Energy Policy Should Rest on Incentives, Not Punishment

A truly sustainable American energy policy is one that dramatically increases domestic energy supplies while lowering energy prices and protecting the environment.

Unfortunately, the momentum in Washington is in the opposite direction.

Instead of making energy cheaper, which would help create jobs and save Americans money, President Barack Obama wants to impose an energy tax on every American.

A Massachusetts Institute of Technology study from 2007 estimated that this type of energy tax could raise costs for a family of four by more than $3,500 by 2015. The Obama administration's own budget director is on record predicting around a $1,300 increase in the price of energy for the average American from these higher taxes.

As a candidate, Obama himself recognized the pain this would cause every American, saying, "Under my plan ... electricity rates would necessarily skyrocket."

Raising taxes in the middle of a severe economic recession is a recipe for disaster. Looking back to the beginning of the Great Depression, Herbert Hoover raised taxes in the 1930s and dramatically deepened that crisis. Higher energy taxes are guaranteed to kill jobs and reduce the individual incomes of every single American. If they can, more and more businesses will move their operations overseas or face bankruptcy here at home.

Jimmy Carter experimented with taxing energy, and the result was a debacle: That policy decreased domestic production and increased our reliance on foreign sources of energy. As a result of decreased production, the government's revenue projections for the tax were four times greater than what was actually collected.

If raising energy taxes in the middle of a recession is not bad enough, Obama's team also wants to punish existing producers of U.S. energy.

Raising taxes in the middle of a severe economic recession is a recipe for disaster.

The president's budget includes a new $5.3 billion excise tax on oil and gas development in the Gulf of Mexico, in addition to a series of tax law changes that will, by 2019, raise the cost to produce energy in America by more than $30 billion.

The end result of higher energy taxes on individual consumer and energy producers won't just be the raising of energy costs for every American. It will also punish the oil, gas and coal industries in America, making us increasingly reliant on foreign sources of energy for the foreseeable future. In addition, considering the United States has some of the strictest environmental standards in the world, hurting the domestic energy industries actually gives a competitive advantage to suppliers in countries with much laxer environmental standards.

Instead of raising energy taxes and punishing domestic energy production, America should be expanding its own energy supplies and finding ways to lower the cost of energy for every American. This can be accomplished with a smarter policy of incentivizing energy solutions instead of punishing energy use.

Offshore, the United States has an estimated 86 billion barrels of oil and more than 400 trillion cubic feet of natural gas. As we transition to a clean energy economy, we should still utilize the safe drilling techniques off our own coasts rather than relying on foreign dictators for our energy. Penalizing oil companies and taxing expanded drilling drives up the cost of fuel for all Americans, nearly all of whom rely on gasoline for their cars.

We can do this by giving incentives to states to permit energy exploration offshore. Changing federal law to give all states with offshore oil and gas the same 48 percent share of federal royalties as most states get for land-based resources would give cash-strapped coastal states an incentive for responsible development.

This additional revenue could be used to close budget loopholes or invest in alternative energy sources. Furthermore, we should create public/private partnerships in coastal states to fast-track the ability of oil and gas companies to develop offshore oil and gas resources.

Offering a substantial cash prize for the first commercially viable car to get 100 miles per gallon of gasoline would dramatically increase innovation in the auto industry, as automakers and individual entrepreneurs would immediately compete for the prize. At a time when automobile manufacturers are reeling from the economic crisis, providing an incentive for positive and commercially rewarding change will be more meaningful than any sort of government loan or bailout.

Creating a tax credit coupled with 100 percent expensing for clean coal technology and installation would accelerate American innovation without further crippling the already-contracting economy, all the while encouraging clean energy solutions.

America has more coal than any other country on earth, and we should utilize this resource to make ourselves more energy independent while doing everything we can to minimize negative impacts on the environment. Heavily taxing coal industries into bankruptcy while fantasizing about how punishment will encourage them to innovate is the opposite of what we should be doing now.

Another step we must take is to pass a favorable tax regime for building a new generation of nuclear reactors. The fact is that nuclear power has an impeccable safety record: The radiation from the Three Mile Island incident in 1979, the worst nuclear power "catastrophe" to date in the United States, was equivalent to everyone in the vicinity getting a single chest X-ray. Stoking fears about nuclear power is irrational and contradicts simple facts about the American nuclear industry.

Each nuclear power plant is capable of a large output of electricity around the clock, something neither wind nor solar power can achieve yet. Nuclear power also has zero harmful emissions, making it a powerful and clean resource for our future.

We should look to expand wind and solar power by making the tax credits for these resources permanent. We should also encourage research and development in long-distance transmission lines to transfer the massive amount of potential wind energy from rural areas to urban centers throughout the country.

Instead of punishing Americans with taxes and higher prices in the hopes that such regulation will promote wind and solar technology, the reality is that the current credit crisis makes it difficult for people to obtain funding for these projects. Tax credits and incentives will ease this burden; higher taxes will only increase costs.

These are a few of numerous creative steps America could take to rapidly incentivize the production of cleaner, less expensive and domestic sources of energy. In this economic climate, trying to punish America into changing is not an economically or politically effective way to achieving a sustainable energy future.

A strategy of incentives, however, could be just what we need to finally free ourselves of foreign oil and develop a truly rational, national energy policy that is sustainable for decades to come.

Newt Gingrich is a senior fellow at AEI.

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