On Tuesday night, President Obama addressed the nation during his State of the Union speech where he called for swift and immediate measures to speed up job creation and cut federal spending. On the top of his agenda was a call to ensure a cleaner environment and foster clean energy like wind, solar, and biofuels. The President straightforwardly acknowledged that the clean environment he envisions would come at a significant cost. Who’s to pay for this visionary clean environment? – That’s right, the American taxpayer and the oil and gas industry.
It’s the President’s hope to spur American innovation and job creation through advancements in clean energy technologies. In order to pay for these advancements the President plans to eliminate billions of dollars in tax breaks for oil and gas companies. Obama candidly remarked, “And to help pay for it, I’m asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. I don’t know if you’ve noticed, but they’re doing just fine on their own.”
In his address, President Obama noted that oil was “yesterday’s energy” and urged all Americans to pursue a change of course. Obama stated, “With more research and incentives, we can break our dependence on oil with biofuels, and become the first country to have a million electric vehicles on the road by 2015.” The President also added,
“Some folks want wind and solar. Others want nuclear, clean coal and natural gas. To meet this goal, we will need them all — and I urge Democrats and Republicans to work together to make it happen.”
While we commend the President for his advocacy of clean burning natural gas playing a role in our nation’s energy future, it’s important that the President’s policies reflect his rhetorical support. A question he may consider is, “How can we increase taxes on natural gas production and ensure its affordability to meet his economic and environmental goals?”
It’s time to get real
We need to be clear about the difference between tax breaks and direct subsidies. The President notes that the U.S. taxpayer is in someway footing the bill for America’s oil and gas industry. This could not be further from the truth.
Taxes are an interesting and complex tool utilized by politicians and government. For instance, if you create a tax one day, distribute the revenue, and then eliminate the tax on down the road – you’ve essentially created the perception that tax dollars were “taken” from the public. It’s one thing to offer tax breaks to an industry, but to directly subsidize it is an entirely different scenario.
Take for instance the U.S. renewable energy market. Companies developing windmills, solar panels, and other renewable energies receive financial start-up money from the federal government that covers 80% of all their costs.
In reality, the American taxpayer is footing the bill for renewable energies that cannot compete in the marketplace. The President may think that oil is the energy of the past, but the American consumer is saying something different.
According to a 2007 Department of Transportation study, there was an estimated 254.4 million registered passenger vehicles in the United States. It’s safe to say that 99.9% of those vehicles run on fossil fuels. Until cars and trucks run on windmills and solar panels, I don’t suspect the public will shift significantly from petroleum usage.
What about these electric cars?
Unfortunately, electricity is not an energy source. It takes energy to create electricity. The majority of electricity generation comes from coal and natural gas. If the President plans to put a million electric cars on the road it may be a good idea to incentivize natural gas production rather than stifle it with his tax increase plans. Higher electricity costs mean less affordable electric vehicles.
According to the U.S. Energy Information Agency, less than 7% of U.S. energy consumption derives from renewable energies like wind, solar, geothermal, and biofuels. Natural gas and petroleum make up nearly 70% of energy consumed in America. There is a reason why alternative energies makeup such a small percentage of our energy production – these technologies are significantly inferior to the energy provided by affordable fossil fuels and renewable energy is too costly for the American consumer.
Even with billions of dollars in incentives, alternative sources of energy like solar and wind are not cost effective.
The only way they can become competitive in the marketplace is to increase the cost of fossil fuels through raising taxes on the oil and gas industry. Raising taxes on fossil fuels will not bring about job creation and economic growth. If anything it will lead to increased energy costs, higher food prices, and result in a lower standard of living for all Americans. If the President is serious about getting us out of this economic situation and job creation is his top priority, he should refrain from stifling an industry that will help our nation rise above our economic challenges