August 9 2011
Cut Energy Subsidies, Cut the Deficit
Republicans and Democrats have finally agreed that government spending must be cut. Last week's debt deal eliminated more than $2.5 trillion in planned federal government spending over the next decade. Spending caps cut $917 billion from the federal budget, and, by Thanksgiving, a bipartisan Congressional committee is supposed to find another $1.5 trillion in cuts.
The budget deal, however, is vague in defining what areas of spending should be reduced. Democrats will fight to protect sacrosanct programs like Medicare, Medicaid, and Social Security, while Republicans recoil from cuts to defense. Inevitably, the Congressional battle over what programs to put on the chopping block will be long and dirty.
However, both parties should agree on one area of spending cuts. Energy subsidies are among the most notoriously harmful and inefficient government programs. Fueled by special interest lobbying, energy industry subsidies waste taxpayer money, distort energy prices and sully the environment. Concern for fiscal restraint should lead Republicans to support cuts to energy industry subsidies, while concern for the environment and energy innovation--as well as a desire to avoid cuts elsewhere--should lead Democrats to the same conclusion.
Under the Obama administration, energy subsidies and tax breaks have grown enormously. The Energy Information Agency reports that the value of direct federal interventions and subsidies in energy markets doubled between 2007 and 2010, growing from $17.9 billion to $37.2 billion. In the next ten years, the oil and gas industry alone is set to receive some $46 billion in subsidies, reports the White House Office of Management and Budget.
Big energy companies don't need these government handouts. This week, ExxonMobile, BP, Chevron, and Shell reported second-quarter profits of more than $35 billion. Certainly, profitable business is desirable. But profits cannot be based on government handouts, particularly at a time when America is drowning in debt. "When we are borrowing 40 cents out of every dollar that we spend," noted Sen. Lamar Alexandar (R-Tenn.), "it is a good time to take a hard look at unwarranted tax breaks and subsidies and one appropriate use of those funds is to reduce the deficit." American taxpayers, struggling through these tumultuous economic times, should not be paying to pad energy company profits.
Subsidies for natural gas, oil, and coal directly harm the environment by keeping the price of energy sources artificially low and thus encouraging their consumption. When consumers do not pay the true price for energy, they use energy more wastefully, harming the environment in the process.
Likewise, subsidies targeted to supporting renewable energy sources are also bad policy. American subsidies for renewable energy like wind, solar, and biofuels increased from $5.1 billion in 2007 to $14.1 billion in 2010. These subsidies were instituted with the noble intention of developing clean, domestic energy. But policymakers don't seem to understand that renewable energy subsidies make it less--not more--likely that we will ever have a viable source of green energy. Subsidies allocate resources to politically favored technologies rather than those which are most effective. For instance, the politically powerful corn farmers of Iowa have kept government propping up ethanol with subsidies, despite its proven inefficiency as an energy source.
Government, swayed by the demands of lobbyists and special interest groups, uses subsidies to pick winners and losers in the green energy industry. Lavish subsidies for inefficient energy sources have hampered the development of greener and more effective technologies. In a free market, investors will invest in alternative energy technology that makes economic sense.
In past, special interest lobbying and campaign donations have kept energy subsidies alive. But, the debt crisis means politics as usual cannot continue. The debt crisis provides a strong imperative for Congress to scrap harmful subsidies. If not now, when?
Cutting energy subsidies would garner bipartisan support in both houses of Congress, demonstrating that there’s room for cooperation. By working together, Republicans and Democrats can use the debt crisis as an opportunity to cut wasteful spending and improve the environment. Finally, a debt reduction measure everyone can agree on.
Eleanor Vaughan is a junior fellow at the Independent Women's Forum.