Subsidies don’t do energy market any service
Published: Wednesday, June 6th, 2007
The slogan for public consumption is “energy independence,” with a modest but not especially sincere bow to concern about climate change. But as congressional leaders prepare energy bills they hope to pass by mid-July, the coal industry is quietly lobbying for billions — yes, literally billions — of dollars in subsidies, price guarantees and long-term contracts for their industry. The hook is that coal can be converted into a liquid fuel that can be used in diesel cars and trucks, as well as jet engines, boats and ships. While coal-to-liquid fuels produce more greenhouse gases than ordinary diesel, industry promoters say they can capture the gases produced while liquid fuel is being made and store it underground. Although the technologies have not been tried out on an industrial scale, they claim coal-based fuels can be greener than ethanol. This would be one thing if industry leaders were simply doing advertising and promotion for fuels they believe are superior enough that they can compete rather nicely in the fuel marketplace. That would be free enterprise in action. What they are seeking, however, are subsidies from taxpayers to help them reap large profits. Specifically, among the proposed inducements being considered in House and Senate committees are loan guarantees for up to 10 major coal-to-liquid plants at $3 billion each; a tax credit of 51 cents a gallon (about what ethanol now gets) for coal-based fuel sold through 2020; automatic subsidies if oil prices drop below $40 a barrel; and a mandate for the Air Force to sign 25-year contracts for a billion gallons of coal-based jet fuel. Coal industry spokespeople whine that they need such gifts from the taxpayers because the energy industry is volatile. Welcome to the real world. A better course than subsidizing coal-based liquid fuel would be to eliminate direct and indirect subsidies for other kinds of fuel and energy production and let the various kinds of fuel battle for consumer favor in the marketplace. That would encourage innovation — including new research and experimentation into renewable fuels — and flexibility, which would be better for the environment and for American consumers. However real climate change is — and for sure there is more to be learned, to which it will be important to adapt — it can best be addressed through the flexibility and nimbleness of the free marketplace rather than through the lumbering, expensive and inflexible processes of mandates, subsidies and government-run programs.
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