technologies, preventing market prices from signaling the optimal source for particular energy uses.
c Subsidizing energy sectors drains the federal treasury and forces the consumption of higher-cost energy sources.
c Politically allocated capital typically flows to politically connected companies or to large companies that could develop innovative technologies on their own dime. The $535 million Solyndra scandal has reinforced all of these lessons and helped shine a light on the energy-subsidy debate, exposing those who maintain government is the solution to our energy needs.
The good news is that with the support of the American people, politicians now are speaking the truth. At a recent Republican presidential forum, the candidates were in near-unanimous agreement that it is time to end the federal government’s role and allow the free market to bring our nation the next great energy source. Texas Gov. Rick Perry said, “I do not think it is the federal government’s business to be picking winners and losers, frankly, in any of our energy sources.” Rep. Michele Bachmann had similar remarks: “I want to see a [level] federal playing field. We’ve seen what a disaster it is when the federal government picks winners and losers.” In his economic plan, former Massachusetts Gov. Mitt Romney said government “should not be in the business of steering investment toward particular politically favored approaches.” This is progress. Just four years ago, almost every candidate in Iowa was afraid to say that subsidizing politically favored energy technologies had been an enormous policy failure.
Given the shift in the debate, the time to end subsidies is now. This month we introduced the Energy Freedom and Economic Prosperity Act, H.R. 3308, which has garnered support from such conservative organizations as Americans for Prosperity, Americans for Tax Reform, Club for Growth, Council for Citizens Against Government Waste, Freedom Action, Heritage Action for America, National Taxpayers Union and Taxpayers for Common Sense. H.R. 3308 would eliminate all energy tax credits, each of which is nothing more than a taxpayer handout to politically favored industries or companies. From solar to wind, from geothermal to biomass and from ethanol to hydrogen, they all must go. It is equal opportunity - not one single solitary tax credit would survive this bill. The proposal then would use the savings realized from the repeal of these tax credits to lower the corporate tax rate. This is a perfect model for tax reform - close out politically allocated tax favors and loopholes and lower taxes on every business that competes in America.
While we are gaining broad public support to end these energy tax credits, the takers of government largesse seldom go quietly. The pro-subsidy lobby pushes to extend its giveaway from Uncle Sam, seeking to extend the production-tax-credit subsidies for wind, biomass and geothermal energy every four years. This is the umpteenth-and-never-final request for “just four more years.” But a few more years will just lead to a few more years after that. Even before we introduced the legislation that for the first time would provide zero tax credits to any energy source, the American Wind Energy Association howled that Rep. Mike Pompeo “seems to misunderstand how a key federal tax incentive has built a thriving American wind manufacturing sector and tens of thousands of American jobs.” Well, we both understand perfectly - handouts are hard to give up.
After three decades, the tide on energy subsidies has turned. Our nation has squandered hundreds of billions of dollars with these tax credits and has little to show for it. We hold no ill will to any of these energy sources that receive tax credits - some or all of them may well become the next great American energy technologies. But having dozens of energy handouts leads companies to spend resources lobbying Washington rather than tinkering in their garages and labs. Indeed, we are counting on one of these alternatives to succeed. We just know that we have no idea, nor do any of our peers in Congress, which one consumers ultimately will demand. The winner must be determined the old-fashioned way: through hard work, innovation, American moxie and superior skills engaged in competition.
Let’s put a different twist on the old saying “not invented here” by acknowledging that energy technology never has been invented here - on the Potomac - and do away with energy subsidies once and for all.
Rep. Raul R. Labrador is an Idaho Republican. Rep. Mike Pompeo is a Kansas Republican and member of the House Committee on Energy and Commerce.