Wednesday, November 15, 2006

Energy Policy

The Democrats are signing up to make some significant strides in their first 100 hours after they take control of the House of Representatives.

In those hours they plan to:

(1) Speed up the consumption of fossil fuels

(2) Accelerate environmental degradation.

(3) Promote American dependence on foreign oil

(4) Make significant contributions to global warming

(5) Institute significant barriers to research in alternative energy

That is quite a list of accomplishments, if they succeed.

In order to accomplish all of this as quickly as possible, the Democratic leadership will work efficiently by tying related projects together (e.g., speed up consumption of fossil fuels and accelerate environmental degradation).

The Washington Post reports:

[Pelosi] says Democrats will . . . go after oil companies by enacting tough laws to stop gasoline price gouging, and some Democrats want to impose a windfall profits tax on Big Oil

Okay, one is going to happen when the government forces gasoline prices lower.

(1) The cheeper gasoline becomes, the more gasoline consumption there will be.

(2) More gasoline consumption means greater environmental degradation (caused by more driving, more automobile pollution, and the like).

(3) The types of environmental degradation we get from gasoline consumption includes global warming.

(4) We are going to have to get the oil to make this gasoline from somewhere; namely, from middle-east countries. This means giving money to people, some of whom donate it to the same Islamic jihadists who are killing and wounding American soldiers in Iraq.

(5) If the price of gasoline is held low, this will reduce the incentive for people to invest in alternative energy sources, since they will not be as competitive compared to the artificially low price of gas.

As much as we do not like to pay higher prices for fossil fuel consumption, this is, in fact, the best way to solve many of the problems that we face in the world - including global warming and energy independence

Instead of talking about reducing the price of gasoline through legislation, what the Democrats should be talking about is an externalities tax - a way to force Oil companies to pay for the damage that their products are causing to the global environment. Increasing the price of gasoline through a carbon tax means that alternative energy sources become more competitive, which will mean that they will attract more investment, and more people will switch to using them. It means that people will try to find ways to use less fossil fuels, meaning a reduction in greenhouse gas emissions and less global warming, as well as other forms of environmental degradation.

Of course, the Democrats also have plans to spend government money on these problems - providing government incentives for alternative energy and restricting greenhouse gas emissions. Yet, it hardly does any good for the government to do all of this work in fighting problems with its left hand that it is causing with its right. It means that the net result of all of these government efforts is a lot of wasted time and money accomplishing absolutely nothing.

As for a "windfall profits tax" - it makes no sense to tax profits as if making profits is some sort of sin that deserves to be punished. Indeed, it is the quest for a profit that gives us oil and gas in the first place.

In earlier posts I have written a story about a village faced with starvation due to a crop shortage. The stupidest thing for the mayor to do in this type of situation is to enact a law that says that he will punish anybody who goes out and finds food by levying a fine against them. Instead, the smart thing to do would be for the government to offer a bounty - a special incentive - to anybody who can bring in additional food to get the village through these hard times. The Democrats are pursuing the energy equivalent of fining farmers and hunters during a time of famine. That's not going to do the village any good.

Their plan also includes $2.8 billion in tax incentives, mostly for developing local energy sources.

Getting rid of these tax credits would be a good idea.

I never thought that it was particularly wise to try to promote energy independence by using up our local resources as quickly as possible. To me, it sounds a lit like trying to promote financial independence (from an employer) by spending as much money as possible and going into debt. By using up our local resources, we are simply destroying our backup options in case we face another oil embargo or any similar disruption from outside sources.

A person who loses his job, if he is smart, has stored enough money in the bank to hold him and his family until he finds a new job. A nation whose energy imports are disrupted, for whatever reason, if it is smart, has kept its own reserves of energy intact to use in just such an emergency.

If it is profitable for the energy companies to develop these resources, their financial statements suggest that they have the money to pay for the development themselves. Otherwise, we should leave them where they are, so that they are available when we really do need them (which will be at the time that energy companies can harvest these resources at a profit).

Ultimately, these $2.8 billion in tax breaks, is a "return on investment" for energy companies who contributed to the Republican Party in previous elections - a payment that sacrifices the good of the country to promote the good of the Republican Party. The really should be done away with.

Also, the energy companies have been given breaks in environmental regulations. This effectively is the same as going to the energy companies and saying, "Yes, you can poison your neighbors - destroy their property and their health, even kill some of them - if it is profitable to do so." Easing environmental regulations is a way of redistributing the wealth. Those who pay the tax are given a bill that they pay in terms of life and health. Those who benefit from this tax create products that convert the life and health of others into cash. Those who pocket the cash tend to be those who already have a considerable amount of cash.

So here, too, is another area where the Democrats can take aim at "Big Oil" if it wants to.


(1) Legislation to artificially lower the price of gasoline – No

(2) Windfall profits tax – No

(3) Carbon (or externalities) tax – Yes

(4) Repeal of 'tax breaks' and other incentives – Yes

(5) Stricter enforcement of environmental regulations - Yes

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