As President Barack Obama seeks to buy votes for party colleagues with fanciful promises about energy, the US has new reason to resist his costly ploy and all others like it.
On July 9, the president visited the University of Nevada, Las Vegas, to support Harry Reid, the politically embattled Senate majority leader whom he described to Nevadans as "my friend and your senator." He used his speech to promote "the clean energy sector—an industry that will not only produce jobs of the future but help free America from our dependence on foreign oil in the process, clean up our environment in the process, improve our national security in the process."
50 jobs
Obama cited an electric-vehicle manufacturer in Kansas City that received a federal grant and "just hired its 50th worker" and is "on the way to hiring 50 more." He then trumpeted a program supported by Reid under which the federal government provides 30% of the capital for "clean energy" projects.
"When we announced the program last year, it was such a success we received 500 applications requesting over $8 billion in tax credits, but we only had $2.3 billion to invest," Obama said. "In other words, we had almost four times as many worthy requests as we had tax credits." So the president wants more. He's asking Congress to "invest $5 billion more in these kinds of clean energy manufacturing tax credits."
That level of funding, he asserted, would create nearly 40,000 jobs. And the spending of even more public money would generate—guess what!—even more jobs, 90,000 of them, according to the president.
Corruption of energy policy works this way. Politicians seduce voters with promises of jobs created by the investment of taxpayers' money in "worthy" energy projects. And the projects are "worthy" because they don't involve hydrocarbons and can't make money.
The cycle of futile promises becomes a death spiral of cost. Jobs "created" in the manner described by Obama depend on money diverted from profitable—and therefore tax-generating—activities into unprofitable ventures. They shift economically sustainable employment into jobs dependent on other people's money dispensed by politicians—such as a president trying to rescue an allied Senate leader whose job is in jeopardy. Nearly always, energy forms pushed to market this way and the jobs associated with them never become commercial. They just absorb resources that otherwise could be invested in profitable activities, the kind that genuinely boost and sustain employment.
Federal support for biofuels illustrates the problem. Promising environmental benefits, energy security, and jobs, the government has erected a generous scheme of mandates and tax subsidies for ethanol, biodiesel, and other fuels from renewable sources. The true motivation is political favor in farm states, which profit from increases in demand for feedstock grains. Having received federal support since the 1970s, biofuels still haven't achieved commercial status. But costs of the programs that sustain them continue to grow.
This month, the Congressional Budget Office reported results of a study of biofuel incentives, including tax credits of 45¢/gal for grain ethanol, $1/gal for biodiesel in a program awaiting reinstatement, and $1.01/gal for ethanol made from cellulose. According to the study, the costs to taxpayers of replacing petroleum fuels with these substances are substantial: $1.78/gal for ethanol made from corn, $2.25/gal for biodiesel when the tax credit is in effect, and $3/gal for cellulosic ethanol. These estimates account for energy-content differences, net tax effects, and the amount of biofuels that would have been produced without the incentives.
Costs will grow
The renewable-fuel standard this year, most of which will be met with grain ethanol, is 12.95 billion gal. In 2022, the mandate, about half of which will have to be met with biodiesel and cellulosic ethanol, is 36 billion gal. Costs to the national treasury are obvious. And the CBO study makes clear that the environmental benefits of biofuels have been oversold and come at hefty cost.
Taxpayers can't afford to pay for more mistakes like the biofuel fiasco. Politicians should quit hustling votes this way.
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