Looking at energy policy through a national security lens only strengthens the argument for relying on free-market solutions.
By spurring development of the politically favored alternative fuel of the moment, devotees of federal energy subsidies say that we can stop sending dollars overseas. Details of the Solyndra scandal continue to unfold, but what we know so far should teach the Obama administration a valuable lesson: The government should not be in the business of picking winners and losers.
Unfortunately, some conservatives — trying to promote national security — fall into the same trap of arguing for alternative energy subsidies. Interests ranging from solar to wind, from propane to biodiesel, from natural gas to algae, purport to provide the key to America’s energy and national security needs, but having the president or Congress pick winners and losers in the energy sector is neither practical nor principled.
We can agree that having less oil imported from the Middle East would improve America’s national security interests. But we also agree with the chairman of the Joint Chiefs of Staff, Adm. Mike Mullen, who said, “Our national debt is our biggest national security threat.” In 2009 alone, the government gave more than $18 billion in handouts to a wide variety of energy sources, including wind, hydrogen, natural gas, oil and ethanol. With the federal debt estimated to hit $25 trillion by 2021, the United States must get its financial house in order. It cannot continue throwing billions of taxpayer dollars away on federal energy subsidies.
Not only are subsidies that try to artificially inspire a market for a given product unaffordable, they simply aren’t effective. Subsidy policy toward the renewable and alternative fuels industry has been tried for more than three decades — from President Carter’s Synfuels Corp. in the early 1980s to President Obama’s Solyndra just this year — and it has failed.
Alternative energy producers often say they are just five years of handouts away from being viable on their own. But when those five years are up, these same folks come back for more because customer demand alone will not support any industry that depends on government handouts. It’s precisely this phenomenon that led President Reagan to observe that “nothing is so permanent as a temporary government program.”
With federal subsidy policy failing, how can we make U.S. energy policy reflect our national security interests? First, we must lift the de facto moratorium on domestic energy exploration — off the Gulf Coast, on the Outer Continental Shelf, and elsewhere. Second, we must remove regulatory burdens, such as the threat that the Environmental Protection Agency will halt hydraulic fracturing. And finally, we have to stop wasting taxpayer dollars on energy sector subsidies.
Phasing out market-distorting energy subsidies (and preventing the expansion or creation of new ones for the “latest, greatest” technology) must be part of the strategy. Subsidies such as fuel tax credits for ethanol, hydrogen and natural gas are set to expire soon. There is no reason to pile on our debt while simultaneously distorting the market for fuel products. It is far better to allow market competition to determine which alternative energy sources will succeed.
Although subsidy seekers argue that the Organization of Petroleum Exporting Countries’ dominant position in the world oil market means that government intervention in the energy marketplace is warranted, that logic is flawed. If collusion by the OPEC cartel really boosts the price of oil artificially high, then alternative fuels should have an easier time competing against it without a subsidy. In fact, the constant pursuit of federal tax subsidies keeps some private capital on the sidelines that would otherwise be invested in alternative energy.
Looking at our energy policy through a national security lens only strengthens the argument for relying on free-market solutions. As the Solyndra example demonstrates, the stakes are simply too high to cast aside the single best arbiter of capital allocation in human history — the free market — in favor of misguided central planning via government mandate.