House-passed energy conference report returns to the House floor
for a vote this week as H.R. 4503, the Energy Policy Act of 2004.
Given the adverse impact that high energy prices can have on
consumers and the overall economy, House leadership has,
appropriately, included national energy policy as part of its
But while energy
demand is booming worldwide, this energy bill fails to adequately
increase domestic energy supplies, promote fuel diversity, or
stabilize prices. Congress needs to go back to the drawing
board-once again-and craft a responsible energy policy that ensures
reliable and affordable energy for American families and businesses
by opening energy exploration in areas currently "off-limits,"
reducing burdensome regulations, and letting the marketplace
determine the nation's energy winners and losers.
Demand and Supply
Demand for energy
is rising the world over at breakneck speed. Rapid economic growth
in China, Eastern Europe, and other regions has brought with it
increased demand for fuel, especially oil. As affluence increases
in these areas and automobiles and household appliances multiply,
energy consumption will further accelerate.
Demand is also
rising in the United States. According to projections from the U.S.
Department of Energy's Energy Information Administration, domestic
energy consumption will increase by 43 percent by 2025. Production,
however, is projected to grow only 23 percent.
While lawmakers could have advanced policies
to enhance the nation's energy security in the long-term, they
instead took the easy way out, proposing generous tax breaks to
special interest groups for only marginal increases in supply for
Long-term thinking would have prompted bolder
Opening access to energy-rich areas currently "off-limits" for
exploration, such as off-shore and in the Outer Continental Shelf,
Authorizing use of a mere 2,000 acres in the Artic National
Wildlife Refuge (ANWR) for exploration-an area whose mean estimate
of economically recoverable oil is 10.3 billion barrels. More then
twice the proven reserves in all of Texas.
Instead Congress came up with so-called tax
"incentives" for special interests totaling over $23
Over $11 billion in giveaways for the oil and gas industry;
About $3 billion in tax credits for the use of renewable fuels to
$2.5 billion for investment and production credits for clean coal
Over $2 billion for alternative motor vehicles incentives; and
Almost $2 billion in tax breaks for the electric power industry and
These tax cuts are
nothing more than an attempt to modify economic behavior and
distort the economic signaling of the marketplace. As a result,
these so-called "incentives" would make the energy sector and the
economy less efficient and increase energy costs in the future.
This sort of congressional meddling with the marketplace is
shortsighted and irresponsible.
An Expensive Proposition
In addition to tax incentives, Congress's energy
plan includes many costly provisions that would do little or
nothing to enhance the nation's energy security. In fact, some
provisions would actually constrain supply and increase
For example, the bill would create an artificial
market for ethanol with a mandate that more than doubles the use of
renewable fuels in gasoline, primarily corn-based ethanol, to 5
billion gallons a year by 2012, increasing costs to families and
businesses. As consumers have learned over the past decade,
additive requirements can also cause extreme regional price spikes
at the pump.
4503 includes a production tax credit (PTC). This market-distorting
provision extends preferential tax treatment for uneconomical
renewable resources used to produce electricity-including wind,
closed-loop biomass, and poultry facilities. Moreover, the bill
would expand this subsidy to include new resources: open-loop
biomass, geothermal energy, solar energy, small irrigation power,
and municipal solid waste. This special-interest handout alone
would cost $3 billion over 10 years (2004-2013).
The bill also
includes subsidies for the coal industry. Coal-fired electricity
generation is expected to continue growing in 2004 and 2005, driven
by increasing demand for electricity. While coal is essential to
electricity production and the national economy, the costs of new,
innovative, clean coal technologies should be borne by the
industry-not taxpayers. The bill includes over $2 billion in
handouts to the coal industry over 10 years.
bill contains billions in other special interest handouts. An $18
billion loan guarantee would support construction of a natural gas
pipeline from Alaska-a project that has been seen as too risky to
attract private investment. Billions more would go to all manner of
programs, studies, and grants, including billions for research and
development in specific areas of the energy sector, such as
remember that the primary purpose of a comprehensive energy plan is
to provide consumers with abundant, affordable, and reliable energy
supplies-all essential for a strong economy and national security.
Current energy legislation fails to achieve these ends. Congress
should remove impediments to oil and natural gas production on
federal lands, offshore areas, and the outer continental shelf,
streamline bureaucratic regulations, and let the marketplace
determine the nation's energy winners and losers.
Charli Coon is
Senior Policy Analyst in the Thomas A. Roe Institute for Economic
Policy Studies at The Heritage Foundation.